Welcome to 2017, and the first of our stakeholder updates. As we head into the year, we wish you every success in our produce world.
Avocados having a tremendous close
The avocado season has again enjoyed a successful campaign. Fruit quality has been a little challenging, particularly with sensitive fruit susceptible to damage after rain. The supply chain and our partners have combined well to deliver a reliable supply of high quality fruit to our customers. Our teams have worked through-out the break to coordinate the picking, packing and export of this valuable fruit.
At the end of last week, Seeka had packed some 402,405 export trays, with around 100,000 to go. We anticipate a return to growers between $22.50 and $24.00 per export tray. This return is slightly behind last year but a remarkable performance on increased volumes. We expect to complete harvest in week 7.
Kiwifruit [all fruit is valuable in 2017]
Given the expected reduction in Hayward volumes we are anticipating an increase in per tray returns to more than $5.20 per tray. Similarly, we expect that class 2 returns to also be stronger.
Zespri have indicated that they will be looking for a greater volume of Hayward class 2 fruit and in addition, are looking to procure a volume of SunGold class 2. Any class 2 packed does not constitute a reject. In addition, Seeka also has demand for Class 3 volume in its KiwiCrush manufacturing and marketing business. More on that later.
In 2017, all fruit is valuable and we would ask you to keep this in mind as you cosmetically thin your fruit this summer.
Kiwifruit Zespri Margins
As reported to you in December, and at the grower 'After 5' roadshows, the industry is contemplating the Zespri margin, referred to as the “Enduring Zespri Margin”. This matter was contemplated in KISP and growers endorsed the implementation of a conceptual commission structure that delivered a cost plus approach to the amount of brokerage that Zespri charges for its selling. [The marketing costs are directly paid for by the respective pools].
A lot of work has been undertaken, and filling out the detail of the formula is quite complicated. There is an industry meeting this Friday to consider this. Zespri needs to make some changes to its financial systems and undertake an additional audit in order to calculate the margin. Zespri have openly said that changes need to be committed to by the end of the month if they are to occur in 2017 and that they are quite relaxed should the change be delayed.
For many reasons we think that it is sensible that the changes are delayed. Simply we are not sure that the changes now being contemplated are consistent with the two year old mandate from growers. Although there are limited review mechanisms in the agreement, the term of the agreement is for 20 years, making this a 20 year contract. KGI are now a signatory to the proposed contract and we have had a lot of feedback about the grower political body being involved in commercial aspects of the industry. The mechanics of the agreement require any new supplier entrant to the industry to sign up to this contract; accordingly it has consequences on the future competitive nature of our industry.
Most importantly, we want to get some independent analysis of the suggested changes and have analysed the effect by pool so we can understand the consequences of the agreement on all growers.
The Enduring Zespri Margin is a significant long term agreement and will be one of the key foundations of the kiwifruit industry going forward. We can take our time to get it right, and we wanted to let you know our approach.
Kind regards
Michael
Seeka Key
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