Zespri faces a China conundrum

China is New Zealand’s biggest kiwifruit market. Growth of this market has been spectacular with the Zespri-owned SunGold variety much-loved by Chinese consumers. The problem is that the Chinese are also growing at least 4000 hectares of SunGold without the permission of Zespri. 

That compares to about 7000 hectares of SunGold grown in New Zealand.

The question now facing Zespri and the New Zealand kiwifruit industry is what to do about it.  There are no easy solutions.

This issue is something I discussed with local folk in the kiwifruit-growing regions of China way back in the years between 2012 and 2015. It did not need an Einstein to work out that the SunGold budwood was already there. However, Zespri at that time had its mind on other issues. Also, they probably had no idea how popular the SunGold variety would become.

My impression at that time was that Zespri was a little too cocksure of themselves on most matters relating to China.  They had a presence on the eastern seaboard of China, where they were in some trouble over Customs duty avoidance, but the kiwifruit growing regions were thousands of kilometres away in the west. They really did not know what was happening.

Given that Zespri has the plant variety rights which run through to 2036, they can now, in theory, demand that all of the SunGold orchards are cut down.  However, the practicalities are daunting. China is a very big place and finding the orchards and identifying which ones are SunGold is scarcely practical.

One of my mates who knows a lot about both China and kiwifruit reckons there could be as many as 20,000 small-scale kiwifruit growers who have the SunGold variety. But none of us really knows how widespread the plantings have been.  There will be a few big corporates, but much of the plantings will be on land owned by old-style small-scale farmers.

To put it bluntly, Zespri has been very slow to address the issue and there is a powerful argument that the horse – or in this case the SunGold budwood – has long since bolted. These are relatively poor people, even by Chinese standards. There is potential for Zespri to do considerable damage to its reputation in China.

Also, it is not a crime for these Chinese growers to have a SunGold crop. If Zespri wants to enforce its legal rights it will have to do this through the civil courts, not through the criminal system.  

Most of the growers probably have no idea that Zespri owns the plant variety rights.  What they do know is that kiwifruit are native to China and not New Zealand.  They have their own varieties of green, gold and red kiwifruit for thousands of years, but they are very keen on this SunGold variety.

Chinese kiwifruit varieties, Shaanxi Province, Nov. 2012.     Keith Woodford

If New Zealand does try to enforce its perceived rights there could be interesting questions in China as to where did New Zealand get its genetic material from? The answer of course is that it came from China, with New Zealand scientists then using this as the foundation for their breeding programmes.

At some stage, someone will also ask as to whether New Zealand paid the Chinese for rights to the original genetic material. The answer to that will be: ‘Actually, No, we just took it’.

The Chinese Government has acknowledged the current situation and there is at least implicit recognition that Zespri does have intellectual property rights. But it will be Zespri’s job to do the hard work. That is the way it would also be in New Zealand, where the Government stands back from civil intellectual property litigation cases.

Zespri has therefore come to the belated conclusion that it might be better to aim for a commercial resolution rather than a legal one. They now have a preliminary agreement to work with a large-scale corporate kiwifruit entity in Sichuan which just happens to be owned by the Sichuan Provincial Government. The stated aim is to create a win-win for all parties. The Chinese Government says it thinks that is a good idea.

Unfortunately, it is not quite as simple as that. Although Zespri is the monopoly marketer of New Zealand kiwifruit beyond New Zealand and Australian shores, it has to get sign-off for an agreement like this from Kiwifruit New Zealand (KNZ) which is a regulatory body. Right now, KNZ is saying they are not convinced this is in the interests of New Zealand kiwifruit growers.

At this stage, we do not know the details of the proposed agreement with the Chinese group.  Once KNZ indicated its lack of enthusiasm, Zespri withdrew the draft agreement document they had reached with the Chinese company. They are now working on a revised agreement.

In all likelihood, a revised agreement will need to be approved by kiwifruit growers in a vote. The lobbying in relation to that vote is going to be very interesting.

KNZ has said that they are nervous that New Zealand expertise in the growing of kiwifruit will be given to the Chinese. This thinking is likely to be flawed. The Chinese already know how to grow kiwifruit. Their challenge is to spread the existing expertise throughout their industry.

The other big question, which KNZ may or may not have asked, is how effective will the agreement be? That is a big question.

The agreement seems to be based on the assumption that most of the SunGold is in Sichuan Province where the Sichuan Government has authority. However, not all of the SunGold is in Sichuan. Some will be in Shaanxi, some will be in Gansu, and some will be further afield. Almost certainly, none of us, including Zespri, are in a position to quantify the specifics of what we mean by ‘some’.

Even without an agreement, Zespri will be able to restrain large-scale marketing of Chinese SunGold to Europe, North America, or Japan. Any importer from those regions would be at risk of having their produce taken away by Zespri.

Accordingly, the likelihood is that most of the Chinese production will stay within China. Recently, I caught up with an old China-hand who first went to China some fifteen years ago to organise the sale of Chinese horticulture products to Europe. Instead, he found the internal prospects were so good that he has spent the last fifteen years growing and marketing fruit (but not kiwifruit) within China itself.

The growing seasons for New Zealand and Chinese kiwifruit are complementary. That is why, right now, those of us addicted to kiwifruit are having to eat Northern Hemisphere product from Italy. The shelf life with current technology is only around seven to eight months.   

Accordingly, it is not hard to envisage how working with a local Chinese group could be of benefit in marketing New Zealand kiwifruit across the vast lands of China. Across those lands there are more than 150 cities, each one having more than one million people, most of which Zespri will not get to by itself.

 Given the above realities, it makes sense for Zespri and the New Zealand industry to try and find a win-win solution from which everyone benefits. Eastern cultures tend to favour such approaches but it is not deeply wired into New Zealand business DNA. So, the New Zealand grower discussions are going to be very interesting.   Whatever the outcome, not everyone is going to be happy.

About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Agribusiness, China, horticulture, Uncategorized. Bookmark the permalink.

1 Response to Zespri faces a China conundrum

  1. Pingback: Rural round-up | Homepaddock

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