Heading to week five – avocado packing is continuing at Huka Pak, and there is a lot of planning underway for the upcoming New Zealand kiwiberry and kiwifruit harvests and the Australian pear, nashi and kiwifruit harvests. The capital projects of coolstore expansions at KKP, Transcool and Main Road, along with machine upgrades at KKP, Main Road and Peninsula are all well underway. Seeka 360 is making excellent progress with the official opening planned for the 30 March. Our finance team are already in the North wing of the building with teams scheduled to progressively move into the main building in about two weeks time.
Avocado market and returns strengthen further
The avocado season has just clocked through 430k export trays, with another approximately 200k trays supplied to local market. Seeka has around 20 export containers to go to complete the export program and the team has slowed down to 7 or 8 containers per week.
Market remains strong. Our export orchard gate returns which last week were predicted to be between $22.50 and $24.00 per tray are likely to be closer to $25.00. It’s a remarkable outcome given the challenges this year with sensitive fruit and the dramatic increase in volume.
We have had some issues last week with erroneous residue results. The supply chain and avocado team have combined to deliver an outstanding result. Avocados truly are a fruit phenomenon.
Seeka has advanced its avocado oil business and has been producing oil from its own growers oil grade fruit and procuring oil grade fruit from other packhouses. Seeka is investing in an oil bottling plant that will be located alongside the Kiwicrush manufacturing line at an upgraded KiwiCoast packhouse in Te Puke. Seeka has developed a relationship with Bostock to handle the export of that oil. This plant is scheduled to be operational and opened late April.
Kiwifruit [it’s all about containing costs]
The kiwifruit business and returns to growers remains vulnerable to incessant inflationary cost creep. The costs of labour, the compliance costs of contractors and the required safety protocols are all relentlessly increasing; and it’s constant. Businesses like Seeka that are both growers and packers have to be innovative in automation and innovation to try and drive efficiency into the business to preserve margins. We must aggressively avoid cost increases and push for savings. Over the next few weeks I will highlight areas of cost for your consideration.
Maturity testing
Eurofins have purchased the AgFirst lab seemingly being granted a monopoly to test the industry's fruit. Seeka and Seeka Growers have long held the view that there should be more than one testing lab and there should not be a monopoly for this service. Seeka set up VLS and attained ISO17025 accreditation as an independent lab in order to tender to Zespri, which we have done two or three times at a lower price than the prevailing or successful price. Ironically, the last time was in conjunction with Eurofins and effectively we were declined by a committee which included our competitors on the basis that there were system changes required to accept the results from more than one lab.
The Eurofins purchase of the AgFirst lab comes with a contract on-board through to 2018. Eurofins have negotiated a price increase with Zespri for the 2017 season to allow for matters of labour cost increase, safety compliance, CPI and asking growers to fund $140,000 of capital spend. While some of the increase may be legitimate, they would have been suppressed in a competitive environment. For a number of years Seeka and Seeka Growers have maintained having only one independent laboratory creates a monopoly service provider which is not in the best interest of growers.
Kiwifruit Zespri Margins
Further to my update last week, the enduring margin was not endorsed by the IAC at its meeting last week. A committee made up of suppliers, growers and Zespri has been established to see if there can be a sensible and commercially based margin mechanism set up for 2017. This committee will meet in the next week and I will report to you on its progress.
Kind regards
Michael
Seeka Key
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