Please accept this update to our growers and stakeholders to the end of Week 49. Thank you to those of you who attended our final 'After 5pm' grower updates. At these sessions we closed out the final kiwifruit performance for the year, updated on the matters of the current year forecasts and profiled our expectation of the coming year – primarily influenced by a significantly lower volume Hayward crop.
Our team also updated growers on issues with the Zespri grower payments system and the errors in the August forecast which has flowed through to other payment processes [Kiwistart, taste and time]. While the October forecast corrected some of these issues, problems still remain. We also profiled the proposed Zespri enduring margin which is updated below and the process around the next release of Zespri’s licenses for SunGold.
The operational management of the 2016 kiwifruit season has finished, stores are empty of kiwifruit but our teams remain harvesting, packing and marketing high quality New Zealand Seeka avocados to our Australian retail and wholesale customers.
Enduring Funding Agreement
One of the topics discussed last week was the Enduring Funding Agreement [EFA] and this was debated again today at the Seeka Growers Council. It’s more than two years since growers voted for KISP and while there was strong support for a well-funded Zespri, there is nervousness whether the current proposal reflects what growers thought they were voting for when they voted for KISP. Further, there is real time pressure to push the Enduring Funding Agreement through as it requires fundamental systems changes at Zespri if it is not to further overburden the Zespri finance function and IT system. Decisions need to be ratified by 31 January 2017 – an impossible deadline.
There are real issues in the funding mechanism. Zespri are proposing a 10 year deal with a right of renewal for a further 10 years – so it is a big decision because the amount of dollars being committed to in the mechanism is literally in the billions – not millions. The mechanism doesn’t work as you might expect – rather than setting a certain percentage of sales of New Zealand kiwifruit as a commission to Zespri [based on a market rate], it targets a percentage EBIT on those sales and sets the commission to achieve that level of EBIT. The EBIT profit would be shared with growers and the profit share would replace the current $0.25 per tray loyalty rebate.
Growers and the Seeka Growers Council have expressed concerns that this new proposal doesn’t provide any incentive to Zespri to manage its costs, and growers might actually pay more than they used to under the existing method. I would note that Zespri and the industry are well overdue for a margin negotiation in any case and the current commission structure might be reasonably expected to decrease.
Finally, any new supplier wanting to sign up to supply with Zespri would have to sign up to the proposed agreement or not be able to supply.
This was always going to be difficult. There can be no question that growers want a well-funded Zespri, but they also want the normal commercial tensions of performance and cost control. The timing is very tight for this issue, perhaps impossibly tight noting the pressure within the Zespri finance team to rectify more fundamental problems.
Alongside this, the Seeka Growers Council also suggested that Zespri pursue a separation of grower funds from the corporate, always an interesting debate.
December Payment
At the Seeka grower council this week the December payment was approved.
|
Fruit Category |
Average Payment per tray |
|
Hayward Conventional |
$0.171 |
|
Hayward Organic |
$0.189 |
|
Green 14 |
$0.306 |
|
Gold 3 |
$0.078 |
|
Hort 16A |
$0.133 |
The payment highlights are:
I would like to thank the Seeka Grower council for all the work that they do on your behalf during the year in approving the distribution each month to Seeka’s growers. This year it has been a little more challenging with the late payment of kiwistart, the forecast errors and the fix up of the taste payment in October. Zespri have apologised for this and acknowledged the support from the Seeka entity team in resolving a number of these issues. Growers must have confidence in the payment system and a full audit of the Zespri pools must be a priority.
Avocados
Our teams have packed a total of 350,000 avocado trays in the current season with 254,000 trays exported. Market conditions remain stable and between AUD$28 and AUD$32 per tray with an increase expected next week. Seeka is currently shipping around 8 containers per week, with 5 going direct to retail. Our team will continue to supply over the Christmas – New Year period.
On behalf of team Seeka, have a great and safe Christmas and New Year.
Kind regards
Michael
Seeka Key
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