New Zealand short story icon Frank Sargeson was actually a bit of a produce marketing expert as well

New Zealand short story master Frank Sargeson summed up the essence of the risk involved in supplying produce markets in 1941.

“If you grew something for sale, he found out, particularly if it was something that would not keep, you mainly had to take just what people would pay for it, even though you might get a lot less than would pay for the work and expense it had cost you.”

Sargeson made these comments in a story entitled “ A Man of Good Will” – a story that described the relationship between the writer as a boy and “a tomato grower who was supposed to be eccentric.”

Sargeson’s comments are as relevant today as they were in 1941. A little further on in the story Sargeson’s eccentric tomato grower takes matters a bit further.

“Well, the world was a funny place, he said, you’d strike people who’d grumble over the price of tomatoes when it hardly paid you for the work of picking them, yet if you’d ask those people to work for such little return they’d had properly hit the roof.”

Little has changed today, 67 years later.

Growing tomatoes, or any other fresh produce for that matter, without having a market for the produce is a big risk and invariably growers end up having to take what buyers are prepared to pay for it.

Yet by the time this produce for which no one can determine a firm price until the buyer is prepared to offer one reaches the supermarket shelves, a price ticket has miraculously emerged and on the basis of the cost price paid to the grower, the retailer has created a price for the consumer which very much so tries to make sure that all costs the retailer has incurred in handling the produce are covered and accounted for.

And a profit needs to be made as well, of course.

Sargeson had figured this inequality in approach out as well and that was before supermarkets had become the dominant force they are today.

“And this was a different thing from the big store he had worked in”, said Sargeson, “where you usually managed to buy at one price and sell at another that would always keep you on the right side. You did not wait until you were offered a price, no, you mainly got the price you asked for.”

Sargeson died in 1982 and the world has moved on since but not sufficiently enough to make his comments irrelevant.
The produce industry is still very fickle. New supply channels have opened up, consolidation has occurred in the production and retail sectors alike, and growing produce is no longer a marginal land based activity hovering at subsistence level. A 10ha size glasshouse complex is considered an economic production unit and as a consequence, consumers now have access to New Zealand grown tomatoes 52 weeks of the year which had not always been the case. It is easier for retailers to predict consumer demands because local tomatoes are on the shelf all year around and price fluctuations are moderate by comparison.

Similarly, the influence of the domestic produce wholesale sector in writing domestic supermarket business has reduced. Supermarket buyers are forever trying to get closer to the grower, partially in their desire to optimise margins and partially due to indirect consumer pressure in relation to product knowledge.

That’s how things work in New Zealand – or at least that how they used to work here.

One of the country’s supermarket chains, Progressive, has now been owned by Australian connections since 1987. Melbourne based Coles Myer bought Foodtown and Three Guys at that time and, boy, were they going to set the world on fire. What a wonderful opportunity they said, for the New Zealand grocery industry to benefit from the superior skills of the Australian retail mindset. And off we went on our rollercoaster ride. Six years down the track, with the New Zealand experiment having failed to deliver the required the corporate returns and after having totally mismanaged Progressive’s marketplace position vis a vis Foodstuffs, Coles Myer sold out to Foodlands.

A short while after withdrawing from New Zealand, the then Coles Myer Managing Director Brian Quinn resigned from his position to take up a new role: inmate of Her Australian Majesty’s Loddon Prison in central Victoria after having been found guilty of misappropriating company funds for private gains – specifically, having his mansion in one of Melbourne’s exclusive suburbs renovated by the Coles Myer stores maintenance division and having a heated swimming pool installed on the property, all to the tune of A$4.5 million!

Foodlands merged its newly acquired Foodtown and Three Guys supermarkets initially with the already owned Countdown chain and a few years later, in 2002, merged it with the New Zealand Woolworths supermarket group, freshly purchased from the Dairy Farm group when that company decided to exit Australia and New Zealand.

Throughout the years under Foodland ownership, West Australian fresh produce business models were being investigated, trialed and rejected at what must have been at considerable cost to Progressive.

Rejected, interestingly enough, for two reasons. Firstly, there was an absolute limit to the ability of what amounted to a bunch of Perth and Hinterland based provincial owner/operator grocers, who only came together under the Foodland banner for the purpose of grocery wholesale benefits, to direct the fortunes of a substantial corporate New Zealand food retailer by remote control from WA.

Secondly, by now the New Zealand model had started to actually work quite well. It was generally understood which grower was targeting which market. There were still no supply contracts in place, the produce industry is not too keen on those being commodity based and all, but the system worked. Larger growers were establishing packhouses and coordinating the activities of other growers as well. The supermarket retailer committed to direct supply was benefiting through knowing that its demands for consistency in supply, grade and quality were being met without causing a logistics nightmare in the distribution centre. The supplying grower/packer benefited by enjoying a degree of certainty related to supply, which generated the confidence for capital investment needed to satisfy the demand of the retailer who had by now grown to 185+ stores.

Now the company is owned by its third Australian owner in 20 years. This one is from Sydney. Not surprisingly, this one also believes that the Australian fresh produce supply model is the cat’s whiskers and far superior to anything developed locally in New Zealand.

But unlike the previous two, the Woolworths Group is neither inept nor preoccupied by the CEO’s swimming pool or similar activities. This one is determined to bring the Australian model into the New Zealand, come hell or high water.
Is this a bad thing? Don’t they have a right to do what they like – after all they own the joint?

Ownership does, of course, grant certain privileges, but ownership needs to be seen within context. The context that matters in this particular equation is that New Zealand is not a state of Australia but an independent nation which operates an economic model that has evolved separately from its Australian counterpart. The New Zealand economic model is based on several facts that fundamentally define the difference between New Zealand and Australia.

New Zealand has 4 million citizens compared to Australia’s 21 million. We are an island nation, with the largest two islands separated by a 4 hour ferry ride, whereas Australia is a continent and the distance between Sydney and Perth is covered by a 4 hour jet plane ride. New Zealand’s wealth (or lack thereof…) is based on an agricultural commodity producing structure geared for export, whereas Australia’s wealth is mineral resource based. New Zealand’s tangata whenua are somewhat more integrated into main stream society than Australia’s Aborigines, although there is always room for improvement. New Zealand’s climate is a Mediterranean island climate where temperature extremes are the exception rather than the norm. Australia is far closer to the Equator and temperature extremes are the norm rather than an exception. New Zealand imports its bananas, whilst Australia bans the importation of bananas in order to protect its inefficient domestic industry.

I could go on but readers will get my point.

How many suppliers per crop category are needed, in order to ensure competition principles are in play? The answer is – it depends. It depends on market size, the nature of the category itself, the level of investment required to turn out quality produce on a consistent basis and the degree of sophistication demanded by the consumer.

There is a limit how many tomato packhouse and production complexes, for example, the New Zealand economy can sustain, given the size of the market, the cost per m2 of glasshouse, and the way demand is spread across the country.
Forcing the local horticultural industry back into an outdated central market based business model just because it is believed to work well in Australia – an opinion which this writer would beg to differ with in any event – is not only shortsighted and unwise but also detrimental to the New Zealand economy as a whole. So why should we be subjected to this? On the basis of foreign ownership?

I never thought I would find myself in agreement with the Rt. Hon. Winston Peters, but I must say I am rapidly coming to the conclusion that he has a point in his campaign to expose the folly of foreign ownership of New Zealand assets.
Growers, including tomato growers, have the right to earn an income from their work on the land as well as a return on their investment. When they can’t and lose hope, they rebel. Here is Sargeson again:

“He should have been nailing up cases in the packing shed but I didn’t hear him, though when he called me to lunch I noticed as I went past that the tomatoes we’d picked the afternoon before had all disappeared. He was drying his hands off outside on the verandah and straightoff he said, Come and tell me if I have made a good job. So we went down the length of the glasshouse to the front of the section, and there, just inside the gate, he’d put all the tomatoes in a heap. Not just an ordinary heap though, he’d built them up into a sort of pyramid, the way you see them in shop windows, only this one was a monster.”

If Woolworths persists with its determination to change the way the New Zealand produce industry operates – and there is no indication to suggest otherwise – there will by necessity be a realignment of how the various supply channels in existence across the industry will source the produce required to keep the supply lines humming. And, of course, the industry will survive, although some participants may not and some supply channels will dry up or become unrecognisable. The New Zealand produce supply system will, however, never work the work the way it works in Australia, because this is New Zealand, not Australia and even big supermarket chains cannot change some of the key geographical, demographical and economical differences that exist between the two countries.

Sargeson’s tomato grower was a determined fellow:

“And besides leaving the heap of tomatoes there, he was all the time making it bigger with every lot that we picked. One morning I turned up for work and struck him having an argument with our carrier. It was our main market day, and the carrier had made his call to pick up the cases we’d normally have been sending into town. My boss was saying he wasn’t sending anything in, and the carrier was pointing to the heap and asking what the big idea was. I stood listening, and my boss just laughed and said, No my friend, until the carrier got annoyed, and drove off after shaking my boss’s hand from his arm, and telling him he was clean off his rocker.”

Most growers have their own trucks these days, typically temperature controlled and efficiently loaded and unloaded, a benefit of having certainty of supply and being able to make capital investment decisions with a degree of confidence. Asking the truck driver to deliver the produce elsewhere in future will be the easy part of any new way of doing business.
Change is inevitable and there is nothing more certain than change. Robust businesses are able to manage change, survive and prosper, but change needs to make sense in order to be embedded and become the new norm – and change needs to benefit the entire value chain from consumer to grower in order to be sustainable.

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