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Address to Zespri AGM

Hon Tim Groser
Minister of Trade

24 July 2014

Address to Zespri AGM

Zespri Chairman Peter McBride, CEO Lain Jager, my ministerial colleague Todd McLay, Todd Muller, our candidate for the Bay of Plenty – well known to all of you because of his close involvement with your industry – ladies and gentlemen.

First, let me say that it is great to be in the Bay of Plenty region. This is one of New Zealand’s export powerhouses. The Port of Tauranga is New Zealand’s largest seaport for exports. With over 225 km of railway, this region is the most densely used section of the national rail network. It is the centre of our forestry industry and our geothermal power plants, and there is huge potential for further economic development here. This region, which of course includes Rotorua, one of NZ tourism jewels in the crown, is a huge part of our tourism sector and the foreign exchange earnings and employment this brings to New Zealanders. And of course, the Bay of Plenty is the home of nearly 80% of our largest horticulture export industry, the kiwifruit industry. You could say the Bay of Plenty of region is a great place for any New Zealand Trade Minister to visit.

However, two or three years ago, I might not have mentioned your industry in quite these terms. About the last thing any New Zealand Trade Minister or Agriculture Minister wants to hear are the words from their advisers: “we believe there may have been a serious outbreak of a new disease. We have our technical people on the spot trying to make an assessment”.

I can’t quite remember the exact words when I first heard of this then strange new word ‘PSA’, but I got the message loud and clear. It soon became evident that this was a ferocious new pathogen. The damage it was to cause was not just economic – the virtual destruction of the then predominant Gold variety – but human damage as well.

I can remember a series of very distressing discussions we had about the massive pressure it was putting on growers and their families. In some cases, we were told by senior industry representatives there was a feeling of some growers being backed completely into a corner. Debt ratios that looked perfectly rational yesterday looked unsustainable when the cash flow expected to service that debt evaporated. There were even pessimists doubting that our premiere horticulture industry might survive.

If anything was going to test the resilience of a bunch of New Zealanders, this was it. The fact that tonight we are celebrating the industry’s recovery and are full of confidence about its future is a remarkable tribute to those New Zealanders. We have to start with the growers and their families who had to survive and do it tough. I want to salute the large numbers of those grower families who are with us tonight.

But I also want to salute our scientists who worked with you to find the technical exit strategy. I have had a variety of titles over the years, but essentially the same job for 35 years: defending our position in world markets against ferocious protectionism. NZ is the world’s largest exporter of dairy, world’s largest exporter of sheepmeat and in overall dollar terms we are the 7th largest agriculture exporter in the world. Not bad for 4.5 million people.

I have always known that our phenomenal strength internationally in agri-business was not just because we have nice green grass and lots of rain. Many countries have exactly the same natural advantages. It is the combination of these good natural advantages, world class applied science and the entrepreneurial talent of NZ that produces our success in world markets. The extraordinary recovery of this industry is a tribute to a concept we have tried to encourage since becoming Government in 2008 called ‘NZ inc’. So the kiwi scientists and technologists who worked with you the growers deserve our full gratitude.

I also want to pay tribute to Zespri. The collective strength of Zespri was, I believe, an essential factor in this recovery. The Government’s ability to work with a single point of contact in the industry unquestionably vastly facilitated the process.

We have always been a huge supporter of this model for this particular industry – called technically, the Single Point of Entry Export Model – meaning in plain English, ‘let’s use our collective strength and stop undercutting ourselves in world markets’. It has some risks that accompany any such concentration of power – management can get lazy, innovation can slow down. That is why I am also a fan of the counter-balancing model of the ‘Collaborative Marketing’ discipline, which allows some competition on top of the collective model. My understanding is that we currently have some 16 separate companies exporting outside the Zespri system to a variety of world markets. I think we have a good balance.

But a few years back, when there was a sustained attack on this system by Turners and Growers and a few political outliers on Zespri, I had one simple counter-argument:

“NZ has one third of world trade in kiwifruit by volume and two-thirds of world trade by value. The burden of proof is on you, the critics, to establish the case that this has nothing to do with the marketing model we have that gives real negotiating and other strengths to Zespri”.

At no stage did any of the critics come forward with anything resembling a plausible counter-argument.

In mentioning specifically Turners and Growers, I would like to say that I now enjoy a great relationship with their new management and the outstanding Bavarian farming cooperative, Baywa that bought the company. I have met Baywa’s CEO on several occasions in both New Zealand and Berlin. They have engineered a fantastic turn-around in profitability for the company and I believe that Turners and Growers will exercise a decisive and positive influence in reviving our second great horticulture industry, our apple industry.

That industry has gone sideways since de-regulation but I now believe there is a way forward for them. I have been told by NZ scientists working at Prevar, the apple research centre in Hastings, that there is no doubt NZ is the best place in the world to grow apples of the highest quality. You can’t get a better base than that to start a new growth path.

The recovery of our kiwifruit industry from such a difficult position in such a short period of years is dramatic and unusual. But in my mind, there are a few parallels with the general situation facing our country over the last few years.

New Zealand generally has also gone through some testing times. At the top of the agenda is the destruction of large parts of our second city, Christchurch and serious damage to surrounding parts of Canterbury. The Pike River disaster, while economically damaging only to its immediate West Coast community, completely knocked the stuffing out of New Zealand as we grieved for the miners and their families.

The GFC, or Global Financial Crisis, was the biggest single economic challenge we had to face. It destroyed a huge segment of our Finance Companies, throttled export growth to our developed country markets, and ultimately lies at the heart of the biggest single issue facing our exporters: our high and unquestionably over-valued exchange rate. The root cause of this is simple: zero interest rates and uncertainty in the major developed economies. All of this is the consequence of the GFC.

But through all this, I believe our team, led by Prime Minister John Key, has provided stable, moderate and politically coherent Government. We have chartered a course of recovery for New Zealand that puts us in a great position. I was a guest of the Australian Government over the weekend at the G20 Trade Ministers meeting. The G20 is the 20 largest economies of the world. They represent about 75% of the world’s GDP.

Frankly, given many of these large countries’ massive economic problems – Government debt to GDP ratios on average three times NZ’s level (eight times in Japan’s case), anaemic or zero economic growth, the possibility of deflation which is extremely destructive, unemployment in the Eurozone of 12% and youth unemployment in some countries of 50%, I was a bit shy reading out our numbers – four years of continuous economic expansion now touching on 4% real GDP growth, unemployment at 6% trending down to 4.4% while experiencing the highest ever labour force participation rates; inflation at 1.4%.

We are not, as it happens, entirely comfortable with the phrase that NZ is the ‘rock star economy’. We know the meaning of the phrase ‘One Hit Wonder’. We understand that getting to this good spot in the economic sun has taken a lot of work by NZ households, businesses and a disciplined and coherent Government. Bad policy can see this good performance evaporate faster than an ice-block on a summer’s day.

But if we stay the course, there is no doubting NZ is in a sweet spot and the benefits of this will be understood by increasingly large numbers of New Zealanders employed in secure jobs, with inflation under control and gradually rising real wages. In only the last two years, average wages have gone up $3,000. That is not a small sum to people on the average wage. But even more promising, Treasury projections are that if we stick to our current policy direction, we will see a further rise in the average wage of $7,600 by 2018. That would give us an average wage across our country of $62,300. Not bad.

So our turnaround as a country is not as dramatic as the turnaround of your industry, but there are parallels. I remain doggedly optimistic about our future. New Zealand is on a great course but we have to maintain our direction, which is absolutely going in the right direction. This is an election year, so you will forgive me for making an overt political point: this is not the right time to change direction. That is all I will say on the domestic political front because finally that is all that needs to be said.

More specifically, we stand ready to work with your industry across multiple fronts. We support the fundamental model that underlies Zespri. We are always open to ideas as to how to improve the collaborative marketing counterbalance, but there will be no radical revision of the model. You will note that I am wearing the Zespri kiwifruit tie. I am wearing this as a mark of solidarity with your industry. This is in spite of strong contrary advice from a certain member of my office staff who claims this iridescent lime green and brown polyester tie is an international fashion crime.

Our commitment to supporting your entrepreneurship with science and technology will continue. We are delighted that Zespri engages with the Ministry of Business, Innovation and Employment through the Science Investment Group. Here, we are watching with great interest to see what emerges from the kiwifruit breeding partnership looking at accelerated breeding for PSA resistance. Zespri is of course a co-funder of this research. Callaghan Innovation, which we established recently to turbo-charge science and innovation in industry, also has research programmes of considerable interest to your industry.

In terms of your industry’s critical seasonal labour needs, we noticed the press statement two days ago from Neil Trebilco, President of NZKGI, New Zealand Kiwifruit Growers Incorporated, welcoming the recent decision of the Government to get more Kiwis into seasonal work and the decision to increase the annual Recognised Seasonal Employer (RSE) cap to a total of 9,000 workers.

At the international marketing level, we have seen an extremely successful collaboration between NZTE and Zespri whereby Zespri, in order to reduce Zespri’s operational costs, has embedded a staff member in NZTE offices in Dubai, Mumbai, Bangkok, Jakarta and Sao Paulo to allow them to test these new emerging markets with a simple marginal cost recovery model.

And on trade policy, the Government remains focussed on the job that matters: breaking down trade barriers to our kiwifruit exports. The tariff on kiwifruit in China, the fastest growing market anywhere for kiwifruit, was originally 20%, is now 4.4% and will be zero in 2016. In December last year, we concluded a comprehensive FTA type deal with Taiwan. The tariff facing our competitors is again 20%. It will be zero in 2016. We have eliminated the 20% tariff on kiwifruit in Mexico through a successful but complicated political strategy. Our biggest remaining trade policy problem is in Korea and I have put a final negotiating proposition to the Koreans last weekend to address this. We of course are working closely with Zespri in Korea to support your investments in off-season production there to complement our offering from NZ.

We celebrate your recovery, your resilience in the face of great danger and congratulate all those who have made that possible. There is every reason for us to believe that Zespri’s goal of tripling its export earnings by 2025 to at least $3billion is achievable.

We will get there because there is now confidence in the industry. That confidence will of course underwrite increased production levels to meet rising international demand and increased market access opportunities through trade agreements. But we are all aware these days that this goal will only be achieved with a relentless focus on quality and a branded, value-added marketing strategy to ensure this outstanding product is not commoditised. Let us look forward to cooperating in a future that I think can be even brighter.

ENDS

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