Where is the benchmark for a survey leading to a yes/no decision on ending the Zespri monopoly of the kiwifruit industry?

That benchmark is innovation driven by R&D ‘which appears to be very important in the kiwifruit industry’, says NERA Economic Consulting, Auckland, in a 16-page report. The paper, The Impact of the Zespri Kiwifruit Export Monopoly on Innovation Incentives, was prepared for Turners & Growers and released on 29 June.

Along with the NERA report comes 38 pages from Turners & Growers – Releasing the Economic Potential of the NZ Kiwifruit Industry – prefaced by a plea by T&G’s Jeff Wesley and Tony Gibbs for growers to ‘at least read the executive summary’.

Says NERA:’Investment and innovation are the most important issues [governing] the long-term interests of New Zealand kiwifruit growers.’ It says this conclusion lines up with the Government’s 2009 Budget funding allocation to the primary sector, and with MAF’s statement: ‘Innovation in the primary and food sector industries will be essential for New Zealand’s long-term economic growth and improved environmental performance.’

Grower politics (and terrors about the bad old days before Zespri), ideological murmuring about single-desk vs multi-seller marketing, etc, must finally defer to the facts of how the New Zealand kiwifruit industry got ahead and is most likely to stay ahead; how and why did the appeal of that furry little fruit on the plates of millions of consumers persuade them they had to buy again?

‘Growers’ long-term interests are best served by an industry structure that facilitates innovation and investment,’ NERA says, meaning you have to spend large on R&D to get and stay ahead of the pack, with your eyes firmly on the consumers and your competition.

And running close second is the argument about attracting capital for that development, and productive and economic efficiencies.

Consider the contest between green and gold fruit, says NERA. In world markets once dominated by Hayward (green), New Zealand gained a cash advantage with Gold kiwifruit – annually $206.9 million to date and likely about $200m over each of the next 10 years.

‘To… repeat those gains and compete with overseas R&D… the Zespri-regulated monopoly needs to be removed,’ allowing more Gold-magnitude gains, on the back of a variety of commercial strategies, and with capital-raising ability unconstrained so that more money can be spent on the essential R&D.

Also, deregulation would likely increase the pressures on Zespri to cut its costs with ‘productive efficiency’ gains saving $5.3m annually, NERA says.

Now that China is seriously involved, the magnitude of the competition for ‘our’ kiwifruit markets is worrying.

NERA sees evidence of R&D in China, with a yellow fruit developed there being marketed in Italy, and a red-flesh variety selling widely in Europe. China is clearly about to start moving up through the gears in selling kiwifruit to the world.

NERA also sees evidence of ‘considerable R&D in Italy across a number of new varieties of green and yellow fruit’, some with advantages over Hayward.

And NERA argues that single-desk marketing is not necessarily high-strength marketing generating export price premiums. After all, other producers are out there driving their ‘desks’.

‘Economic studies of single desks have found little rigorous empirical support for [single-desk] market power claims,’ NERA says.