Issues facing the New Zealand avocado industry · HARVESTED AREA Following a period of flat growth...

Issues facing the New Zealand avocado industry Discussion Document

April 2010

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DOCUMENT STRUCTURE

1. NZ Situation

2. Market Structure

3. Industry Structure

4. Issues

Harvested area of avocados in New Zealand (hectare; actual; 1974-2008)

HARVESTED AREA Following a period of flat growth during the 80’s and 90’s, harvested avocado area has been growing strongly since 1999

PAGE 4 1. Unclear whether some historical data pre 1998 is harvested/planted; Source: FAO; MAF; NZAGA; Coriolis analysis and estimates

32 20 52 113 126 153 209 321

520

992 1,062 1,217 1,225 1,236 1,296 1,314 1,314 1,314 1,308 1,260 1,274 1,288 1,273 1,210 1,229 1,248

1,423

1,637

1,890

2,249

2,563

2,902

3,267

3,641

4,073

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

CAGR (85-99) 0.1%

CAGR (99-08)

14%

CAGR (74-85)

39%

Data is harvested area not planted area1; planted area will be larger; avocados take up to 5 years to produce an initial crop

Harvested area of avocados in New Zealand (hectare; actual; 1980, 1999-2008)

AREA BY REGION Area growth is primarily coming from the Bay of Plenty and the mid/far North; very roughly speaking 2/3 of area is in the Bay and 1/3 in the mid/far North

PAGE 5 Source: Department of Agriculture (1980); NZAGA; Coriolis analysis

8 20 55 60 60 79 89 106 119 130 151 6 55 60 70 75 90 100 111 124 141 156 159

771 801 932 1,095 1,318

1,546 1,784

2,046 2,317

2,583

33

247 292

340 405

468

520

566

626

694

818

3

155 215

235

255

294

308

335

352

359

365

1980 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Other Auckland

Bay of Plenty

Mid North

Far North

+131 +101

+1,812

+571

+210

209

1,248 1,423

1,637

1,890

2,249

2,563

2,902

3,267

3,641

4,073 +2,825

Change (99-08)

Other 4%

Auckland 4%

Bay of Plenty 63%

Mid North 20%

Far North 9%

% of harvested area (% of hectare; 2008)

New area planted into avocados by year (hectare; 00-08)

NEW AREA PLANTED New area planted into avocados peaked in 2004 and has been declining since

PAGE 6

314 338

364 374

433

347

277

164 150

2000 2001 2002 2003 2004 2005 2006 2007 2008

CAGR (00-04)

8%

CAGR (00-04) -23%

Planted area does not immediately translate into harvested area; avocados

take up to 5 years to produce an initial crop

Yield in tons per harvested hectare of avocados in New Zealand (mt/hectare; actual; 1974-2008)

YIELD New Zealand yield per hectare is highly variable year-on-year

PAGE 7 Source: FAO; MAF; NZAGA; Coriolis analysis and estimates

0.6 0.6 0.6

0.1

0.6 0.6 0.3

0.7 0.6 0.6 0.6 0.6 0.7 0.8 1.0 0.9 1.0

1.3 1.6

2.0 2.0 2.3

2.7

3.6

5.1

7.4

8.9

7.2 7.0

4.7 4.6

7.9

3.4

7.4

3.7

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Data is obviously impacted by large number of new planting coming on stream

Total production of avocados in New Zealand (mt; actual; 1974-2008)

PRODUCTION Avocado production has grown strongly, though with strong ups and downs due to big swings in yield

PAGE 8 Source: FAO; MAF; NZAGA; Coriolis analysis and estimates

19 12 30 14 78 89 67 230 320 610 660 680 800 1,000 1,300 1,188 1,300 1,670 2,030 2,500 2,550 3,000 3,500 4,300

6,300

9,235

12,608 11,852

13,249

10,638 11,764

22,955

11,042

26,761

14,866

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

CAGR (90-07)

19%

DOCUMENT STRUCTURE

1. NZ Situation

2. Market Structure


4. Issues

0.7 1.2 1.0

1.3 0.9 1.0

1.6 1.0

2.1

1.3

1.0

1.1 1.1

1.1

1.0 1.1

2.6

1.0

2.7

1.4

99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

Sales of avocados by market: export, domestic and processing (kg; m; 99/00-08/09)

INDUSTRY VOLUME BY MARKET Both the domestic and export markets are important; the impact of yield surges are evident

PAGE 10 Note: uses SNZ export volumes 00-05; Source: SNZ Infoshare database (custom job); NZAGA; Coriolis analysis

1.7

2.7

4.9

2.0

4.2

2.1 1.9

2.4 2.2

2.3

Export

Domestic (incl. processing)

CAGR (90-07)

5%

4%

8%

Note: YE April & NZ$

FOB or wholesale sales value per kilogram of avocados by market: export and domestic (NZ$/kg; actual; 99/00-08/09)

VALUE PER TRAY There is a wide discrepancy between what NZ customs data and NZAGA believe is received per tray

PAGE 11 Source: SNZ Infoshare database (custom job); NZAGA; Coriolis analysis

FOB/tray (NZAGA)

Domestic (incl. processing)

CAGR (99/00-08/09)

-3%

-1%


$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

FOB/tray (NZ customs) 6%

Issues - Some fruit sold on consignment

(e.g. by a wholesaler to greengrocers)

- Exporter must assign a “value” for the fruit when it is exported but before it is actually sold

- When fruit is exported on consignment, the value entered will be an estimate of what the exporter believes they will receive

- One way to read this chart would be that in recent low volume years, exporters have believed they would receive more than they did

- Alternatively the numbers being reported to NZAGA are incorrect/wrong

Sales of avocados by market: export, domestic and processing (NZ$m; 99/00-08/09)

INDUSTRY SALES BY MARKET IN NZ$ Industry sales are achieving little total growth; the domestic market is growing faster (and more predictably) than exports

PAGE 12 Note: domestic sales measured at first point-of-sales (not to final consumer); uses SNZ volumes but NZAGA value per tray for 00-05; 1. Uses 01/02-08-09; Source: SNZ Infoshare database (custom job); NZAGA; Coriolis analysis and estimates

$- $0.7 $0.3 $0.2 $0.2 $0.3 $0.9 $0.2 $0.4 $0.2

$8.3 $10.2 $9.2

$13.0 $13.9 $15.2 $14.2 $16.3 $15.8 $17.9

$30.2 $30.8

$29.9

$29.7 $29.6 $29.4

$39.7

$27.0

$48.5

$31.9

99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

$38.5

$50.0

$64.7

$43.4

$54.9

$44.9 $43.7 $42.9

$39.4 $41.7

Export

Domestic

Processed

CAGR (90-07) 2.9%

0.6%

8.9%

-8.7%1


New Zealand avocado export FOB value in US$ by destination (US$m; 1996-2009)

EXPORT VALUE IN US$ BY MARKET Australia is currently the key market for New Zealand avocados, however Japan has shown strong growth over the past few years; performance in the US market appears erratic

PAGE 13 Source: UN Comtrade database (custom job); Coriolis analysis

$6.4 $6.6 $8.6 $7.6

$5.2 $8.2

$9.8

$14.1

$18.4

$25.4 $26.2 $26.7 $30.3 $30.0

$0.2 $0.6

$0.9

$7.9

$5.4 $2.4

$1.6

$0.4

$0.2

$0.1

$5.6 $0.1 $0.4

$0.0

$0.0 $0.3

$0.7

$0.6

$2.2 $0.3

$2.1 $2.2 $2.9

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Other

Taiwan

Malaysia

Hong Kong

South Korea

Singapore

Japan

USA

Australia Australia

USA Japan

$34.4 $33.2

$35.4

$26.9

$28.8

$19.7

$15.5

$12.0 $10.8 $10.7

$15.5

$12.0

$7.3 $6.6

5 year CAGR (04-09)

12%

10%

17% 39%

Clear need to diversify into new markets

Note: US$ & YE Dec (acts to smooth y-on-y variation)

Australian avocado FOB import value (US$m; 1996-2009)

AUSTRALIAN IMPORT VALUE IN US$ New Zealand is succeeding in the Australian market partially because it is the only supplier allowed past the phyto-sanitary barriers

PAGE 14 Note: Import and export values do not match for a range of reasons (e.g. timing, reporting); Source: UN Comtrade database (custom job); Coriolis analysis

$5.8 $6.4 $7.7 $9.8

$6.2 $8.1

$10.0

$14.0

$19.2

$23.9 $26.3

$24.3

$31.7 $29.2

$0.03

$0.00

$0.01

$0.10

$0.01

$0.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

New Zealand

Others

Japanese avocado FOB import value (US$m; 1996-2009)

JAPANESE IMPORT VALUE IN US$ Since beginning to export to Japan in 2001, New Zealand has grown to become the second largest avocado supplier; there would appear to be large potential for future growth in the Japanese market

PAGE 15 Note: Japan, like Australia, has phyto-sanitary barriers (both formal and informal); Source: UN Comtrade database (custom job); Coriolis analysis

$6.8 $8.7

$16.1 $18.2

$28.0 $24.4 $25.0

$48.5

$56.9 $57.7 $58.6 $62.6

$70.7

$7.5 $4.8

$1.4 $0.6

$0.1 $0.5 $0.0

$0.4

$0.0 $0.6 $1.9

$0.1

$0.4

$0.1 $0.3

$0.6

$0.6 $1.3

$0.3 $2.0

$2.0

$0.0 $0.0

$0.3

$0.5 $0.6

$2.2 $0.9

$0.3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Other

New Zealand

USA

Mexico

Mexico

USA New Zealand Others

$2 $6 $11 $19 $22 $19 $41 $55 $64

$238 $190

$464 $517

$21 $21 $59 $49

$85 $66

$101 $114 $107

$128

$74

$126

$88

$6 $6

$7 $8

$10 $10

$12 $16 $18

$19

$15

$16 $18

$0.2 $1

$1 $10

$10 $5

$4 $0.3 $0.3

$0.1

$7 $0.05

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Others

New Zealand

Dominican Rep.

Chile

Mexico

United States avocado FOB import value (US$m; 1996-2009)

UNITED STATES IMPORT VALUE IN US$ New Zealand has been the forth largest supplier of avocados to the United States over the past decade, however volumes have been erratic

PAGE 16 Note: other displayed but not labeled for legibility; Source: UN Comtrade database (custom job); Coriolis analysis

Mexico

Chile

Dom. Rep. NZ

Total global avocado import FOB value by country/region (US$m

TOTAL WORLD IMPORT MARKET Turning to the total world import market, we find North America and Europe are the key global markets for avocados

PAGE 17 Note: Europe will include inter-EU trade (e.g. Spain to France); Source: UN Comtrade database (custom job); Coriolis analysis

Europe $667 44%

USA $623 42%

Canada $64 4%

Japan $73 5% Hong Kong $2 0% South Korea $2 0%

Australia $32 2%

UAE $4 0% Other $42 3%

North America 46%

Asia 6%

New Zealand is weak in the two largest markets representing 90% of global imports; what is required to improve performance?

Avocado consumption per capita: NZ/AU vs. select peers (kg/person; 2008)

CONSUMPTION PER CAPITA: SELECT COUNTRIES Looking a consumption per capita highlights both opportunities (Scandinavia, Japan and NZ domestic) and challenges (Australia)

PAGE 18 Note: data is apparent consumption ((production+imports-exports)/population) [aka disappearance]; Source: FAO database (custom job); UN Comtrade (custom job); CIA World Fact Book; Coriolis analysis

2.50

1.92

1.41 1.36 1.26

1.13

0.79 0.74 0.70 0.66 0.64 0.61

0.19 0.16

Australia

Spain

USA

Denm

ark

Sweden

France

Norw

ay

Canada

New

Zealand

Netherlands

Switzerland

United

Kingdom

Japan

Germ

any

There would appear to be strong potential for growth in Japan

Future growth in Australia will likely be difficult

Current NZ markets (at any scale)

There would appear to be good opportunities across Northern Europe, particularly Scandinavia

There would appear to be more potential growth in the domestic market

Export growth matrix: NZ vs. other key Southern hemisphere countries (US$; various; 2002-2007)

SOUTHERN HEMISPHERE EXPORT GROWTH MATRIX New Zealand achieves a price premium for its avocados relative to other Southern hemisphere competitors


$0

$1

$2

$3

$4

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

Chile Peru

New Zealand

South Africa

Australia

Argentina

5 year export value growth (CAGR; US$; 02-07)

FOB price US$/kg

(2007)

Size of bubble = export value in 2007 relative to others

Export growth matrix: NZ vs. top 15 global avocado exporters (US$; various; 2002-2007)

TOP 15 COUNTRIES EXPORT GROWTH MATRIX Bringing in key Northern hemisphere countries as well confirms the current price premiums New Zealand receives (it is unclear whether these are warranted or a function of Australian protectionism)


$0

$1

$2

$3

$4

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

Mexico

Chile

Spain

Israel

Italy

Greece Brazil Argentina

Morocco

Australia

Dominican Rep.

USA

South Africa

New Zealand

Peru

5 year export value growth (CAGR; US$; 02-07)

FOB price US$/kg

(2007)

Size of bubble = export value in 2007 relative to others

NZ now 6th largest global avocado exporter by value

Benchmarking total export value by select products: Chile vs. New Zealand (US$m; 2008)

EXPORT VALUE - NZ VS. CHILE A quick benchmarking of NZ with Chile across a range of horticultural exports suggests there is more potential for growth, however the industry will need to evolve more like kiwifruit than apples


$672

$88 $152

$1,378

$243

$33

$689 $644

Apples Avocados Kiwi fruit Wine

Chile

New Zealand

NZ exports $ as a % of Chile 36% 38% 454% 47%

DOCUMENT STRUCTURE

1. NZ Situation

2. Market Structure


4. Issues

INDUSTRY STRUCTURE OVERVIEW While there are a large number of growers, the supply chain narrows into 20 export packhouses and only 12 registered exporters

PAGE 23

Growers

1,481

Export Packhouses

20

Registered Exporters

12

Export Markets - Australia - Japan - USA - Others

Domestic Market

Firm/org

Avocado vol/ export share

Parent Firm(s)

Ownership

Total firm turnover

Location(s) packing avo

Fruit packed

Notes/comments

760k trays exp 34% exports

Cooperative (260+ shareholders)

$43.4m (09) BOP Northland

Kiwifruit Avocados

JV with Primor

22% total mkt Private - Trevelyan family ~$20m BOP Kiwifruit Avocados

Avos sold via Primor/Apata

John Carroll Edward Long; others

n/a - Range Sales & marketing org; imp/exp Based in Auckland

Seeka ? HP 100k

NZX (SEK) (former coop)

$108m (09) (x HP)

BOP Kiwifruit Avocados

Launched AvoFresh brand Built avocado oil extraction plant Dec 09 acquired HukaPak (K/A) HukaPak was 100k tray avo Also Peninsula & KiwiProduce

??? Cooperative $58m (09) BOP Kiwifruit Avocados

JV with Aongatete formed 06 Works with Team Avocado in NZ Exports with Intermax & Freshco

71k trays exp (aero only)

Public (grower-owned) (John Anderson 43%) (Birley family 28%)

$21.6m (09) BOP Kiwifruit Avocados

70 avo orchards supplying Recently installed new invision system and waterblaster

Moore family 100%

n/a (small)

BOP Kiwifruit Avocados

25 years in avocado industry

Jeeves family 50%+ Others

n/a (small)

Northland Avocados Recently installed new washer

Clark family 100% (James & Gillian)

n/a (small)

Northland Avocados 21 years in avocado industry

Coles family

n/a Auckland Avocados

Key firms involved in avocado packing (various; 2009/2010)

PACKERS - KEY FIRMS A handful of key firms pack New Zealand’s avocados

PAGE 24 Source: various company websites; various company annual reports; published articles; Coriolis analysis

In progress

Firm/org

Avocado volume & export share

Parent Firm(s)

Ownership

Total firm turnover

Location(s) packing avocados

Fruit packed

Notes/comments

Secondary

- Paul Jones ~25% Robert Greenlees ~25% Others

$25m BOP Kiwifruit Avocados

Owns 25% Birchwood DMS Progrower owned by growers and DMS Group (Jones/Greenlees)

Tot 77k trays 14k TE export

- DMS 25% Others

$5m BOP Kiwifruit Avocados

Small kiwifruit packer

Deltapac Deltapac Gregg family 100% n/a Gisborne Citrus Avocados Melons Squash Kiwifruit

Primarily Gisborne citrus

NZX listed GPG 65% Noboa 12% Others

$590m (09)

Northland Apples Citrus Avocados others

Acquired ENZA in 2000 Acquired Kerifresh in 2007 Formed Delicia in 2007

Tertiary

Natural Touch

Natural Touch Wells family 90% n/a Northland Listed on NZAGA

R&S Bailey - ? n/a ? Listed on NZAGA

Tandara

- ? n/a BOP Listed on NZAGA

Secondary/tertiary firms involved in avocado packing (various; 2009/2010)

PACKERS – SECONDARY/TERTIARY FIRMS There is also a group of smaller, secondary firms packing avocados


In progress

Firm/org

Avocado export share

Ownership

Total firm turnover

Fruit Exported

Domestic/ Imported

Key brands

Notes/comments

John Carroll Edward Long; others

n/a Avocados Kiwifruit (AU) Blackcurrants

Avocados Citrus Grapes Vegetables Others

? Sales & marketing org; imp/exp Based in Auckland

NZX listed GPG 65% Noboa 12%

$590m (09)

Apples/pears Citrus Kiwifruit (AU) Avocados Blueberries Others

Bananas Tomatoes Vegetables Many others

ENZA Jazz / Envy Kerifresh Bonita (NZ) Sunfirst Others

Acquired ENZA in 2000 Acquired/formed Delicia in 2008 Owned 12% by Noboa/Bonita www.turnersandgrowers.com www.delica.co.nz/

John Mangan Greig Taylor

n/a Apples/pears Avocados Blueberries Kiwifruit (AU) Others

Grower pipfruit JV Freshco Nelson and Freshco Hawkes Bay

Wolseley PE (AU) David Smith Others

Apples Kiwifruit (AU) Citrus Vegetables Others

Originally domestic wholesale in NZ AU PE bought into business in 2007 Acquired Holman Fresh (AU) sales/mar Acquired Panda Ranch (AU) stonefruit


EXPORTERS - KEY FIRMS A related, but somewhat different group controls exports…


In progress

See previous page

See previous page

Firm/org

Avocado export share

Ownership

Total firm turnover

Fruit Exported

Domestic/ Imported

Key brands

Notes/comments

Jeffery & Peter Turner (ex T&G)

n/a Avocados Kiwifruit Berries Stonefruit Others

Avocados Greens Summerfruit Vegetables Others

Purefresh Org. Mr Jacks Hao Hao Go Fresh

Split of from FreshDirect (domestic supply) in 2006; same shareholding www.freshdirect.co.nz www.jpexports.co.nz

Ranji Chhita n/a Apples/pears Stonefruit Berries Others

Apples/pears Berries Vegetables Others

? Started as greengrocer in Pt. Chevalier

C&S AU 64% Allan Macdonald

NZ $6.9m AU n/a

Australian produce

Range C-lect Early Bird Others

NZ imp/exp arm of AU wholesaler 64% owned by C&S Australia (major AU Wholesaler)

Cooperative (numerous growers)

n/a Avocados Avocados Zavo Formed 2008 as grower coop Export to CalAvo (US) & Costa (AU)

Cooperative (numerous growers)

NZ$297m (09)

Wide range Wide range wholesaler

Dole (jv) various

Owns LaManna (Australia)


EXPORTERS - KEY FIRMS … continued


In progress

DOCUMENT STRUCTURE

1. NZ Situation

2. Market Structure


4. Issues

KEY QUESTIONS

1. New Zealand yields per hectare are currently significantly lower than key competitors. How quickly can this be fixed?

2. New Zealand’s current on/off year swings in production are massive compared to competitors leading to huge swings in industry turnover and capacity/capital utilisation. Can this be fixed through better farm management? Why do other countries have much smoother year-on-year production?

3. Avocados are typically being packed in kiwifruit pack houses as they mature at a different point in the year and, hence, can use the same facility.

a) Will the industry likely end up controlled by the key kiwifruit packers? b) Chilean avocado packers pack a much wider range of fruit (due to climate/environment); does this make their fixed costs

lower?

4. Following from (3), if the key challenge for the industry going forward is selling to the rest of the world (other than Australia), isn’t the most sensible solution (politics aside) to leverage the existing Zespri global sales and marketing infrastructure?

- Alternatively, it can easily be argued that the existence of Zespri is retarding the growth of the NZ avocado industry (as Zespri eliminated the presence of a range of global kiwifruit exporters who could move avocados through their existing sales and marketing structure)

5. Are the high returns currently achieved in Australia purely an artifact of Australian protectionism, rather than the reward for

superior New Zealand quality? If so, (1) this will disappear if/when other countries gain access to Australia and (2) can New Zealand compete outside Australia? [Alternatively, can we use Australia as a nursery to get to scale?]

6. The typical model for successful New Zealand fruit exports (particularly kiwifruit and apples) is (1) achieving higher yields per hectare than competitors, (2) superior quality, (3) NZ-developed IP controlled varieties and (4) efficient post-harvest operations. It arguable whether the NZ avocado industry is currently delivering on any of these. PAGE 29

We propose the following preliminary key questions for the New Zealand avocado industry

Issues facing the New Zealand avocado industry · HARVESTED AREA Following a period of flat growth...

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