Pipfruit Growers New Zealand Inc Conference

  • John Luxton
Food, Fibre, Biosecurity and Border Control

AIRPORT HOTEL, WELLINGTON

Mr Chairman, members of the Executive, distinguished Guests, Ladies & Gentlemen. It is with much pleasure that I address your Annual Conference. Your industry is a very important one. With around $354 million of exports, your hard work, expertise and dedication is making a sizeable contribution to the economy and in turn the social goals of New Zealanders.

Pipfruit exports have grown dramatically since 1990. The value of all pipfruit exports has increased by 62% and volume increased by 43% in the period 1990-1997. Apples of corse make up the largest proportion of pipfruit exports. These figures are very impressive.

But today we live in times of great change. They are exciting times. The challenge for your industry is to build on these impressive export figures and continue growth into the future, so that you can increase your standards of living and enjoy life.

As well as being challenging, change can cause discomfort for those affected by it. But that does not mean we should be afraid of change. If we look back over the last 50 years there has been extraordinary change take place in society. We would not be enjoying the benefits of those changes today if decision makers at the time had not seized the opportunities offered by it.

This year your industry is facing bigger changes than it has for some time.

I sympathise with growers who have just been through a very difficult marketing season due to depressed returns from overseas markets. Record stocks of European fruit (approximately three times more than expected) have adversely affected the Apple and Pear Marketing Board's entire selling season there. Poor sales and poor prices have also been experienced in the United States where there have been increased internal stocks of Red Delicious, Fuji, and Braeburn.

The Board is also facing depressed prices in Asian markets due to the influx of American Red Delicious. and partly because of the financial difficulties starting to affect that particular region. The strong TWI early in the season didn't assist either but now has corrected over the season to date, as markets eventually do.

Many growers were also affected by this year's hail storms. I don't need to tell you that the net effect has seen poor returns for growers for the last season.

One could be pessimistic about the future. However from my 25 years in the agriculture sector, of which nearly 20 were in horticulture, I know that the next season will always be better. But we cannot just wait and hope for things to improve.

We need to observe the world that we are now operating in and accept that some things need to change if we are to maximise our opportunities. We need to work positively and constructively to get the best outcomes for our growers and their families.

There are some fundamental changes occurring in the international economy that mean that internally organisations such as the Apple & Pear Marketing Board also need to continue to change and restructure.

With the advent of the information age and globalisation of the flows of capital, skilled people and technology, the market can and does change very rapidly. Much more rapidly than in the stable times of past when governments could actually exercise some control over such key factors as the flow of capital in their economy. Or when we used to hear of overseas events well after they happened. Now we watch them live on CNN or receive market information instantly.

But sure sovereign nations still can, in a detrimental way, affect the flow of capital out of their country, as a result of politicians trying to prop up share markets, as is currently happening in South East Asia. Despite what some politicians might like to think, Governments' role has changed too.

The best results today are being achieved where governments focus on a trifecta of effort.

Firstly, on reducing the size of government as a proportion of the economy and improving its performance in those bits that it does carry out. And I am pleased to be able to report that government spending as a proportion of GDP has dropped from 42% the early 1990s to 34% today and falling. However many of our competitors, particularly in the fast growing region of Asia, run their government sector at around 20% of GDP. Some recent studies have suggested the optimum level was possibly below 10%, so we in New Zealand still have some way to go.

Increasingly services that have traditionally been provided by the government can be provided by the private sector, either through privatising parts of what was formerly government or state owned enterprises or by making contestable many of the functions currently carried out within government departments. This is already happening in key areas such as health, welfare and in education but needs to and will continue to take place.

The second area that governments can influence is in the rules it makes and the stability of the economic environment. International capital looks for a stable economic environment, something that some Asian country's are having difficulty with at present.

The separation of monetary policy to the Governor of the Reserve Bank and the low inflation target provided by government gives New Zealand an advantage. Whilst we might complain about the interest rates or the exchange rate that evolve from this process, I think we can be well satisfied with the stability that has been created and the confidence in New Zealand economy that international investors have retained. The Fiscal Responsibility Act also provides stability and transparency in Government spending activities.

Governments also need to ensure that the rules it sets for it citizens and enterprises are sensible and constructive. Despite best intentions of central or local government at the time of their introduction, often rules and regulations may not be as the world changes around them. The best thing a Government can do is to free things up a bit to allow people to get on with the job without being tripped up by some out of date statute.

Controlling and moderating compliance costs of doing business is a key priority for my Commerce Ministry who are currently undertaking a review. In this respect we are looking increasingly to bring best practice into the role of Government.

The third area of a trifecta of roles of government is that of continuing to open up opportunities for and break down barriers to trade. We need to continue our push in the international arena for freer trade through the likes of the Cairns Group, APEC, CER, WTO and Bilateral free trade agreements. These are currently being worked on with the likes of China, the USA and South American countries. We need to have better access to markets.

Recently we have passed the Trans Tasman Mutual Recognition Arrangement and have signed a new Australia New Zealand Government Procurement Agreement (NNZGPA) giving more ready access to government purchases on both sides of the Tasman, a market worth over $30 billion. Improved air transport arrangements have also been negioated with a range on countries

Whilst we have still the frustration of access of apples because of the fire blight issue into Australia, I am optimistic that access will ultimately arrive for New Zealand orchardists to get into Australia. I am sure that commonsense will prevail. However, it may not have as major an impact on grower returns as some might think. When the dairy markets were opened up into Australia it had very little impact on New Zealand dairy returns and even a decade or so later New Zealand is still not a major supplier of dairy products into the Australian market.

In fact it is interesting to see the very rapid growth by Australian producers in the dairy sector at the current time. There is a message there also in that by freeing up the economy and sectors within it, protected areas are often the biggest beneficiaries long term.

As Government has to change in a changing world and tries to focus on the trifecta of areas that it can realistically handle as I have outlined, so too must organisations such as your own marketing board change to meet the challenges of today and tomorrow. If Governments and other organisations resist change at all cost, they cease to remain relevant and of value to the people they attempt to serve.

I am not a person who has a reputation for expressing great enthusiasm for producer boards or state trading enterprises as they are sometimes called. But I do want to commend the Apple & Pear Marketing Board for the steps that they are taking towards bringing change about in your sector's marketing organisation.

I want to compliment the Apple & Pear Board for the new business structure concept currently proposed. From what I have been advised, it clearly identifies the risk taking side of its assets and puts them into a new corporate structure. This will give growers the opportunity of deciding whether or not they wish to continue to invest in areas other than the export market of apples and pears through ENZA, which will remain as a grower cooperative.

I see this is a very appropriate strategic step in the direction of giving growers greater control over their asset and the ultimate choice as to whether they wish to continue to support it in a purely business sense rather than being required to by statute.

I also commend the Board and its Chief Executive, Gary Smith, in taking an initiative which may not necessary be applauded by all growers that will more directly reflect market signals through to growers. From a personal viewpoint one of the difficulties that has been faced by the Apple & Pear Board in the past is that it has been completely production driven by the requirement to take all fruit supplied by growers.

The rest of the world is market driven on what the consumers demands might be. In the 1990s a key lesson that has been learnt by marketeers is that meeting customer demands rather than producer demands makes more money.

Increasingly to survive in today's world we must listen very closely to what the consumers in the market place are saying through the prices and volumes of product traded. We must continue this approach of focussing on what the market wants, in other words shifting the organisation to becoming a market driven organisation instead of a production depositary.

In all areas of the market place one has to acknowledge that anybody producing an undifferentiated product is going to continue to have falling product prices. Other competitors around the world will continue to produce the same product in a cheaper manner through larger scale production and the like. It has been this way for any commodity product for a long time.

We must be very cautious in this country not to prevent positive changes occurring right through our sector by masking market signals. Should we be taking money off high value varieties to subsidise lower value varieties? Or should we give the proper return to the higher value varieties so that they may produce more or provide an incentive to invest in getting some other product differentiation which will add further value with the low value variety?

One of the major keys to marketing today is to get that point of difference, whether it be the ENZA brand, an improvement in service, a recognised standard of quality. The apple or pear must always be perfect as there is no market for anything other than best quality produce in the long term. This may mean that growers are going to have to change pruning practices, spray practices or varieties to provide a point of difference.

As I see it, the new corporate structure may allow other options to start to add value. For example the supply of new varieties of fruit to a greater degree than is done at present. Or with all year round production potentially evolving so that ENZA becomes a twelve months supplier rather than here today gone tomorrow and back the next day type of operation as at present. The consumer expects to find their brand of product in the supermarket shelf when they want it rather than when we decide to supply it.

The most important challenges facing the industry today are to become market driven as we move away from production driven. A I said before I think that the steps beginning to be taken by the Board are a step in the right direction.

I say only a step because I believe that as progress is made then growers may want and need to make the decisions to take further steps along the path of corporatising and inviting new capital into their organisations.

At the same time we're still going to see changes occurring at the farm level. The research component needs to continue to go into new varieties, lower cost methods of producing better and more consistent quality from the farm. Again I have to say that I am very impressed with some of the changes that have been occurring with spray programmes and in the quality standards. Again, this is recognising the demands from the market place.

Developing new varieties in large quantities is a long term project and as a result growers need to be always vigilant that they do not lose a competitive advantage of a new variety by being too enthusiastic about showing some of our competitors what we are doing.

We all recall the scare earlier in the year of the cuttings found in a departing scientists brief case as he left Auckland International Airport. One hopes not too many other twigs have left the country. But we need to be ever vigilant of the competitive advantages we have and ever looking for new competitive advantages in that globalised market if we want to continue to be recognised as amongst the world best.

As I have said, your industry is very significant to the overall economy, earning about $350 million a year and is a very important mainstay to many of our rural communities.

Government is very supportive of your sector. Whilst not always comfortable for everyone Government continues to make the changes that it believes are important to providing a competitive, growing and stable economy. If we are to survive and prosper, our economy and businesses need to be internationally competitive.

In return those businesses need to continue to change in response to market signals and the changing world around us. It is unrealistic to expect to be guaranteed that the market will remain the same as it is today. It's one thing you can guarantee, it will be different tomorrow.

I'm informed that there is optimism for the coming growing season, that many of the factors that have occurred this year are likely to be different, particularly the volumes of European fruit and the exchange rate locally.

So I wish you every success with your conference, and with the restructuring of your industry. You have much to discuss. My advice is don't haggle around the edges and argue about the minor points, look towards making it happen faster rather than slower and look to some of the new business joint ventures that may evolve out of the Board's more progressive approach.

Change at the end of the day should not be threatening as it provides the opportunity for your organisation to prosper into the future as the worlds best marketer of apples and pears. Thankyou