Archive for 'Thoughtpieces'

I have just returned from the annual Horticulture New Zealand conference in Rotorua.  After a day and a half at an industry gathering one cannot help but come away with some thoughts about an industry’s future. And as I was pondering the future of the New Zealand horticultural industry, I opened last Friday’s NBR which I had not had a chance to read. Some weeks reading the NBR takes a matter of minutes.  This time though there were three stories that caught my eye.

The first one was the front page story dealing with the European Union debt crisis.  The fundamental  problem they have is that within the Eurozone all countries borrow at the same interest rate – but not all countries are able to repay their debts at the same pace, or at all as the case may be.  And that anyone can think Greeks and Germans have the same characteristics is downright mind boggling!

The second piece of interest was a lead article by Roger Kerr, Roundtable Supremo, on the kiwifruit single desk structure and what he thinks needs to happen.

Some years of my misspent youth had me occupying the Head of Produce Merchandise chair at New Zealand’s corporate superchain (as opposed to co-operative – and yes, we only have two of those).  In that role, to be honest, I did not give kiwifruit much thought.  I worried more about bananas, apples, potatoes and tomatoes – the real staples of the produce department.  Kiwifruit were those things people put on top of Pavlova, you know.  Similarly, Zespri and the kiwifruit industry at large understood very clearly that their real markets were not the 4 million ‘Kiwis’ occupying the motherland but the Japanese and and the Germans who were fascinated by kiwifruit, all things New Zealand and could be persuaded to pay decent money for the hairy little ‘buggers’, to borrow from Enza.

The global supermarket industry was an early adopter of networking before business sectors at large started to place any value on that concept and before social media platform began to connect us with God and the world.  I was in and out of European and US supermarkets on a constant basis and was forever hosting colleagues from those countries when they came visiting here.  There is little difference between the operational behaviour of fresh produce value chains in countries of a similar economic standard  that start with a grower, finish with consumers and involve supermarkets at the half way point.

I do understand where Kerr is coming from, in principle. But he has a few facts wrong – which is ok, given that he is a generalist rather than a specialist, but generalists who broadcast their views and want to be taken seriously ought to seek specialist advice before they start broadcasting!  So what are these facts I am talking about?

Firstly, Zespri has managed to build an enviable niche position based on innovation, brand, brand values and product quality in the face of increased global competition.  It therefore represents a degree of critical mass in key markets and key channels which allow it to exercise leverage and set the catgeory tone.

Secondly, kiwifruit growers have everything to fear from deregulation.  Supermarket buyers and category managers  typically allocate their time on the basis of the category’s importance to the business.  Bananas tend to account for circa 10% of the produce category, so bananas and their suppliers achieve plenty of attention.  Kiwifruit contributes at the low single digit percentage level, so the amount of time supermarket category managers allocate to kiwifruit suppliers is considerably less.  Unless of course, there is only one supplier from New Zealand to see and that supplier has innovative merchandise concepts and promotional support available as well as decent fruit.  We have seen what happened when the apple business deregulated.  We went from one apple marketer from New Zealand to ninety plus within one year.  International retailers were tearing their hair out. Supermarket operators like the “steady as she goes “approach.  “No surprises, thank you”, they say.  “What do mean, I have a queue of New Zealand kiwifruit growers who want to see me?” Not a pleasant prospect  for them.

Supermarket category managers  are not looking for more work.  They are not  really wanting us to drop our prices because they like things just the way they are. We will not get any thanks for upsetting their equilibrium and, if anything, they will actually get annoyed with scrapping novice kiwifruit sellers from New Zealand sitting outside their offices and demanding access. Guess who is going to loose out then?  New Zealand as a whole, because we will have just given the supermarkets the final justification they needed to switch their main focus to Chilean kiwifruit!

Thirdly, let’s just have a look at what we have got here.  We have an industry that opted for regulation after the free market model it started with had collapsed spectacularly.  Kiwifruit growers are part of the wider produce industry which has finally woken up to the fact that co-operative behaviour and co-opetition are the pathways to survival.  So what are we going to do?  Break something up that works really well because it no longer fits the principle – and then encourage it to band togther on a voluntary basis?  Get real, the country cannot afford experiments of this kind.

Lastly, anyone who has travelled through Northern Italy in the last twelve months would  have been shell shocked by the amount of devastation caused by PSA, the despair on the face of the growers – and the mess lying around in the abandoned orchards because  there is little or no co-ordination in terms of managing countermeasures and the new reality.  A stark contrast to New Zealand and its response.  A response mad possible through the robust structure of our kiwifruit industry!

No sooner had I calmed down and turned  a couple of pages in the NBR and I hit the next article of interest in this Unholy Trinity – Professor Jaqueline Rowarth’s column promoting the views of one of her Massey University colleagues on the role of supermarkets in the food chain.

All three articles and all three themes of great interest to me but the value they add individually to any reader is somewhat limited in my humble view.  I will therefore attempt to pull them together  and use the essence and learning from each situation to suggest a produce industry thought framework for future use.

The message in the Euro debt crisis article is pretty simple:  Know who you are, understand the value of your asset base and do not borrow money you know you cannot repay.  In other words, live within your means on the basis of having a jolly good handle on your economic reality.

Roger Kerr predictably blows the ‘monopoly is evil, free market is everything’ trumpet and, of course, he has a point – up to a point that is! Competition is good, competition keeps the mind sharp, competition drives innovation, innovation adds value – and isn’t that what we as a nation are desperately trying to achieve in our attempts to get ourselves out of the commodity trap and into the value add business.

Supermarkets cannot be ignored says Jaqueline Rowarth.  Farmers Markets are great little niche operators, but, hey , say Rowath and her colleague, supermarkets are THE channel to the consumer because that is what the consumer wants. Is it really that simple?

Short answer – no!  Supermarkets are in the volume business and a grower who operates at a certain scale needs supply chain partners who can cope with that scale. Assuming that the more the supermarket buys, the cheaper the produce has to become is a fallacy though.  There comes a point in the game – and that is exactly what it is, a game – where the supermarket has to pay more if it wants the produce or the produce will find a different way to reach the consumer.

And it is in that area of supply chain gamesmanship that I earn my living, so please do not expect me to drop my pants here and give you the recipe !  You know where to find me though.

APPLE BUYING IS SERIOUS BUSINESS

Growing is a mug’s game – or so one of my team members often says.  Growers are at the mercy of so many things, 75% of which are completely beyond their control!  There’s the weather, the market, transport and fuel costs, compliance, staff, pests…and that’s not the complete list. So really, why would you be a grower?

Thing is, we – human beings – need food.  And food comes from the land, from growers.  So to eat, we have to have someone to grow it.

Sure, in an ideal world we can keep a chicken or two, a goat, an apple tree and a vege garden in our own back yard.  Problem is, very few countries, New Zealand included, have the luxury of sufficient arable land to give every family the quarter acre that such a utopia requires – never mind having the necessary favourable climate, let alone the skill set…
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I have a team member with a propensity for out of left field utterances.  A recent one got me thinking, especially as it matched a theme I’d been exploring for that presentation at Peking University I mentioned in the previous post.  It went something like this:

“We’re still cavemen trying to live in a 21^st century world”

And one of my themes in myPeking speech was about the rate of change in my lifetime, how it is accelerating and methods of learning to cope with the problems this causes.

Whilst I don’t consider myself a caveman, there are times when the rapid rate of change happening everywhere I look does make me wonder if we, homo sapiens, are ready for it from an evolutionary standpoint.  Let’s face it, the human body is not built to withstand travelling above a certain speed.  We are soft flesh over a breakable skeleton.  Yet here we are, able to buy and drive cars that can travel well in excess of that certain speed.

Much of what we do, a caveman would recognise: we live in caves, albeit called houses and with air conditioning; we wear furs, although the clothes we wear come from mammoth stores, as opposed to a woolly mammoth; and we still eat nuts, berries, fruits and vegetables – although what Mrs Cro Magnon’s opinion of supermarkets would be, I dread to think.  So we’re still doing all the same things the cavemen did, we’re just more sophisticated in how we go about it.  We can devise changes in technology far faster than Mother Nature can in humans by evolution, so it’s no wonder the two are increasingly out of step.

How has this rate of change affected our food?
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As much as one might want to, escaping the wall to wall media cover about the Royal Wedding is nigh impossible.  Based on my democratic roots (one of my ancestors was a leading light in the German revolution of 1848), I have a highly developed ability to tune out most party political broadcasts related to Royalty, but one news item caught my attention.  Specifically, it was an analysis of what the then Princess Elisabeth received as wedding gifts that left me with my mouth open.  “Among the perishable items were 500 cases of tinned pineapple for distribution by the bride…”  The mind boggles. Who on earth would send pineapple as a gift? Why would this even be worth mentioning 64 years later?  I buy pineapples at my local greengrocer for $2.99 or $3.99 every week, all year round.  The tinned stuff typically gets thrown at you as supermarket specials.  Foodtown lists 440g cans of Homebrand pinapple slices in syrup for $1.58 this week.

Well, this just show how far we have come from a consumption perspective. Yesterday’s delicacy fit for Royalty and scarce for the rest of us has become today’s commodity.  It was not that long ago, 20 years or so, that all one could get in New Zealand were Queensland pineapple.  These used to sell for between $6.99 –  $8.99 at retail and buying one of these was akin to playing Russian roulette.  One did not know what one was going to get until one cut the fruit open.  Too often, the fruit was just about black and of very poor quality.  Marketers and retailers then started to make use of technology. Pineapple were peeled, cored and packed in transparent vacuum pouches in Australia and then airfreighted to New Zealand.  The price went up but at least consumers could buy the pouched fruit  and be certain that the product was fit for consumption.  The minute Dole pineapples from the Philippines became available in New Zealand, the Australian product in both packaged and natural form disappeared over night and our produce departments have never been the same since.  But that is a different story which will need to wait for another day.

And who gave the Queen pineapples in 1947 ?  It was Portugal, which not only had remained neutral in WWII but also had and still has control of the Azores, a group of islands where just about anything grows.  Given the state of the Portuguese economy, one does wonder what this year’s gift might be…

A couple of news items on National Radio caught my attention this morning.  The first one related to Kiwi Rail’s intention to buy more rolling stock from China instead of having the waggons built from scratch in its own workshops in Lower Hutt and Dunedin .  The second item concerned the intended sale of TVNZ’s Avalon Studios.  They also are in Lower Hutt.  Predictably, the supporters of those facilities are getting ready to head for the barricades, suggesting not building one’s own railway waggons or not producing one’s own TV shows makes no economic sense whatsoever, given that a) the competence exists and b) the economic necessity to preserve as many jobs as possible should be obvious to even the most dimwitted inexperienced politician. The counter argument suggests that it makes perfect economic sense to buy goods and services offshore if one’s own capacity is insufficient or if one’s own cost of production cannot match cheaper labour sources offshore.  Chuck a couple of accusations related to xenophobia into the mix, interview a minister or two and the debate takes on a life of its own.

As I was pondering what I was hearing, I could not help but think that there is a connection with the produce industry.   The old colloquial term of market gardener, for example, implies something doesn’t it?  It implies that the individuals concerned produces his or her produce for a market.  Where could one traditionally find market gardeners?  Around the towns.  Where were the markets located? Inside the towns!  Being a market gardener therefore suggests a degree of proximity to the locality where the produce meets the consumer.

Is This Really The Solution?

At the beginning of the 20th century Auckland’s market gardens used to be where the Ellerslie racecourse is today.  As the city grew the gardens shifted to Mangere.  Evidence of that can still be seen between the airport and the Manukau motorway. After the second World War, Pukekohe increasingly gained in importance as Auckland’s fruit and vegie bowl.   These developments played out all across the country to a greater or lesser degree.  A lot of Wellington’s vegetables used to come from Otaki initially.

The produce supply scene is changing on two planes.  Firstly, the corporate supply chains at wholesaler or retailer level distribute parcels of produce around the country based on what is the most efficient source on the day.  Gisborne lettuce can be found all over the country as can South Auckland tomatoes. Growing produce locally is therefore no longer a necessity. Secondly, the volume of imported produce, particularly imported vegetables destined for the process industry, is rising drastically.  On the other hand I saw a Turners & Growers press release recently which announced the company is now the largest exporter of Peruvian asparagus into Japan.

What does this mean?  Ask an economist and he will suggest that the sensible way of going about business is to produce goods and services in the most cost effective way.  And if that is China, so be it.  Sociologists will argue that basic functions like food production need to conducted within spittting distance of the people the food is intended for.  Governments are beginning to to grapple with the concept of Food Security.  History tells us that as societies progress, its members no longer want to perform the more basic job function but are looking for more complex tasks to take on.  Germany invented the term Gastarbeiter in the sixties, guest workers, for the mainly Southern European unskilled labour force which was imported to do the jobs Germans no longer wanted to do.  The Communist regime suffered from the same malaise.  East Germany brought in thousands of North Vietnamese workers for exactly the same reasons.  New Zealand did the same with Pacific Islander in the seventies – and today our industry has the RSE scheme for very similar reasons.

Helen Clark called agriculture and horticulture sunset industries ten years ago and substantially reduced government investment into our industries, wishing us to concentrate on developing high tech export solutions instead.  And yet – horticulture and agriculture are part of the very fabric of our society.  We need to eat to survive.  We need food. How much responsibility do we need to take for this individually apart from doing our hunting & gathering in the local supermarkets? 

The answer, I suggest, lies somewhere in between. As a country we cannot afford to be too reliant on commodity exports.  Yes, prices might be good for a few consecutive weeks, months or even years – but low entry barriers, over- supply and changes to demand will always create a  roller coaster effect .  It is just a question of “when.”  Conversely we cannot afford to go exclusively high tech altogether and import all our food. We can afford this neither financially nor as a society.

What we need then is a mix of sensible commodity production, value adding processing industries and mechanisms which allow us to generate, harvest and market intellectual property along our entire value chain.