The Fruit Growers News - January 2002


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New Zealand apple industry adapting
Cooperation and new cultivars key to survival

By Greg Brown Associate Editor

The story of the New Zealand apple export market is the story of an unlikely survivor, according to Dr. Stuart Tustin, with HortResearch in New Zealand.

“On paper we just shouldn’t be a better supplier, because of our distance from the market. Our success has been a successful model of marketing strategy,” he said.

New Zealand’s apple exports have grown exponentially since 1965 when total apple exports equaled $5 million. In 1995 apple exports reached the peak at $482 million. By 2000, apple exports had dropped to $404 million in response to a changing world market.

What is their market strategy? “We have been successful internationally through cooperation,” Tustin told growers attending the Jerome Hull Jr. Distinguished Lecture at the Great Lakes Fruit, Vegetable & Farm Market Expo in Grand Rapids, Mich.

This fall that strategy was challenged. Up until Oct. 1, New Zealand’s apple and pear exporter (ENZA) enjoyed a statutory monopoly on exporting fruit. The end of the monopoly marked a change in the climate for the world apple market, which has already seen a host of changes.

“Previously it was a single sellers market, using innovative strategies to avoid commodity-based competition,” said Tustin, who works at HortResearch’s Hawke’s Bay facility in Havelock North, New Zealand. “New Zealand does not want to compete on a commodity level.”

Yesterday and today, the growers believe the key concept in apple marketing is new cultivar development. Under ENZA’s control, the industry structure allowed swift changes in direction, based on reaction to an excellent variety development program. The collective-oriented industry allowed growers to make changes quickly, which has been essential to survival in the industry, said Tustin.

New Zealand’s industry enjoyed a period of prosperity in new cultivars with broad acceptance by consumers. But, in the 1990s a number of paradigm shifts have challenged the country’s fruit industry.

Today’s apple market
Tustin told growers that the world apple market has changed. Several factors including international cultivation of new cultivars, an oversupplied world fresh apple supply and the emergence of the supermarket industry have contributed to the current apple market.

The evolution of the mega-supermarkets and the aggregation into larger points of distribution has altered the face of fresh food. Producers are obliged to respond to mega-supermarkets, because of the shift toward category management and the volume of fruit they demand.

“Producer groups are less able to operate independently of category managers,” said Tustin. “When we do, we are detached from the ability to be in the market at all.”

Since the deregulation of ENZA, several structural changes have occurred in the market. “Initially the October 2001 decision created anxiety in the industry,” said Tustin. But ENZA has not disappeared, even though it no longer has a market side control of the production. In fact ENZA has expanded outside of New Zealand, even buying a European category management supplier.

“On the plus side, ENZA now has the complete freedom to operate independently. And for growers, any organization is able to export apples,” said Tustin.

The negatives include a fragmented industry, the loss of a powerhouse - a single sales desk (ENZA may still control 75% of crop). And now, several industry functions are now borne solely by the producer. There is a loss of an integrated view of the industry, he said. It has added complexity and duplication of market access issues and relationships.

Looking ahead
“At this early stage we have a number of questions about how this will effect our ability to be effective in the apple market,” said Tustin. “Have we created a threat to the culture of industry innovation? Will less connection between the producer and the marketer segments be a detriment? Is value being added to the product with added cost to the producer? “

New Zealand’s producers are facing many other questions. Will a new industry cohesion model emerge? Will an association or cartel be formed? The answers will develop over the next few years as the market moves forward. Right now it is key for all fruit producers to have a handle on the world supply. “If our fruit is coming up to harvest and the two previous world markets had an oversupply, we have to deliver fruit at those price levels,” said Tustin.

“Today it is less critical that the Galas come from New Zealand as long as they meet standard quality. Procurement relationships hinge on being able to supply quality to a market. In this scenario, price becomes not the most important issue, but delivery time,” said Tustin. Quality is important, to a point. “Simply put, you are in the market if you meet the standards, you are out of the market if you don’t.”

The return of palatable fruit
Tustin says the industry faces the problem of less palatable fruit, saying: “there has been a general loss of the eating experience.” In this problem fruit producers may be able to find a silver lining.

“These mega-supermarkets are trying to give consumers the best eating experience.” Tustin believes that consumers are looking for flavor as the more important quality in apples in an increasingly fresh market.

Looking ahead, Tustin’s employer HortResearch is selecting proprietary varieties that may shift competition. With apples as intellectual property the producer may be able to buy a franchise or pay royalties for the right to grow.

“As long as the new varieties offer a superior state of consumer satisfaction, the royalty or franchise development model will prosper. Some varieties could even be sold to specific retailers, offering the consumer one place to purchase the variety,” Tustin said.

Using the franchise model for new varieties, the company will be able to make a call as to how much of the new varieties are being produced. But one of the questions that remains for New Zealand growers is whether growers there will see a shift away from the family farm to corporate units that can fit a modern production reality.