Friday 24 July 2009

New Zealand: Free market agriculture on N - 1 dimensions

New Zealand abandoned agricultural subsidies in the 1980s. The transition wasn't easy, but the wide majority of farmers here prefer things as they are: no going back.

Compared to the rest of the world, we're paragons of virtue. So I was surprised to learn on moving here of Zespri's legislated near export monopoly on Kiwifruit. In short, any kiwi grower wanting to export anywhere other than to Australia has to go through the single-desk seller, Zespri. The National Business Review reports on a challenge to this monopoly from Turners & Growers:
Under the Kiwifruit Export Regulations 1999, Zespri has a monopoly over the export of kiwifruit from New Zealand, except to Australia.

This single desk selling system is widely accepted by kiwifruit growers because it controls the volumes of their produce in the global market, which leads to higher prices. Control over fruit volumes would be lost with deregulation of the industry, and growers fear that would undermine their returns.

However, Mr Gibbs said Zespri does a poor job selling the concept of New Zealand alongside the brand, which is more valuable than the label.

“It’s very simple. We don’t believe the Zespri brand is the only way to go. We believe the brand is New Zealand.”

Speaking from London, where he is on business, Mr Gibbs said the kiwifruit marketer has ignored the strength of the New Zealand Inc brand in some ways and should be further trading on this country’s clean and green reputation overseas.
Boy does this sound familiar to anybody raised on a farm in the Canadian prairies. As usual, the Canadian variant is far worse: there, the Canadian Wheat Board is the single-desk seller for all wheat grown west of Ontario, sold either within Canada or for export. The CWB claims that its position allows it to charge premium prices on the world market; Canada's market share in the world's traded wheat makes that rather implausible. As best I understand it, the Canadian system persists because lots of small farmers, inching towards retirement but holding onto a few acres and permit books, vote in favour of the CWB in the occasional plebiscite and vote for pro-monopoly candidates for the board; they're a minority by tonnage but a majority by body count. Organizations like the Western Canadian Wheat Growers push for an end to the CWB's monopoly, but haven't had great success as yet.

Back to New Zealand. The arguments sound pretty similar. Zespri argues it's able to command premium prices because of New Zealand's dominant position in kiwifruit production. Here, the claim is a bit more plausible because while wheat is durable and stores well, fruit doesn't. Italy is the world's largest producer, but we're in the opposite hemisphere. Chile's in the same growing season, but exports roughly half as much as does New Zealand. However, a report by Lew Evans and Co for Turners & Growers cites evidence from Treasury that New Zealand is not able to command any price premium in world markets. Turner's and Grower's statement of claim is compelling.

Absent really really strong evidence that a legislated export monopoly strongly benefits growers, how can the government justify banning a fruit grower here from selling his fruit to a willing purchaser?

One small aside: The New Zealanders in our Department tend to eat their kiwifruit skins and all, like a plum, rather than peeling them. Makes me wince every time.


  1. There is also the issue of a price premium based on quality. If you have ever seen NZ kiwifruit sitting next to chilean fruit in a US supermarket, you'll know what I mean. If there are poorer quality NZ fruit reaching these markets then any quality premium will be eroded. I would like to see independent verification that there is no price premium for NZ fruit...

  2. I understand it's the same setup with the NZ Hops industry, except they also control the domestic market too. Seems I can't link here, but google NZ Hops Ltd and select the 3rd link down by MAF.