Required Report - public distribution

**Date:** 2/5/2004

**GAIN Report Number:** NZ4003

NZ4003

**New Zealand**

**Kiwifruit**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David Rosenbloom

U.S. Embassy

**Prepared by:**

Alastair Patterson

**Report Highlights:**

New Zealand's kiwifruit harvest in 2004 is forecast at 270,000 tons, 10
percent above a year earlier thanks to very favorable growing
conditions. Fruit quality is expected to be excellent, with the crop
having experienced only minor frost and wind damage. Export volume is
projected to expand to 252,000 tons. Producer returns, however, will be
adversely affected by a 10 percent decline in the average grower sales
price, due in part to the impact of the appreciation of the New Zealand
dollar over the past year.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Wellington \[NZ1\]

\[NZ\]

***SECTION I. SITUATION & OUTLOOK***

New Zealand's kiwifruit harvest in 2004 is forecast to reach 270,000
tons, up from 245,000 tons in 2003. The crop benefited from near optimal
growing conditions in major kiwifruit growing regions, with average crop
yield showing a 9 percent gain over last season. As of early February,
with harvesting still two months away, an increase in fruit size already
is evident. With wind and frost damaged fruit volumes expected to be
modest this year, a larger percentage of fruit will meet Zespri's export
grade standards. This will allow export shipments in 2004 to reach
252,000 tons compared to 225,000 tons in 2003. The improved export
availability facing New Zealand will allow Zespri to better meet its
overseas sales demands. Zespri's effective marketing efforts are
resulting in strong buying demand for New Zealand kiwifruit in key
export markets. In previous years, kiwifruit exports have been capped by
limitations on the volume of fruit that met export standards. Zespri
anticipates that the increase in shipping volume this year will have a
dampening effect on sales prices. Grower sales price levels are forecast
to fall to NZ\$ 8 per tray (3.6 kilograms) in response to the additional
volume offered for export and the appreciation of the New Zealand dollar
witnessed over the past year.

New Zealand kiwifruit growers are now EUREPGAP accredited. Since most
growers already had systems and controls in place that met EUREPGAP
standards, this only required the initiation of an external audit
process. Although export profitability will not be significantly
enhanced, accreditation is important to the industry since it allows
Zespri to maintain access to its largest market.

Kiwifruit exports to Australia, the only overseas market that Zespri
does not enjoy a statutory export monopoly, are now regulated by the
Horticultural Export Authority (HEA) Act (see NZ3002). To export
kiwifruit to Australia, exporters must apply for a license granted by
the HEA. This regulation is intended to curb the dumping of low quality
kiwifruit onto the Australian market. Concern exists within the industry
that this created a poor image for New Zealand kiwifruit and adversely
affected overall export pricing. Zespri also is hopeful that HEA control
over exports to Australia will reduce the illegal movement of New
Zealand kiwifruit to lucrative Asian markets that are being shipped
through Australia.

Zespri is now in its third season of implementing its 12-month or year
round supply program. Harvesting of New Zealand produced kiwifruit
begins in April and export shipments usually come to an end by the end
of December. In order to extend its marketing season, Zespri turned to
Northern Hemisphere kiwifruit growers for both Green and Gold kiwifruit.
Zespri believes that it is still two years away from having a large
enough supply of Gold kiwifruit from Northern Hemisphere growers to
fully complement its New Zealand-grown product. In order to better meet
the fruit purchasing requirements of its buyers, Zespri had considered
supplying a wider fruit variety alongside kiwifruit but has decided, for
the time being, to focus its marketing resources on developing its
kiwifruit business.

***SECTION II. STATISTICAL TABLES***

######## Kiwifruit PS&D Table

+----------------+------+------+------+------+------+------+------+
| ####           |      |      |      |      |      |      |      |
| ## New Zealand |      |      |      |      |      |      |      |
|                |      |      |      |      |      |      |      |
| Kiwifruit      |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
|                | **20 | **R  | **20 | **Es | **20 | **Fo | **U  |
|                | 02** | evis | 03** | tima | 04** | reca | OM** |
|                |      | ed** |      | te** |      | st** |      |
+----------------+------+------+------+------+------+------+------+
|                | **   | **   | **   | **   | **   | **   |      |
|                | USDA | Post | USDA | Post | USDA | Post |      |
|                | Offi | Esti | Offi | Esti | Offi | Esti |      |
|                | cial | mate | cial | mate | cial | mate |      |
|                | \    | \    | \    | \    | \    | \    |      |
|                | [Old | [New | [Old | [New | [Old | [New |      |
|                | \]** | \]** | \]** | \]** | \]** | \]** |      |
+----------------+------+------+------+------+------+------+------+
| **Market Year  |      | 01/  |      | 01/  |      | 01/  | MM/  |
| Begin**        |      | 2002 |      | 2003 |      | 2004 | YYYY |
+----------------+------+------+------+------+------+------+------+
| **Bearing      | 1    | 1    | 1    | 1    | 0    | 1    | (HA) |
| Area**         | 0100 | 0100 | 0500 | 0500 |      | 0750 |      |
+----------------+------+------+------+------+------+------+------+
| **Non-Bearing  | 1370 | 1370 | 970  | 970  | 0    | 750  | (HA) |
| Area**         |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **TOTAL Area   | 1    | 1    | 1    | 1    | 0    | 1    | (HA) |
| Planted**      | 1470 | 1470 | 1470 | 1470 |      | 1500 |      |
+----------------+------+------+------+------+------+------+------+
| **TOTAL Area   | 1    | 1    | 1    | 1    | 0    | 1    | (HA) |
| Harvested**    | 0100 | 0100 | 0500 | 0500 |      | 0750 |      |
+----------------+------+------+------+------+------+------+------+
| **TOTAL        | 24   | 24   | 24   | 24   | 0    | 27   | (MT) |
| Production**   | 7320 | 7320 | 5000 | 5000 |      | 0000 |      |
+----------------+------+------+------+------+------+------+------+
| **Imports**    | 150  | 150  | 150  | 150  | 0    | 500  | (MT) |
+----------------+------+------+------+------+------+------+------+
| **TOTAL        | 24   | 24   | 24   | 24   | 0    | 27   | (MT) |
| SUPPLY**       | 7470 | 7470 | 5150 | 5150 |      | 0500 |      |
+----------------+------+------+------+------+------+------+------+
| **Exports**    | 22   | 22   | 22   | 22   | 0    | 25   | (MT) |
|                | 7520 | 7520 | 5000 | 5000 |      | 2000 |      |
+----------------+------+------+------+------+------+------+------+
| **Domestic     | 1    | 1    | 2    | 2    | 0    | 1    | (MT) |
| Consumption**  | 9950 | 9950 | 0150 | 0150 |      | 8500 |      |
+----------------+------+------+------+------+------+------+------+
| **TOTAL        | 24   | 24   | 24   | 24   | 0    | 27   | (MT) |
| DISTRIBUTION** | 7470 | 7470 | 5150 | 5150 |      | 0500 |      |
+----------------+------+------+------+------+------+------+------+

*Trade Matrix: New Zealand Kiwifruit Exports*

+--------------------+---------------+---------------+---------------+
| ###### New Zealand |               |               |               |
|  Kiwifruit Exports |               |               |               |
|                    |               |               |               |
| ###### Ca          |               |               |               |
| lendar Years, Tons |               |               |               |
+--------------------+---------------+---------------+---------------+
|                    | **2001**      | **2002**      | **2003\***    |
+--------------------+---------------+---------------+---------------+
| ####### Other EU   | 117449        | 80389         | 85882         |
+--------------------+---------------+---------------+---------------+
| **Japan**          | 35628         | 44440         | 42014         |
+--------------------+---------------+---------------+---------------+
| **Spain**          | 11298         | 21740         | 28051         |
+--------------------+---------------+---------------+---------------+
| ####               | 14470         | 15013         | 7641          |
| ### United Kingdom |               |               |               |
+--------------------+---------------+---------------+---------------+
| **United States**  | 17157         | 12998         | 9739          |
+--------------------+---------------+---------------+---------------+
| **Australia**      | 17366         | 12868         | 11057         |
+--------------------+---------------+---------------+---------------+
| **Italy**          | 5500          | 11006         | 11905         |
+--------------------+---------------+---------------+---------------+
| **Taiwan**         | 10025         | 10482         | 10318         |
+--------------------+---------------+---------------+---------------+
| **Korea, South**   | 6314          | 7961          | 9039          |
+--------------------+---------------+---------------+---------------+
| **Hong Kong**      | 2618          | 2747          | 2582          |
+--------------------+---------------+---------------+---------------+
| **China**          | 1662          | 1449          | 1283          |
+--------------------+---------------+---------------+---------------+
| **Singapore**      | 947           | 1084          | 744           |
+--------------------+---------------+---------------+---------------+
| **Mexico**         | 1131          | 1002          | 660           |
+--------------------+---------------+---------------+---------------+
| **Saudi Arabia**   | 1391          | 997           | 734           |
+--------------------+---------------+---------------+---------------+
| **Other**          | 4044          | 3342          | 3351          |
+--------------------+---------------+---------------+---------------+
| **Total**          | 247000        | 227520        | 225000        |
+--------------------+---------------+---------------+---------------+
| **\*** Jan to Nov  |               |               |               |
| Year               |               |               |               |
|                    |               |               |               |
| Source: FAS        |               |               |               |
| Wellington, based  |               |               |               |
| on data from       |               |               |               |
| Statistics New     |               |               |               |
| Zealand, MAF, and  |               |               |               |
| trade              |               |               |               |
+--------------------+---------------+---------------+---------------+

***SECTION III. SUPPLY, DEMAND, POLICY AND MARKETING***

PRODUCTION

New Zealand's kiwifruit harvest normally occurs during the two month
April/May period. The export marketing season is usually completed by
the end of December. Fruit that is sold at either end of the selling
season earns a price premium. New Zealand's 2004 kiwifruit crop is
forecast to reach 270,000 tons, 10 percent larger than last year. Wind
and frost damage has been minimal and fruit quality, including fruit
size, is much improved over last year.

Unlike the 2003 crop that experienced significant frost damage, this
year's harvest is expected to show only minor, localized frost losses.
In areas that did witness cold temperatures, frost damage was minimized
in many orchards by frost protection devices installed following losses
last season. Where frost damage did occur, growers note that Gold
kiwifruit losses were more significant than that suffered by Green
kiwifruit due to its earlier bud burst. Nevertheless, damage to Gold was
not nearly as severe this year compared to 2003. Production of Gold
kiwifruit in 2004 is expected to increase 25 percent to 39,000 tons
thanks to the favorable weather and young plantings reaching bearing age
for the first time this season. New Zealand routinely exports all
kiwifruit that meets export standards. This year's excellent fruit
quality will reduce the amount fruit available to New Zealand's domestic
market.

Average grower prices are expected to fall 10 percent this season to
about NZ\$ 8 per tray (3.6 kg.). This decline in price is due to two
main factors. First, the New Zealand dollar has appreciated
significantly against all of Zespri's main trading partners. Returns
from sales to Japan, Zespri's most profitable export market on a per
tray basis, are expected to fall markedly in response to a 12 percent
increase in the Kiwi dollar against the yen over the past year. Sales
returns on shipments to Europe will be hurt by a 5 percent rise in the
New Zealand dollar against the Euro. Zespri's hedging policy helps to
reduce its currency losses, but its currency coverage for the 2004
season is not as extensive as it has been in the past.

The second factor weighing on grower prices is this year's much larger
crop and export availabilities compared to a year ago. Strong overseas
consumer demand for New Zealand's kiwifruit thanks to Zespri's effective
marketing programs and a limited export supply has in past years
resulted in strong export price levels. This season, however, Zespri is
likely to be in a position to better fill all of its export. This will
tend to result in some price weakness.

Kiwifruit area in New Zealand continues to expand at a moderate rate.
Grower optimism is reflected in the conversion of land to kiwifruit
production and the record prices now being paid to purchase established
orchards. Area expansion is being limited by urban expansion,
particularly in the Bay of Plenty region, which accounts for nearly 80
percent of national kiwifruit production. Zespri owns proprietary rights
for the Gold variety and growers are required to obtain licenses to
plant. At present, Zespri is not issuing additional licenses to growers
to expand planted area for Gold kiwifruit in an attempt to maximize
sales revenues through its supply management. Growers, however, are
eager to expand their plantings of Gold since yield levels from this
variety run twice that of Green kiwifruit.

######## 2003 Season Review

The 2003 kiwifruit harvest was very similar to 2002, with both crops
suffering from widespread, heavy frosts in key kiwifruit growing areas
in late September/early October. Fruit matured last year on average
about 7 to 10 days later than during the 2002 season. This reduced early
season fruit volumes earning premium export prices. According to
seasonal export figures released by Zespri, quantities of Green shipped
in 2003 increased nearly 6 percent to 174,000 tons, while Gold kiwifruit
exports rose nearly 8 percent to 31,000 tons. Green organic export sales
in 2003 reached 7,200 tons, similar to the 2002 season. Overall,
Zespri's export earnings for 2003 increased 5 percent. Zespri's net
sales revenue in 2003 reportedly increased to a record NZ\$ 860 million.
Kiwifruit exports by Zespri in 2003 reached 215,000 tons. An additional
10,000 tons was sold to Australia by all other exporters combined,
allowing New Zealand to reach the 225,000 ton export figure shown for
2003 in our PS&D table.

######## Organic Production

The price premium that Zespri traditionally has given to organic
kiwifruit growers will be removed for the 2004 season. Zespri notes that
its customers increasingly are unwilling to pay significant price
premiums for organic kiwifruit. This means that New Zealand growers may
become less willing to produce organic kiwifruit given the extra costs
associated with this type of production. Many growers already have
returned to non-organic production.

######## Zespri's Grower Relations

Zespri has attempted to learn from the mistakes experienced by other
sole marketers of New Zealand horticultural products. Zespri attempts to
consider grower opinions on all important kiwifruit issues and holds
regular meetings with growers. Zespri pays a price premium to growers
for fruit marketed early and late in the season when export prices are
strongest. Grower prices can also reflect orchard management practices
which improve export fruit quality by increasing fruit dry matter
content and hence sweetness, pest free fruit (reducing the likelihood
that an importing country will fumigate), and larger fruit size. All
growers do not support the single-desk-selling (near monopoly export
structure) enjoyed by Zespri. However, after 5 years of consistent
growth in grower returns, Zespri has gained the support of the majority
of New Zealand's kiwifruit growers.

POLICY

######## HEA Regulations

As of December 2003, Kiwifruit exports to Australia have been regulated
by the Horticultural Export Authority (HEA) Act (1987). Australia is the
only export market that Zespri does not have a statutory export monopoly
over (see GAIN report NZ3002). Exporters are now required to apply to
HEA for licenses to export kiwifruit to Australia. HEA' s Export
Marketing Strategy (EMS) will govern how exporters operate in this
market. The majority of exporters to the Australian market sought this
regulation. This reflected exporter concern that Australia was at times
being used as an outlet for marketing lower quality fruit in a manner
which was negatively affecting New Zealand's fruit image and export
price levels. The industry anticipates that the marketing of kiwifruit
in Australia will be better disciplined under the HEA's export
authority. Zespri also hopes that its concerns that kiwifruit documented
as destined for the Australian market that was being diverted to more
lucrative Asian markets and thus competing against Zespri sales will be
effectively addressed.

MARKETING

Zespri handles all kiwifruit exports from New Zealand, with the
exception of a small amount of exports to Australia. Zespri is grower
owned and does not receive any financial assistance from the New Zealand
government. Zespri currently accounts for 30 percent of world kiwifruit
trade. During New Zealand's peak export season, it accounts for more
than 60 percent of all kiwifruit supplied to the European market and
more than 90 percent of supply to the Japanese market.

Zespri is the only organization in the world that spends more than a
nominal amount on market promotional activity directed at kiwifruit,
allocating some NZ\$ 30 million annually on such activity. Sales efforts
tend to be consumer oriented, with a focus on creating a healthy,
exciting image for Zespri's kiwifruit. Zespri judges it's marketing
campaign as being very successful and recognizes that non-New Zealand
kiwifruit also has benefited from its marketing expenditures to increase
consumer awareness of this fruit. Although Zespri's marketing focus is
on Gold kiwifruit, sales of Green kiwifruit have reaped residual sales
benefits.

######## The 'Taste Zespri' Promotion

Zespri in Japan launched the 'Taste Japan' initiative three years ago in
an effort to improve fruit quality and consistency of the Green
kiwifruit variety. Last season, Zespri expanded its program to other
markets by introducing the 'Taste Zespri' campaign. Under this program,
Zespri rewards Green kiwifruit growers that produce high quality fruit
with a payment premium. New tests will be introduced for the 2004 season
that will assess sugar level, soluble solids and ripeness of harvested
fruit.

######## Twelve Months Supply

Zespri continues to develop its 12-month supply/marketing program to
better service its overseas customers. Zespri believes that it will take
another two years before growers licensed to cultivate Gold kiwifruit in
other producing countries can obtain production levels which will allow
Zespri to fully provide year round supplies. Gold kiwifruit production
licensed in the United States, Italy and other Northern Hemisphere
countries will provide Zespri with fruit for marketing when New Zealand
supplies are unavailable. Long-term, Zespri may also turn to marketing
other fruit types that might strengthen is overall fruit marketing
program.

######## EUREPGAP

New Zealand kiwifruit growers are now EUREPGAP (Euro Retailer Produce
Working Group) accredited. EUREPGAP represents leading European food
retailers that use GAP (Good Agricultural Practice) as a framework for
providing consumers with greater food safety assurance. Gaining
accreditation was important for Zespri in order to maintain access to
its largest market. Profitability, however, is not likely to be
significantly improved by this action. Most New Zealand growers have a
portion of their crop marketed to the European market and all but a few
were successful last year in gaining EUREPGAP accreditation. This will
allow Zespri to efficiently operate its inventory and logistics
management without incurring added costs. Most growers already used
systems and controls that met EUREPGAP standards. EUREPGAP accreditation
requires an external audit that will place some additional burden on
grower record keeping. New Zealand's success in gaining EUREPGAP
accreditation was in part due to Zespri's outreach efforts to explain
the approval process.