Chinese counterfeiting looming cloud on Zespris bright demand outlook

Kiwifruit export marketer Zespri expects Chinese counterfeiting of its highly successful SunGold brand to grow rapidly now in China as volumes of the variety and consumer demand swell.

Chief executive Dan Mathieson said Zespri is one of the counterfeited fruit brands in China, the world’s biggest grower of kiwifruit.

“When our New Zealand season finishes there is five months of space for supply to come in from the Northern Hemisphere and from China production. At that point we see a lot of counterfeiting of the Zespri brand – putting the Zespri brand on other fruit from other origins and selling it as Zespri fruit.

“That’s a big concern for us.

“The second issue we’re going to see is variable quality undermining the confidence of consumers in the SunGold. That’s why we are very focused on our 12 months [of the year] supply strategy.”

Mathieson said some of the unlawfully grown fruit is of a high standard, but some quality was “really poor”.

“That will devalue the offering of SunGold and undermine confidence.”

While counterfeit labelling and packaging of the Zespri brand is not new in China, the grower-owned Bay of Plenty company has a major headache there now with fast-spreading rogue growing of its highly successful SunGold or G3 variety.

The variety IP is owned by Zespri, which believes at least 5500ha of the fruit is being grown unlawfully in China. China is Zespri’s biggest export market alongside Japan.

“Our team on the ground in China continues to collect information across orchards and the supply chain and at the consumer interface we will monitor the counterfeiting of the Zespri brand which we expect to grow rapidly …. with G3 coming in bigger volumes and consumer demand growing,” Mathieson told the Herald.

Zespri has a plan to try to counter the undermining of its brand in China through tightly-controlled commercial trials with Chinese growers – but getting that past New Zealand growers could be challenging.

They are voting now on Zespri’s proposal for a limited first trial with the results expected after June 25.

Zespri is proposing a one season trial starting later this year contracting about 20 Chinese growers to supply up to 200,000 trays of SunGold.

The fruit would be contractually procured and quality would be monitored in the orchards and a post-harvest facility, with Zespri marketing and selling in China fruit that met its quality standards.

Mathieson has been working on the proposal in China with growers and local and central Chinese government.

If the trial was successful, Zespri would go back to its 2500-plus New Zealand sector owners to ask to start a second trial in March next year.

Mathieson believes the proposal has a lot of support but “it’s also clear there are those that don’t support it”.

The proposal requires the support of 75 per cent of growers who vote.

So what’s Plan B?

“If we don’t get the vote across the line we have options. China doesn’t stand still, things keep developing there,” he said.

“Our job is to continue to focus on growing our returns out of China while learning more about the situation on how production is evolving and bringing that information back to growers to continue the discussion.

“It doesn’t end with one vote. The conversation is ongoing.”

Mathieson said Zespri spent “a lot of time and money” finding companies that counterfeited its labels and boxes and took action against them where possible in partnership with Chinese authorities.

“That has been successful. We’ve been given the status as a trusted brand. The Chinese have their own brands they’ve developed and that are successful and they want to protect those.

“I think authorities see the value brands bring to consumers so they work with us to help police that.”

How much Zespri is spending a year combating counterfeiting in China was not immediately available. The company posted $3.14 billion revenue from global fruit sales last year.

Mathieson conceded China was a massive country and Zespri did not have the resources topolice it all.

“We can’t be everywhere so we need to continue to do that [combat counterfeiting] to protect our brand just as every other international company in China is doing.

“At the same time we need to find a way to have a great quality kiwifruit available for the Chinese consumer for as long in the year as we can. That’s what we [will be] testing through the trial.

“We believe trialling whether that is possible or not is better than not doing anything.”

Mathieson said Zespri was working with Chinese authorities through plant variety right protection channels.

“We know they are also interested in strengthening plant variety rights….they want to see more innovation coming into their primary sector and horticulture from Chinese companies.

“To do that they need stronger PVRs. I believe that will continue to evolve positively.”

Kiwifruit growers advocate NZKGI said it had to stay impartial over the current voting process. It was ensuring growers had all the information they needed about the proposal but could not steer voters.

Mathieson, a New Zealander who is headquartered in Singapore, said he would be staying in New Zealand now until September.

While the China situation was very concerning, it was not the biggest issue on his plate.

The labour shortage was hitting at a time when demand for Zespri’s fruit had never been higher, with Covid heightening consumer awareness of health and nutrition.

“We have incredible demand for our fruit. We see that growing well into the future.

“We are a very small category in a large fruit bowl and we also have low penetration rates in our major markets and geographically, we are only in a few countries around the world.

“So that gives us confidence there’s a whole lot of headspace to grow in a sustainable way.

“On the other hand we are really struggling to get enough people to come in to support that growth.”

The kiwifruit industry was trying to counter the labour shortage by paying living wages, and running training and development programmes to encourage Kiwis to develop a meaningful career in the sector.

“On the 10 year horizon there’s a focus on automation – particularly in the post-harvest sector but also hopefully in the orchard as well.

“We’re doing all those things but we still have a big shortage of people to support this growth.”

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