Pipfruit NZ CEO says industry needs to accept govt's position on currency 'is what it is' and focus is on areas it can change

By Alex Tarrant

Exporters need to focus their attentions on areas they can change, and accept the government will not shift in its position on exchange rate management, the head of an industry group says.

Pipfruit New Zealand CEO Peter Beaven, who represents apple and pear growers nation-wide exporting half a million billion dollars worth of product a year, also said he would like to see the industry use more of an overarching national branding strategy to help sell New Zealand pipfruit, similar to the approach taken by the wine industry.

Beaven said while the industry would prefer the surging New Zealand dollar was lower, he had accepted its position and was looking at other ways to lift revenues.

In an interview with interest.co.nz, Beaven said he was encouraging the industry to focus attention on areas such as productivity and market access – areas they could work on with the government to achieve greater efficiencies.

Expanding Asian and Middle Eastern markets had meant the pipfruit industry had not been too adversely affected by the high New Zealand dollar, which had coupled contracting demand in its traditional export markets in the US, UK and Europe.

An opening up of access to the Australian market following a World Trade Organisation (WTO) ruling last year was also positive news for the industry, although the task of creating a large Trans-Tasman market would be a slow but steady climb.

The New Zealand dollar hit a post-float high over 88 US cents in early August, while our exchange rates against the Euro and British pound have also both shot up since the depths of the global recession in early 2009.

With a higher currency hurting export returns as foreign profits are repatriated into New Zealand dollars, some exporting groups are calling on the government to change its hands-off approach to our floating exchange rate, while the Labour Party said it would require the Reserve Bank to intervene more regularly to try and catch out currency market speculators.

But the ruling National Party is holding firm on the policy, pointing to a competitive exchange rate with Australia, and lower foreign-sourced input costs as silver linings for the export sector, which it is urging to lift productivity and look for new markets to help deal with the high dollar.

'They won't change'

Beaven said it was obvious the government was not going to change its stance on the exchange rate.

“All you can do is work on those things you can change, and the exchange rate, as we all know, is not one of those. So what we have to do is to find ways to make efficiencies as much as we can,” he told interest.co.nz

That meant looking for new methods of production so that a higher proportion of a crop was export quality, measures to tackle productivity problems, and using resources more efficiently.

“The government’s pretty firm on this so at the end of the day you’re better to talk to government about things that you might get change on rather than things that the government’s pretty much got a fixed view on,” Beaven said.

“You just have to accept that the currency is the currency and you just got to find ways to be more efficient and get better prices,” he said.

A good chunk of the pipfruit industry’s exports were made in US dollars.

“All the trading into Asia is done in US dollars, as well as into the States, of course, and 50% of our fruit goes to the UK and continental Europe, and of course we’re pretty close to historic highs against them as well,” Beaven said.

“They [Asian retailers] are not selling the fruit in US currency, but I guess it’s like oil – it’s just a currency that’s used for the trading of fruit and veg in Asia,” he said.

Some Asian currencies had risen against the US dollar as well, which would have provided something of a hedge.

“Asia’s become an increasingly important market for New Zealand. Asia/Middle East has taken probably around 33-34% of our total exports this year,” Beaven said.

That was about double the proportion exported to that part of the world five years ago, he said.

Rise of Asian markets

There were a range of reasons for the emergence of Asian and Middle-Eastern markets, which were growing while traditional markets in Europe and the US were stagnant.

“One is they’re closer. Our cost of transport is lower, and that gives us a relative competitive advantage against our Southern Hemisphere competitors like South Africa and Chile,” Beaven said.

Chilean exporters had further to go to get their produce in to Asia than New Zealand growers, and while South Africa had a competitive advantage of being closer to Europe, New Zealand was in a better position when it came to Asia.

“The second reason is the growth of Western-style supermarkets in Asia - they’re looking for Western goods. A lot of the consumers that buy in those supermarkets are looking for safe food, and there’s a certain amount of status to buying imported goods, if you can afford them. New Zealand has a very good reputation and can cash in on that,” Beaven said.

He would like to see the industry use more of an overarching national branding strategy to help sell New Zealand pipfruit, similar to the approach taken by the New Zealand wine industry.

The third reason for rising exports to Asia was because the population and demand in traditional markets like Europe, the UK and US was static.

“There is a growing demand in Asia because the population’s still increasing, and so is their wealth,” Beaven said.

The industry had not been sending any greater volumes into its traditional markets for approaching 10 years now. That was because the EU and US had their own domestic pipfruit supplies which were slow to clear before the Southern Hemisphere’s counter-seasonal product hit those markets.

“If you’re trading into Europe – the UK and Germany, which are our two major markets, or the US – they all domestically produce significant quantities of pipfruit. So they have their window, which tends to finish in March, and that’s when Southern Hemisphere imports start to arrive. We have to be back out of the market by around about this time [August], because that’s when their new season’s harvest starts,” Beaven said.

“There’s no chance to expand the window that we trade into, because it’s shut out by the domestic production. Arguably the market is shrinking because of population demand, and there’s actually some evidence to suggest that consumption of fruit and veg is actually shrinking in Europe and the UK,” he said.

“There are a range of reasons that you can discuss for that, but it appears that’s what’s happening.”

Also, the volume of fruit being exported to those traditional markets from Chile and South Africa in the varieties New Zealand had traditionally produced, like Royal Gala and Braeburn, had increased over the past few years.

Chile produced and exported twice as many Royal Gala as New Zealand did now, which was likely to increase.

Reduced Euro demand

With falling demand in traditional markets, a saving grace was that certain apple varieties could be sent to either Europe or Asia, meaning they could be switched from one market to the other.

But it was much more difficult to do this with other varieties, such as Braeburn Apples, because they tasted too tart for the Asian market.

“They like sweeter apples like Royal Gala, Fuji and Pacific Rose,” Beaven said.

He was optimistic about the future as new varieties of pipfruit were being created through a world-class programme in New Zealand which was key to introducing high-quality products the industry was able to export.

Silver lining?

Meanwhile the argument that foreign-sourced input costs were falling was not exactly the silver lining being talked about.

“I think everybody in this industry will say 'no' to that, although theoretically they [prices] should [be falling] because a lot of the input costs are from chemicals and so forth that are imported. Nobody says to me that’s happening,” Beaven said.

“Certainly the cost of fuel, which would be a significant percentage of your on-orchard costs would have gone up, and also transport to the port and to the packhouse,” he said.

How can govt help?

One of the key things the government could do to help the industry were to make sure there was a ready supply of seasonal employment.

“In the past few years we’ve had pretty high employment levels in New Zealand, so it’s been pretty hard to find reliable labour locally,” Beaven said.

A scheme that sourced Pacific Island labour had helped, and efficient running of the scheme was critical.

“A second one is market access. This whole area of biosecurity protection and negotiating better market access in some key markets for our industry is absolutely critical to our future,” Beaven said.

The recent experience of the Australian ban on New Zealand apples was one example of how the government had helped.

“Getting rid of tariffs and getting rid of biosecurity protection that import countries sometimes use against us, which is exactly what this situation was with Australia: an unjustifiable biosecurity barrier that we had to jump over,” Beaven said.

Entry into the Australian export market would be slow and steady after the New Zealand government had successfully sought a World Trade Organisation ruling that Australian apple industry opposition due to biosecurity concerns was unjustified.

But there were still roadblocks to getting New Zealand apples sold in Australia.

“The two major supermarkets there, who between them account for something like 70% of the sales of fruit and veg in Australia...they are both currently saying that they will prioritise stocking Australian apples before New Zealand [apples],” Beaven said.

“It’s going to take a while to break that down, but it’s my view that it’s only a matter of time and we need to develop strategies to help that process and break it down more quickly. So internally as a industry we need to work on some things to do that,” he said.

Despite that stance from the Australian supermarkets, they had been in contact with New Zealand suppliers behind the scenes and had started to form relationships, talking about what variety of apples they would want to import.

“So it’s only a matter of time really in my view. I think the quality of New Zealand apples speaks for itself. You talk to any Kiwi who goes to Australia, they all come back and talk about the superior quality of New Zealand apples,” Beaven said.

Another roadblock was the Australian market requiring New Zealand packhouses to be audited before they could send produce across the Tasman. It was therefore highly likely the industry would face considerable extra costs before it could properly enter the Australian marketplace, meaning it would not be an easy process.

“A lot of packhouses, even though the packhouses in this country are pretty efficient and pretty good packhouses, they’re probably going to have to invest to qualify to export [to Australia] some of them,” Beaven said.

More investment, and more jobs on the way

The slow freeing up of the Australian market would also change how the NZ industry operated, and mean more capital investment and infrastructure was needed, which would create jobs in the industry.

“As an export-focused industry, we’ve tended to have a model where we pick our fruit and we pack it and ship it to the Northern Hemisphere in that [counter-cyclical supply] window,” Beaven said.

“But in order to supply a Southern Hemisphere country like Australia, we would probably have the opportunity to supply them over a much greater period of time during the year. So we will need to build cool-stores and CA stores, and be prepared to hold onto fruit for longer in New Zealand,” he said.

“So that’s a change in the behaviour of this industry, and we will require more capital investment in coolstores to enable us to do that.”

There was the desire among the industry to make that capital investment, although it would take some time to come to fruition with relationships needed to be built with Australian retailers.

“What’s in effect happening is that the New Zealand market is effectively changing from four million to 24 million people,” Beaven said.

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