Kiwifruit Sector Contributes To BOP

15 September 2004

Kiwifruit Sector Major Contributor to BOP’s Economic Vitality

New research from the University of Waikato shows that the kiwifruit industry is and will continue to be a key driver of the Bay of Plenty’s growth, currently accounting directly for $1.5 billion or 19 per cent of the regional economy’s Gross Domestic Product (GDP).

“Kiwifruit is to the Bay of Plenty what dairying is to the Waikato,” said Dr Warren Hughes, Associate Professor of Economics at the University of Waikato, who conducted the economic impact research on behalf of ZESPRI Group by reviewing the 115 primary, manufacturing and service sectors which comprise the BOP regional economy for the March 2004 year.

“As a major player in the BOP economy, ZESPRI has been a driving force in the recent surge in growth throughout the region, but especially in the Western BOP region,” he said.

“The profitability of the kiwifruit industry, and associated development of the supporting industries in agricultural services, engineering, road freight, packing and cool-store sectors, has enabled the region to support fast population and employment growth with associated spin-offs for the region’s construction sectors.”

The kiwifruit industry, made up of global marketer ZESPRI, kiwifruit growers and the post harvest sector, generates revenues of $1.84 billion annually, directly contributing more than $520 million to regional GDP, Dr Hughes’s report says. “But kiwifruit’s real impact and value added to the BOP can be seen when you consider that directly and indirectly it provides full time employment for the equivalent of 18,425 people or 19 per cent of the workforce and generates flow-on revenues of another $2 billion from its use of products and services regionally and the value of goods and services demanded by the regional workforce.

“Taking Value Added or regional GDP as the definitive measure, the total impact of the kiwifruit industry is 19 per cent of the BOP regional economy compared with 8.4 per cent for dairying and 2.9 per cent for sheep and beef,” he said.

Value Added or GDP is the preferred measure for economists since it captures the total economic value created within a region or country by local employees and business units. It excludes the value of imports into a region, such as vehicles, which may inflate regional sales revenue. For a single sector, value added includes gross wages and salaries paid to employees and owners; operating surpluses of business units after all wages, costs and taxation; depreciation on plant and equipment and all taxation paid to government. The sum of value added across all sectors in the regional economy equates to its GDP.

Accordingly, value added per full-time equivalent (FTE) person employed is a key measure of sector profitability for an economy. The research show findings show that on a regional basis the kiwifruit grower achieves a $90,000 value added per FTE return. This compares with $76,000 for the dairy and meat farmer (excluding processing) in the BOP regional economy. On a national basis, dairying (including processing) is currently slightly more profitable per worker than kiwifruit, Dr Hughes reports, but “kiwifruit is currently much more profitable per worker for the New Zealand economy than the meat industry and from an investment perspective (individually and nationally) looks to be a much better option though results can change quickly as world commodity prices are beyond the control of New Zealand suppliers”.

“If the Kiwifruit industry can grow its product range beyond the three main varieties it now markets and extend into other areas of fruit distribution, it may be able to leverage its growing expertise in fruit production and global marketing to new levels of profitability. It may, in time, achieve a scale of operation that rivals the importance of New Zealand’s venerable primary industries of Dairy and Meat.” Kiwifruit is New Zealand’s single largest horticultural export with sales of $911 million for the year ended March 31 2004. Nationally, the Kiwifruit industry is a $5 billion business, contributing $2.0 billion to New Zealand’s GDP and providing employment directly and indirectly to over 26,300 of New Zealand’s workforce.

The University of Waikato research confirms the importance of kiwifruit to the Bay of Plenty economy where 80 per cent of the 75 million-tray crop is produced and where there is a huge concentration of growers and post harvest operators as well as the main export gateway through the Port of Tauranga.

“The kiwifruit sector as a key employer, revenue generator and user of services makes an unparalleled contribution to the economic vitality and growth of the Bay of Plenty and is of growing significance to the New Zealand economy,” Dr Hughes said.

Methodology

Impacts of Kiwifruit production and marketing on the BOP and New Zealand economies were estimated using 115-sector economic models of these economies for the March 2004 year. These models are designed to show the flow-on linkages between producing sectors such as Kiwifruit growing and service sectors such as engineering, road freight, container production, packing and cool-store operations.

When these flow-on impacts are added to the direct impacts of the farming and growing sectors, the total impact on regional economies can be very significant. The economic significance of a major event (e.g. festival, flooding etc.) or any industrial sector for its host region can be credibly estimated using these economic models.

ENDS

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