Cautionary tales of the years ahead
Amid the uplifting music, videos and speeches celebrating Zespri’s 20year journey from unknown brand to successful global exporter, the company’s March 10 Momentum conference in Mount Maunganui also heard cautionary tales about how tough the next two deca
“The last 20 years have probably been the easy 20 years,” Ian Proudfoot, the global head of agribusiness for KPMG told the audience of 500. “It’s not going to be easy to protect your position, there’s going to be a lot more hard work ahead of you.”
The message from Ian Proudfoot and other speakers, including Zespri executives, was one of disruption and uncertainty on myriad fronts, from the political uncertainty of a Donald Trump presidency in the United States, to climate change, to digital and technological innovation, to changing consumer demands and stronger competition, especially from China.
In his presentation, Ian traversed a dazzling array of innovations, like underground gardens in London, and vertical growing in office buildings; like lasering brands onto fruit, delivering food via robot and the possible end of supermarkets. – “When you’ve got a something like Amazon Prime delivering you fresh food to your front door within an hour why would you ever go to a supermarket?”
Given the spread of cities, with longer and longer commutes, he said, food on-the-go would be increasingly important. “The kiwifruit is not the easiest fruit to eat on-the-go, even with the new Spife.You need to be able to get a product that is easy to consume and therefore a kiwifruit with an edible skin strikes me as being a really great opportunity.”
All that change suggests “we’re playing a game with some different rules.” The first of those new rules, Ian said, has to do with sustainability, not just in terms of the environment, but incorporating good treatment of people and animals, and interaction with communities.
SUSTAINABILITY A FOCUS
Food safety and sustainability requirements came up frequently at the conference, and was the focus of a pre-conference ‘Sustainability Breakfast’, with a capacity crowd of 200, where Zespri’s chief operating officer Simon Limmer admitted to “a sense of discomfort” about the issue. “Because whilst we think we have a relatively strong position and a good story, we’re only as good as our weakest link, and that is where we’ll be vulnerable.”
What’s more, being sustainable is only the start of the challenge. As Ian Proudfoot explained, producers also need to be able to prove it to their customers, for example through digital tracking of produce all the way from inputs on the orchard to the customer. “If you want to be at the ultra-premium end of the market, having that ability to share data right the way through the value chain is going to be critically important. It’s the area we’re seeing people really starting to focus on now,” he said.
As if to underscore those comments, the risk to brands and the need for meaningful track-and-traceability were highlighted a few days after the conference with the exposé by the start-up news site www.newsroom.co.nz of caged eggs being passed off in some New Zealand supermarkets as free range.
Zespri’s general manager supply chain, Blair Hamill, also spoke to the issue, telling the conference that as well as needing to meet GlobalG.A.P. and the GRASP add-on (GlobalG.A.P. Risk Assessment on Social Practice) around things like labour issues, Zespri gets requests every day from customers wanting an extra layer on top of those standards, as a way of personalising or differentiating what they’re offering their customers. “This brings further complexity into the supply chain where we need to segment down the inventory further,” he said.
Zespri’s innovation manager, Carol Ward, told the conference that because of some instances of bad behaviour around intensive animal farming, over-used antibiotics in farming, and water use, “horticulture will not be able to avoid scrutiny, and understanding the ecological and societal position of major food brands will be the normal behaviour of our millennial consumers”. Carol said this wasn’t seen as a threat for Zespri but an opportunity to produce clean, ethical food. “We need to be relentless in our drive for land use, water care, animal care and community care.”
HORTICULTURE IS VULNERABLE
While horticulture has strengths in the sustainability arena, it also has vulnerabilities, including water use, sprays and the poor treatment of workers, which has been back in the news in recent months. Ian Proudfoot said that if the industry is seen as treating workers in an abusive manner, buyers will simply stop taking its produce for fear of tainting their own brands. “It’s as simple as ‘we just will not trade with you’”.
He identified food waste as another of the horticulture industry’s vulnerabilities. “We’re all part of a food system that does not work, it leaves around about 795 million people malnourished or undernourished every single day, and as a consequence, there’s going to come an increasing focus on how we utilise what we
“If you’re wasting food, your licence to operate will come under threat. So thinking about how you use everything that comes off your orchards, ensuring that everything gets used and is converted into useful nutrition, useful protein, is going to become a key part of the focus for many, many food operators, and we believe if you’re not doing that, your licence to operate will be challenged.”
Asked in an interview about the crop management of around five million trays of kiwifruit last year, which included some dumping of fruit, Ian said that if the industry was “called for crop managing trays, then I could see that as becoming a problem to your brand.”
Overall, however, Ian said he thought horticulture was “in a good space”.
“I think we’ve reached peak milk, which means actually we’re going to see over time a slow decline in the size of our dairy industry and amount of farms we have in dairy,” he said. “They’ll become more efficient and more effective so that will free up land, and logically that land will be used for arable or horticulture products, and that’s better for the environment.”
UNCERTAIN TRADE OUTLOOK
At the Momentum conference two speakers took the stage to address the global trading outlook, Michael Every, Rabobank’s head of financial markets research for the Asia Pacific region, followed by Crawford Falconer, Professor of International Trade at Lincoln University. And while there was much the two disagreed on, both saw changes on the horizon,
particularly in the wake of the election in the United State of Donald Trump.
Michael Every painted if not a bleak vision then at least an uncertain picture of the future for global trade, arguing that protectionist moves by the United States were a matter of ‘when’ not ‘if’. In looking at what might replace the current trading order in the wake of President Trump’s rejection of the Trans Pacific Partnership (TPP) deal, he considered and rejected as unworkable some alternatives including the Regional Comprehensive Economic Partnership (RCEP) – which involves the 10 ASEAN (Association of Southeast Asian Nations) countries plus Australia, China, India, Japan, New Zealand and South Korea. He raised the prospect of a return to a kind of 19th century era trading game in which dominant players effectively carved the world into distinct trading blocs.
“China and the United States are playing a very very high stakes game of poker,” Michael said, “and at the moment, we’ve got a joker in the pack and no one’s quite sure exactly what that joker is going to do, so really watch this space.”
He was also doubtful that governments could find a way to marry the successes of globalisation with the fairness and social justice necessary for stable societies. In response to a question from the audience at a Q&A session, he said that while globalisation generates a lot of wealth in part because of its efficiencies “it doesn’t redistribute that wealth particularly fairly, and that’s where we’re seeing the blowback, and actually trying to adjust the model to retain globalisation and all its efficiencies with social equality is going to be our big challenge and I’m extremely skeptical that we can do it.”
‘A LITTLE BIT MORE POSITIVE’
Crawford Falconer, who took the stage next, described Michael Every’s talk as “super depressive”. “I wasn’t really going to come and say to you things aren’t quite so bad until I heard the previous speaker,” he said. “But I feel like we need to get a little bit of perspective on this, and that’s why I might sound a little bit more positive about things.”
“If things actually go that terribly wrong,” he said, “there’s not a lot you can do about it. You might as well turn your face to wall, eat your last kiwifruit and kiss the world goodbye.”
While there was a real protectionist shift in the Trump administration, Crawford said, “an administration does not act
in and of itself, it requires the consent of the Congress and the situation of the Congress is a lot less clear cut than that.”
Still, he too, saw cause for concern, and said that the contest over trade policy in the United States is still playing out. “That’s why I say, don’t get too depressed, be a little bit significantly worried”.
As long as trade policy in the United States remains contested, Crawford says New Zealand should work to shift attitudes by pursuing what he called a “fear of missing out strategy”. That would include pursuing agreements like “TPP-Minus” (TPP without the United States), and the RCEP.
“You create the ‘fear of missing’ out so the US businesses and US politicians that don’t happen to share that view – and there are plenty of them in both parties, particularly the Republican party – can actually point to the fact that they’re missing out by this policy,” he said.
OPTIMISTIC AND SOBERING
While Zespri executives took time at the conference to talk about how far the industry had come in the past two decades, they spent even more time looking at what the next 20 years might bring, offering an outlook that was both optimistic and sobering.
Lain Jager, who will step down from his role as chief executive at the end of this season, warned that while this is a very positive time for the industry “now is not the time for us to be self-congratulatory or to spend too much time looking backwards”.
“There’s a trap for any industry or business enjoying times of strong growth and that trap is that during times of rapid growth, resilience tends to diminish, leaving the business or industry vulnerable to external shocks.”
Recently appointed general manager global supply, Sheila McCann-Morrison said the company sees big disruption coming from China in the next few decades. China’s production has increased eight-fold over the last 20 years to 1.3 million tonnes, and could reach 3 million tonnes by 2037. “We believe China is on the verge of disrupting the kiwifruit industry at a pace like we haven’t seen in the past 20 years,” she said. Looking at the apple industry as a lesson, she said Zespri sales into China would be hit by that disruption, particularly sales of fruit grown by nonNew Zealand suppliers. “In past 20 years the kiwifruit growing industry has been relatively calm, and Zespri has emerged from the pack as the undisputed leader, but this calmness also makes the industry ripe for disruption and we won’t be playing solitaire going forward,” she said. “It’s not going to be easy.”
LOCAL SUPPLY THE FUTURE
Sheila McCann-Morrison said the future is about local supply, where Zespri growers in Japan would supply Japan, growers in Korea would supply Korea, and so on. “In order for Zespri to maintain our leadership position in the kiwifruit world we will have to be a leader in the local-for-local growing world.”
One person who will be working through that local-for-local supply is Shane Max, Zespri’s orchard productivity manager global supply. He said that within the next 20 years, 30% of Zespri’s production would come from non-New Zealand supply, compared with around 11% today.
The first challenge Shane pointed to was climate change. “In Turkey this year in kiwifruit orchards they had massive snowfall. In China last year, not this winter but the winter before, minus 25 degrees Celsius, and I don’t know if you know, December this year in the Bay of Plenty, we had the windiest December ever recorded. So, climate change is going to be part of what we’re dealing with.”
Other challenges Shane Max discussed were competitiveness – he noted that Italy is growing good rival gold varieties, while China has gold and red varieties – as well as the increasingly complicated management of bigger orchards that are growing more varieties of fruit and dealing with increasing demands from customers for “instant information about our orchards”.
JAGER: WORDS OF WARNING
Perhaps fittingly, the final words of the conference came from Lain Jager in the closing Q&A session, in which he restated his caution about complacency.
“I think there’s going to be more change in the next 10 or 20 years than there’s been in the last 10 or 20 years,” he said. “I don’t think this business gets easier. I actually think it gets more challenging, and in that regard, being relatively successful is a real challenge, and that’s because you start to believe your own BS; you perhaps are less flexible, less open, less recognising of what it is we need to do to change.”
Lain Jager said that what is coming is likely not incremental change but, “a dramatically different business over the next 20 years. I think that’s hugely exciting, I think it’s hugely challenging to any mature industry and company.”
Crawford Falconer, Blair Hamill and Simon Limmer.