David Mardon – Apple & Pear Marketing Board

Michael Fowler: Tonight it’s our pleasure to introduce Mr David Mardon, who’s going to be talking about the history of the Apple & Pear Board, [sound interference] so welcome, David.

David: Thank you. Evening all; and I see in the audience Bob Masters. If we look at the history of the Apple and Pear Board, Bob’s dad was a director of the Board for a number of years. Anyway, I guess I ought to acknowledge a number of folk before we start.

Rose Mainwaring: Rose … in 1999 the Hawke’s Bay Fruit Growers’ Association celebrated a hundred years, and a few years earlier, Rose was contracted to write the history of fruit growing in Hawke’s Bay. ‘100 Harvests’ was the outcome. For this talk, ‘100 Harvests’ proved to be a goldmine, and I must thank Rose and the late Jenny Shaw who helped with the research, most sincerely. Also, there was [were] two Board engineers, Charlie Sutherland and Hilton Taylor: Charlie for the information on CA [Controlled Atmosphere] storage, and Hilton for the Whakatu data; and of course Ken Kiddle: Ken was one time Chairman of the Apple and Pear Board, and really I would class him as the grand old man of the Hawke’s Bay apple industry.

So, the beginnings of the Apple and Pear Marketing Board go back to 1948, when the government agreed to the establishment of a marketing board to handle the apple and pear crop. As reported in ‘The Orchardist’ on the 5th of October 1948, the agreement was finally reached on handling the apple and pear crop with a Marketing Board, with guarantees. This would alter security and stability for the future, and the new Board would have power to acquire and market all apples and pears grown in New Zealand or imported. The average price paid in any one season was to be determined by the Minister in consultation with the Board, and it was to be within the limits of sixpence a case above or below the declared cost of production.

Two members were nominated by the industry, two by the government and the chairman to be nominated by the government. Prior to this, the industry had struggled to be viable. In 1936 a deputation of growers had met with the Prime Minister to inform him they could not meet the nominated basic wage for orchard workers. The Prime Minister said the government recognised the fruit industry was “essential to the welfare of New Zealand, but it must continue and be placed on an economic footing. To place the industry on such a footing, the government may deem it necessary to take control not only of export, but of the local market as well.” By 1937, the government announced it would guarantee exports but had nothing on local markets, which at that time represented 70% of fruit sold. A guarantee of 10/6 [ten shillings and sixpence] a case was instituted for export fruit. For the first time this was aimed at ensuring the costs of production were met, rather than just acting as a safeguard against major loss. For the ’38 crop the government assured growers it would assist with local market to the tune of £40,000 [pound].  Growers were beginning to be caught in a trap between accepting government assistance and thus losing control of their industry to the government, or going it alone.

In May 1939 with war looming, growers bit the bullet. Growers decided it wished the government to take over the marketing of all pip fruit, many orchardists regretting losing control of their industry, but at the same time were aware that the industry had failed to command an adequate return for its product. And so the IMD – the Internal Marketing Division, or as it became known to growers especially, the Internal Meddling Division – [chuckles] took over both export and local market. The IMD undertook extensive advertising campaign[s] to stimulate apple consumption in New Zealand. We had been producing an average of 3,000,000 cases annually in the 1930s, but 1.25 [million tons] were exported. With no exports because of the war, every man, woman and child would have to eat an apple a day to avoid a surplus; hence the Apple in Schools programme and the Aunt Daisy Radio features – and some of you may remember them.

The British government took meat, wool and butter, but for fruit they were unable to offer any agreement or even shipping space. The first two years of trading in ’49 and ’50 made losses; 1950 was a particularly bad year for Hawke’s Bay growers with hailstorms in November and February destroying a considerable portion of the crop. I remember the February hailstorm as I was at Mahora School, and I had a job that afternoon of delivering class registers to the prefab classes out in the playing field, and to the south it was inky black. And I also recall the damage, especially on Golden Queen peaches in that particular year.

The formation of the Board was not without its problems; reaching agreement amongst growers was a hurdle in itself. Both Nelson and Hawke’s Bay, as major production districts, were in agreement but the problem lay in so-called minor districts, such as Auckland, Canterbury and Otago. Traditionally, their market lay at their front door and export played second fiddle. To get these minor districts into the scheme, it was finally agreed to a ‘District Differential’. This amounted to paying for example, what it would cost to freight product from Hastings to Auckland. This payment was to be made to Auckland growers, as well as his fruit value payment. The industry needed all growers in the scheme and this was one of the carrots in achieving that agreement, although it remained a contentious issue for many years.

The waterfront strike of ’51 posed a new threat to the fledgling industry. On 21st February the government declared a state of national emergency, and within a week armed forces began loading strike-bound ships. By the 3rd of March, Nelson orchardists had ceased picking all apples and pears except for Cox’s [Orange Pippin], as cool store place was almost saturated. Hawke’s Bay growers were able to direct more to local market. Wrapping paper supplies because of the strike also caused many headaches. By early April the Assembly Depot stopped accepting fruit as there were [was] no more storage available. Growers were advised to leave fruit on the tree as far as possible as it was felt its condition would be better there. Further instruction was given that harvested fruit was to be stacked in the shade or in well-ventilated sheds. At the end of April ports began to function again. However, for that year, ’51, the Board only exported seven hundred thousand cases instead of an estimated two hundred and fifty thousand. [Correction to figures required]

At the end of ’53 the Board took over from the IMD, fourteen years after the government had taken control of marketing. The Board bought most of the properties – coolstores etcetera – and equipment owned by the IMD. Harold Thorley, the then manager of the IMD, became manager of the new Board. The old IMD building in King Street was for many years a landmark in Hastings, with its metre high wooden floor, internal coolstores, miles of noisy conveyors and a saw-toothed roof structure, and where every case of fruit was lifted by hand. In ’58 after ten years of trading, the Board was selling to nineteen countries, and in that year sales amounted to £3.5 million for an export total of 1.8 million cases.

A new hundred thousand case cool store was built on the King Street site and it was named after Arthur Miller. Arthur was appointed to the Board in 1954. He was only to serve a few months; just days after returning from a fact-finding mission in Canada and the US he sadly died, at the age of forty-nine. This store, like what [those] he saw in the US, had the capacity to stack to twenty feet in height on pallets. The Board lacked cool store space after the war and subsequently built four hundred and twenty thousand cases of capacity, nationwide. The Board also pioneered the use of forklifts and pallet loading in 1958, and cut the labour force by two-thirds at its Hastings depot, the largest single assembly point for apples in New Zealand. Pallet loading and forklifts introduced by the Board were copied by other primary industries, and if you look around this district now, forklifts would amount to thousands easily, wouldn’t it? In all industries; and I guess a lot less freight [??] gets fixed-up backs.

Throughout this period and into the mid-eighties, all packed fruit was inspected as it entered the Board facilities. This was done by MAF [Ministry of Agriculture & Fisheries] Inspectorate under contract to the Board. The inspection facility had a double drive-through system with an island between, and it was on this island where fruit was tipped onto padded tables for inspection. Now this was a great place for conflict – on one side the inspectors; the other side the grower or the carrier, and if a line was rejected – and there was a list of things that could require that – the load had to be returned to the grower’s shed for repacking. This, for the grower, was a major hiccup and cost. Of course, people and personalities played a significant role. Season-stressed growers versus hard-hearted, usually, inspectors – that was in the growers’ view – and of course, money at stake; it was a volatile mix. Names that come to mind: inspectors Jim Curran – you needed to catch Jim on a good day [chuckles] or else you took your load home – Bill Miller, Clarrie Brown, Joe Burl, Morrie Cartwright; these men were well known to every packing shed in the district.

In ’61 … the development of an apple cannery in the Nelson area by the Board – and they received much help from British Columbia Treefruits. Hawke’s Bay had the opportunity to supply Wattie Canneries with canning fruit at that point. And ’68 saw changes in the make-up of the Board; there would be four grower members, two government appointees and an elected chairman. Also the price-fixing Authority was established, to fix the price per case, per variety, for each season.

The idea of naming cool stores after Board members and those who had connections with the apple industry continued at Williams Street and later with the Whakatu complex. The first at Williams Street was the J H Parker cool store. Subsequent stores were the Bill Benzie, six-room store; the Bill Gestro, a larger four-room store; and the Ken Kiddle, also a four-room store; and these of course are still named at Williams Street. An extra office block was built, resulting in all staff transferring to Williams Street. The Neil Brimer store with six rooms; this store was the biggest of apple stores at that time. Following the Brimer was the Scott; and during the compaction of the earthworks for the foundation, the plug was blown off the fire ring water main at night, resulting in just about emptying the reservoir at Havelock. [Chuckles] There were two CA stores: the Percy [Williams], and another eleven-room store.

Now the next section, folk … there’s a bit of complication because I’ve got some data on CA storage, and I’ve left it there because I think it will give you folk an idea of what’s involved in cool storage and in CA. CA means controlled atmosphere. The APB [Apple & Pear Board] was the pioneer for CA … controlled atmosphere … storage in New Zealand. This requires lowering the oxygen levels in the cool store to about 2%. Mr Padfield of the DSIR in Havelock North carried out the first experiments with a wooden-framed plastic tent inside an apple cool room. This tent was connected to a wooden box which contained bags of lime, used to remove carbon dioxide; the tent was filled with apples and sealed from the outside atmosphere; a small fan was used to circulate the atmosphere through the enclosed system. The atmosphere was controlled with about 3% of oxygen and 3% of CO2. [Carbon dioxide] Later, two larger tents were installed in the two old pear rooms at King Street, and a tent twice the size in one of the rooms in Williams Street, using the same systems as the first tent.

Later, the first purpose-built CA Store was the Percy Williams store built in Williams Street, and that’s still there. This was probably the first CA store built in New Zealand. The store was constructed as a large spray envelope with industrial zips on the side of a butyl rubber curtain. The zips were imported from the States, then specially made for the purpose. The CA equipment came from Australia and consisted of an LPG burner or generator which used oxygen from the rooms, and the LPG formed a chemical reaction. Two absorbers containing activated charcoal made from coconuts, absorbed the CO2 from the generator, combined with the CO2 from the fruit. This dropped the atmosphere from 21% oxygen, and raised the carbon dioxide from 0.05 percent to 3%. Later, all fruit was stored at 2% for both gases in all CA stores. The absorbers and generator were manually controlled, and a later upgrade gave automatic control to the systems.

A later CA store of eleven rooms used equipment from Germany. The generator cracked ammonia into nitrogen and hydrogen. The hydrogen from the cracking process and the oxygen from the rooms were combined to form water, and the nitrogen, being inert, was used to flush out the rooms, two large absorbers using activated carbon to absorb the carbon dioxide; and this was a fully automatic system.

The advent of CA improved the life of fruit significantly. This was wonderful for our sales in New Zealand, but worked against us in our export markets, as they also did it, and they could store fruit from their season and then sell it in what was traditionally our marketing season, and of course sold in competition. So you can see that the CA system, to get the oxygen level, went through a few early teething troubles and different ideas, but at the end of the day it’s the system that we use today, and works very well. We can store apples now virtually all year round.

With the increased fruit volume being harvested in Hawke’s Bay in the late seventies it was apparent that the existing Williams Street premises were not going to meet the increased cool storage requirements. A site at Whakatu belong to Roy Anderson was purchased, and the construction of the first store was completed for the 1983 season. This store was the last one to be named after a person associated with the fruit industry; in this case it was after Alison Dinsdale, who was an accountant and Board member at the time. At the time the new store was fourteen thousand square metres, or more than three rugby fields in size, and was the largest store in the southern hemisphere.

Continued development over the years has seen cool store capacity climb to accommodate 30,000 pallets … and there’s usually fifty cartons on a pallet … with an amount of ancillary buildings and canopies to facilitate storage and shipping operations. In the early nineties another innovation was undertaken to have better control over stock management within cool stores. This involved the use of bar codes on each pallet of fruit; identification of each storage row in each room, and provision of scanners on each forklift … bar code readers. This project was known as ‘ISC’, or Inventory Control System.

Traditionally, apples and pears were shipped in standard wooden cases, and all exports were fully wrapped in tissue paper. This was quite a skill, and over the years many packing competitions were held; probably the greatest exponent of packing was Bobby Galbraith, who worked for many years for C H Slater Limited, and he dominated packing competitions for a remarkable thirty-three years. For many years wooden cases were made by hand, and in later years machines were developed with [which] greatly speeded [sped] up this chore.

And the sixties saw the development of cardboard cartons in conjunction with a moulded tray between each layer of fruit. This greatly reduced damage such as pressure bruising, so prevalent in the wooden case. It also did away with having to wrap each apple. As the industry was still using deep-hold shipping, a wooden tray-case was developed for these deep-hold vessels, and until the Apple and Pear Board broke away from using the Conference Lines – and the Board was the first of the producer Boards to make that break – these tray-cases played an important role in the shipping programme.

1971 saw the Board using charter fruit ships with shallow holds; and these vessels carried oranges one way and apples the other, around the world. This, for our industry, was a real breakthrough. In the early years of carton packing, many growers’ invented ideas were developed for forming or gluing these cartons; some formed and glued before filling, and others afterwards. Today the majority of the big pack-houses use very sophisticated machines that form and glue beforehand – a far cry from those early years. During this time pallet use was the order of the day, but for shipping the pallets were unloaded in the hold where the fruit was bulk-stacked.

Later in the eighties, the Board ventured into an automated loading system. At the time of its conception, efficiency of labour on the wharves was particularly low, and if a wharfie smelt rain, they stopped work. Berthage was costing huge money and wet seasons were very difficult. The concept of an all-weather loading, which this Omniport provided, was very attractive. However, barely before the ink was dry on the Omniport contract, port reform started to gather momentum, leading to far more efficient loading performances. The Apple and Pear Board had undertaken palletisation trials in the 1980s, but to effect the change new cartons were required and many ships were not pallet-friendly. In committing to Omniport, the Board was committing to a continuation of break-bulk loading – that’s where your fruit comes off the pallet and is loaded by hand into the ship; normally only a hold of about the depth of this room here. A proportion of fruit loaded at Napier with Omniport was unloaded with similar equipment at Antwerp. However, most other ports did not have this type of system. Break-bulk cargo was made to wait as it was less efficient to unload than palletised product, so Omniport was doomed from the start, and the initial cost was $45 million. Back in 1988, the Apple and Pear Board confidently expected apple exports to be in individual cartons and committed to Omniport on that basis. Now, however, most markets required that cartons be delivered on pallets and in containers. Omniport was advertised for sale but eventually it was cut up for scrap; surely a very sad end.

The Board’s profits and losses proved to be a roller-coaster ride through the 1960s and ’70s. Good years seemed to follow bad years. Growers were beginning to fear over-production of Red Delicious and Granny Smith, now widely planted. Apple and pear receipts to the Board were expected to increase by more than two million cartons between 1970 and ’75, reaching 10.2 million cartons in that year. Over-production was becoming a very real threat. Granny Smith were expected to be increased by 134% between 1970 and ’79 and Red Delicious by 348%. Production of Cox’s, Golden [Delicious], Sturmers and Gala were also increasing, and the rate of growth here in Hawke’s Bay was far outstripping other regions; and in ’78 Hawke’s Bay surpassed Nelson as the Apple and Pear Board’s largest pip-fruit supply region.

An approach was made to Government in ’71 to see if any form of assistance would be possible and help the industry cope with increasing production. The message from the Minister? “Stop planting pip-fruit and don’t expect any hand-outs.” Suggestions on how to raise capital for much-needed post-harvest expenditure included licensing growers, or a levy on new plantings. The call on funds in these years by the Apple and Pear Board was great. It planned to build a juicing plant in Hastings designed to produce apple concentrate, with a loan guarantee of $500,000, and the plant was initially capable of five hundred thousand cartons. Mr D Waller, the retiring Apple and Pear Board GM [General Manager], warned that the four years to ’76 would be one of the most difficult periods for the Board. How right he was! Freight rates jumped 24% for the 1973 season; exchange rates, and how we as exporters have had to live with them, were unstable plus overseas crops were expected to be larger. As it turned out, 1973 was a cracker, and a record profit of $2 million was achieved.

In 1974, Don Sinclair, a Nelson grower and Board chairman, was killed in a car crash. His deputy, Ken Kiddle of Havelock North, was appointed in his place. The roller-coaster ride continued with a record loss for that year, and the industry account was in deficit; and the Apple and Pear Board was technically insolvent. In an effort to determine what should be done to maintain profitability, the Board commissioned Dr Alan Ray, Senior Economics Lecturer in hort-economics at Massey to do an in-depth study of the industry. His summary report in ’76 painted a bleak outlook. He concluded the industry needed to be free from controls, especially the local market, but that it should retain the export monopoly. The industry in its present size and form was not viable but a modern reformed industry could be. On the local market it proposed the Board should act as a grower co-op, competing with other marketers. It said there was no future in Europe, but as Ken Kiddle stated, that was where we’d made all our money selling quality fruit. Then in the 1977 selling season, the Board made a record $12 million profit. All debt was cleared and $2 million was paid out to growers.

Generally times were tough throughout the seventies, but many Hawke’s Bay growers had an advantage over other districts by producing the most preferred varieties of Granny Smith and Red Delicious – the better-paying ones. Apples and pears had been shipped in standard wooden forty-pound cases. All export fruit was fully wrapped with tissue, once imported from Portland, Oregon – later New Zealand made; and there were plain oil-wraps – copper for pears; diphenylamine for helping to stop storage breakdown on Granny Smith, for example. And over the years, many packing competitions were held; usually the count or size for the competition was a hundred and sixty-three apples, which in today’s environment is a very small apple indeed. Neatness, crown, individual apple placement, all contributed to a high score.

Growers had the opportunity at conferences through a remit system to influence the policies and direction of the Apple and Pear Board. I well remember one morning-tea break I met the Hastings manager, Fred Gill. We were having a cuppa stop, and the Board had been under criticism all morning for something. Says Fred, “Oh, for one year when the roles could be reversed and we could put you growers in the hot seat for a change!” But that never happened, and of course conferences and remits did play a role in shaping the industry over all the years.

One such issue was the two-tier levy. Hawke’s Bay had for a number of years pushed for a levy on new production. A new type of grower, the corporate grower, had entered fruit growing and was perceived as having a more selfish view of the industry. Established growers wanted to protect the assets they’d built up over the years in cool stores and post-harbour facilities. Hawke’s Bay had tried to convince the other districts of the merit of such a scheme for a number of years but it wasn’t until ’83 that it was finally implemented and no sooner had national agreement been reached, than Hawke’s Bay growers began dividing into pro and anti levy campaigners. The two-tier levy was probably one of the most contentious issues ever. There were three main players around whom the debate raged: Alan Hyde, who had been Hawke’s Bay director on the New Zealand Fruit Growers’ Federation since ’74, was fiercely in favour of the levy; the second was Keith Spackman, who had been association President since ’74, and had first supported the levy but later changed his mind. The third was a young grower new to fruit growing politics, Rex Graham. The campaign to throw out the levy reached the public arena with a meeting in the Twyford Hall attended by forty-one growers who vowed to fight against the two-tier levy system. In the following years the anti-levy campaigners gathered stronger support from Hawke’s Bay growers, and showed no sign of giving up despite continually losing the fight at national level. The levy continued to be applied during the 1980s with several million dollars being collected. The charge was reduced from $1.35 per carton to 85 cents, before it was finally abolished in 1991. Applefields, the Canterbury corporate grower, successfully took a case to the Privy Council arguing that the levy was prohibitive to new entrants in the industry. After the Council’s finding, growers decided not to continue with the levy at any level. The levy, like Applefields, are now both gone and all but forgotten. It’s interesting to note that both the dairy and kiwifruit industries established production-based levies and they continue today.

In ’81 the Board was again running out of space, prompting the purchase of twenty-nine hectares at Whakatu. The old King Street depot was old to J Wattie Canneries; the first Whakatu cool store, believed to be the biggest in the southern hemisphere, was built in ’83 season with 600,000 carton capacity. By ’98 there were three stores of this size. In ’82 the Board instituted its own field service with Noel Bloxham, then Joe Bell and David Cranwell. This initiative was followed by the creation of a research unit, and the Board built its first lab [laboratory] in 1983. By 1980 the Board’s export sales exceeded $100million with more than five million cartons being exported. This was when the new varieties – Royal Gala, Braeburn – began to reach international markets.

The Board continued making profits through the eighties and early nineties, though growers were warned of the developing duo culture of Reds [Red Delicious] and Granny Smiths, and sure enough, Reds did hit the wall in the nineties. I think the years from 1980 through to the early 1990s were the heydays for the Board and for growers; Braeburn coming on stream; Royal Gala not yet being a world-grown apple that it has now become;  and the reason Grannies are still making good money.  And although costs are on the rise, margins were still good.

In ’93 the issue of local market deregulation surfaced. Remember that the Board had control of both export and local sales of fruit since the Board was formed in ‘49. However, this control was not welcomed by all – those with an independent spirit were not about to give away so much, so easily. Stories of black marketing in Hawke’s Bay could be likened to bootlegging in the States during the thirties … prohibition era … with covert smuggling operations carried out to fool the Board’s black market inspectors. There were wild chases after trucks in the night, on Taupo Road. This was not the Wild West; this was Hawke’s Bay, on and off between 1950 and 1993. The New Zealand Apple and Pear Marketing Act bound all growers to supply their entire crop to the Board unless they were making a direct sale of two cases to a single customer. However, many growers were drawn to the black market in an attempt to recoup some of the losses incurred by having fruit rejected for export, for example, or from frost or hail damage. The policing level of the black market industry varied, but in ’68 it appeared black marketers had the upper hand. Those in the trade believe that 300,000 cartons of apples were being smuggled out of Hawke’s Bay each year, employing colourful and ingenious methods. Smugglers were using caravans, boats on trailers, horse floats, camouflaged loads, to remove loads of apples out of Hawke’s Bay [chuckles] often along back roads. [Chuckles]

I recall two of the Board’s black market inspectors, Alan Brodie and Barry Erikson. Barry started with the Board in ’76 and continued on until ’93 deregulation. Unfortunately both Mr and Mrs Brodie were killed in a car accident on the Rangitaiki Plains. Nobody told Barry what to do; he was given fairly sweeping powers by the Marketing Act. According to Barry, growers were a resourceful group and there were all manner of schemes. It became quite an ordeal to try and control, and to get in precedent set in law, Barry had many court cases in the Tokoroa, King Country and Bay of Plenty areas. The question of how widespread black marketing was, often arises. Barry believes there was hardly a retailer not involved at some time. Moore Wilson and one or two others seemed to be the exception. There were many prosecutions involving fruit retailers. Boards supplying growers who dabbled in the black market took the greatest risks for, if caught, half their season’s payment could be withheld. Barry has so many stories on the life and times of black marketing that it could probably stand as a subject on its own.

By ’93 the government approached the Board, saying, “If you don’t deregulate the local market, we will do it for you.” Politics! The Board hoped that by cooperating with the government in deregulation, some concessions on other issues would be made. One of these concerned Australia. As a hoped-for future market … and look where we are with that … [chuckles] it should not be included within the local market parameters.

The Board also succeeded in achieving successions on the respective powers of the Apple and Pear Marketing and Commerce Act, because in 1990 corporate Canterbury apple grower, Applefields, had taken its case against the two-tier levy to the Privy Council, arguing it was anti-competitive. The Privy Council had found in favour of Applefields, which meant the Commerce Act could be invoked again in similar disputes. For this reason an amendment was sought to their governing Acts, which exempted them from specific sections of the Commerce Act. Two Hawke’s Bay fruit growers, Stu Horne and Graham Jones, were on the national pip-fruit sector and fought to hold on to the monopoly when the issue of deregulation surfaced. Despite their efforts, the majority of the Hawke’s Bay growers followed the direction of their Board members and voted in favour of deregulation, and on the 1st of January ’94 the local market was deregulated. Stu was cynical over the way growers gave up the local market without a fight, believing it was the beginning of the Board’s end of control of exports as well. And he was right. In a surprise move the government introduced a last-minute clause in the ’93 Apple and Pear Amendment Act which many growers greeted with outrage. It required the Board to establish guidelines against which it must challenge applications for consent to export pipfruit from New Zealand. The so-called ‘niche marketing’ clause was seen as a huge potential threat to the single desk as it opened up the possibility of rival export companies selling into the Board’s market for the first time in nearly fifty years. There was a groundswell of support for the single desk, and frustration at the government’s interference in the industry following the ’93 registration [deregulation] – and this after the Minister of Trade, Philip Burton, stated there was no current intention to review the export monopoly.

A referendum to gauge support for the Board retaining overall control of pipfruit exports was held in Hawke’s Bay. This gained 90% vote of support, and a massive 90% of the eight hundred and sixty registered growers responded to the survey. The Board began its own lobbying with the launch of the ‘Apple Case’ to protect its monopoly export status, promoting the advantage of single desk. Written material was widely distributed to push the case for the Board; the catch-phrase came from the Chief Executive, Joe Pope. “The issue comes down to economic theories versus market reality. At the end of the day the customer knows best – that’s market reality”. The ‘Apple Case’ went on to say the pipfruit industry makes significant contribution to the New Zealand GNP [gross national product]; and regional economics supports 40% of the region’s full time equivalent labour units, and results in $261 million of sales in the Hawke’s Bay region.

In ’94 Brand ENZA was launched, which was to be fundamental to the Board’s ability to achieve premiums in the world market. The fresh fruit export group of the Board was renamed ENZA New Zealand International. No doubt some of you remember how ENZA was launched – with a catamaran with Sir Peter Blake and his round-the-world record attempt. To many growers, it seemed like a gigantic waste of money, but talking to Ken Kiddle recently, he felt at the end of the day, it was a fantastic promotion.

The Board began to reposition its commercial business with the formation of ENZA Commercial Holdings Ltd, which contained its business and local market divisions. Plans to invest ownership in ENZA Commercial Holdings in growers was not carried through however, as it was felt growers needed cash more than shares. In ’89 the Stabilisation Account was wound up and half was paid out to growers, and the Board retained the remainder in a reserve account. The plan had been to pay this remaining amount to growers so they could purchase shares. However, the financial state of many growers in ’94 following poor returns and a devastating hailstorm, prompted the Board to pay out the money as a lump sum and retain the shares. It was more than $1 a carton and provided much-needed capital injection for many growers.

In ’94 the ECHL made an operating surplus of $8.2 million, with record profits for ENZA products. The Board wrote off $10 million bailing out Zeus – they were involved in over there in Chile – its Chilean export business, at a cost of 0.76 cents a carton to each grower.

The 2nd March hailstorm lost close to three million cartons of apples. The Board shut down one of its two main depots at Williams Street in an attempt to stem costs for much-reduced output of apples from the region. This, the worst hailstorm Hawke’s Bay had ever experienced, affected four hundred and eighty-nine growers of the region’s eight hundred and thirty-five registered growers.

Now, Doug – you’d better stand up for a minute – because Doug Coles, a St Andrews Road orchardist, was caught by a storm on the 7th of November. He lost 60% of his crop. On March 2nd he lost a further two-thirds of what was left. That was after spending three months thinning hailed fruit in the hope of salvaging an export crop. And ironically he’d produced the best-sized Royal Gala he’d ever grown, but his thinning costs were almost double. And I notice the trousers he’s wearing [chuckles] reflect that. [Chuckles]

Growers continued to suffer at the hands of the weather with three hailstorms over the ‘96-’97 seasons. Returns were particularly poor and the level of discontent in the industry began to grow. By September 1997, headlines similar to the following were beginning to appear in regional and national papers: “Apple Industry in Crisis”; “Hawke’s Bay, Otago and Nelson Growers Close to Bankruptcy”; “Get Big, Get Out or Go Under” (Independent Business Weekly, September 12th 1997). In ’97 abysmal returns for Red Delicious, Fiesta and Royal Gala resulted in the Board clawing back on its advances … they would pay a portion of what they estimated they were going to get for that carton, and then tidy it up at the tail end. So, in ’97 abysmal returns for Reds, Fiesta and Regal Gala resulted in the Board clawing back on its advances to growers on those varieties; clawbacks of $4.37 a carton, average, for Red Delicious; $3.99 for Fiesta; $1.76 for Regal, were a bitter blow, and in the case of one Red Delicious grower, a bill of $80,000. Needless to say, chainsaws were busy that winter.

After ’97 growers were fighting for survival, and adding to grower worries was the high value of the New Zealand dollar; and even today, fifteen years later, look where the New Zealand dollar sits and where it’s been over all those years. Applefields had been the industry bad boys, and now a new group from Hawke’s Bay emerged in their place to promote deregulation of the New Zealand Apple and Pear Marketing Board. Rex Graham of two-tier levy fame, picked up the challenge, along with entrepreneurial squash and apple grower, John Bostock. They and others formed the Independent Pipfruit Growers’ Association that launched an alternative plan for the New Zealand pipfruit industry. This included removing the Board’s exclusive rights to export, and corporatising ENZA into a public unlisted company, fully owned by current growers. All exporters would be licensed under the Horticultural Export Authority in their proposed industry blueprint, in a similar way to the stone fruit industry.

In ’98 the Board introduced new grade standards, known as ENZA’s Submission Profiles, which not only included changes to colour requirements, but more importantly, growers were made responsible for the internal and keeping quality of their fruit in offshore markets. Fruit was graded and priced accordingly. The government, in May of that year, moved to force the hand of the Producer Boards, announcing in the Budget that they must present plans to Parliament by mid-November, describing how they would progress to deregulation.

At the grass roots level, an independent lobby group committed to fighting for the retention of the Board’s single seller status, United Fruit, was initiated in Nelson in direct response to the ’98 Budget directive. The Hawke’s Bay branch of United Fruit was established soon after by ex-pipfruit sector members Brian D’Ath and Martin Pike. Membership was open, as the potential risks for exporting in a deregulated environment was seen by United Fruit to have far-reaching economic ramifications to [for] the province. From the mid-nineties, the relationship between growers and ENZA deteriorated for a number of reasons. Gary Smith, the then GM, was charged by the Board to take costs out of the Board’s operation, and as an example, over the years the Board had accepted part-pallets. This was a situation where if the pallet could not be completed in a given pack house, it could be sent in and Board staff would amalgamate it with other part-pallets – and over the season there were thousands – and a team employed by the Board to deal with it; and at a cost. So Gary’s directive? No more part-pallets. And if any had to be submitted, the cost to the grower. That set the cat among the pigeons! New compliance regulations set by overseas markets and administered by the Board, did not help, and as the nineties progressed and returns slipped, anger against the Board increased.

Also, the issue of the exchange rate – the bane of exporters’ lives. The Board had over the years used the hedging principle in an endeavour to lower the impact that the exchange rate could have in any one year. In the early nineties they were very successful, but the second half of that decade saw some very significant losses. It was felt that those in charge had got carried away, and now the Board was claiming back their losses from growers. This, and the final Omniport cost, developed into an ongoing row between growers and ENZA that was not resolved until September 201. [2001] The final grower/ENZA split on those costs was $2.85 a carton, or $34 million to growers and $21 [million] for ENZA.

Gary Smith stepped down from being Chief Executive in September ’99. He expressed frustration with having to be involved with a huge political exercise, in responding to the Government’s May ’98 Budget directive that producer boards must present plans for their future. “The political involvement in the industry is terrible,” he said. He said the pipfruit industry was an exciting one with exciting possibilities, but the industry is [was] really pulling itself apart, looking for enemies onshore when the real opposition was in the markets. Growers were angry at ENZA’s performance in the markets, but taking ENZA out of the equation would not solve the problems.

At the September ’98 Pipfruit Conference, John Luxton, Minister of Food, Fibre and Biosecurity, had a hostile reception when his provocative address called for changes to Producer Boards. The proposed changes for the pipfruit industry involved retention of single desk by regulation. The NZAPB would become a new company under the Companies Act 1993. Shares in the new company, to be called ENZA Ltd, would be issued to growers on the basis of the current allocation model, but subject to approval of the formulae by grower referendum; shares in ENZA Ltd fully tradeable, but only amongst growers authorising ENZA New Zealand as the main exporter. By October 2000 GPG, Guiness Peake Group, had acquired 36% of ENZA shares, and growers were in a nervous state as to where their industry was heading. The new chairman was Tony Gibbs of GPG. Phil Alison of PGNZI (Pipfruit New Zealand), grower spokesman; his impression of Tony after [a] meeting between the new ENZA Board and PGNZI, was that he had a very strong focus on performance and a strong focus on getting things done. One local grower summed up concerns when he commented, “We have given away the family silver without them, the corporates, passing any test. They control the company; they have not talked to us about what they intend to do.” GPG, to become a majority shareholder, needed to acquire growers’ shares, and on 5th April they sent out an offer to growers, and by 18th April they’d achieved their target. And of course growers at that stage were on the bones of their bottom – we had no money, so hence GPG’s ability to achieve the shares that they needed.

In a span of a little over two years ENZA had moved away from a grower cooperative with statutory support for a single desk, marketing to a corporate-owned company in a deregulated market. So what have we lost? Well, for years we had been the envy of fruitgrowers from other countries. It was summed up by a visiting Spanish scientist who spent four months at Hort Research, Havelock North, in 201. [2001] Comparing the major differences between the respective pipfruit industries, he said, “We’re the outstanding feature, and envied by the entire world, was ENZA. There was one strong seller representing New Zealand apples in the marketplace and quality was guaranteed. Other countries that have deregulated have quickly found a downward spiral, and the supermarkets play one exporter off against another. New Zealand”, he said, “had lost the jewel in its pipfruit crown.” Looking back over the last ten years, difficult years, I must agree with him.

So what has the deregulated industry given to New Zealand? A very considerable reduction of grower numbers and family orchards; reduced production of potential exports; reduced income for growers. What we had was a marketing system where growers, through their choice of directors and with remits, could influence the direction of their exporter. The same cannot be said of what we have today. Although all was not well in the late nineties, I’ve always felt the basic structure was right for growers here at the bottom of the world. Other primary producers are proving that.

So, folk, that’s about where we’re at. And now … what are we?  Ten, twelve years … ten years anyway beyond it, and we have a hell of a lot less growers – mostly big corporates; a lot of blocks leased; and sure, the economic situation throughout the world is playing a significant role; but I believe there’s a lot of undercutting by all the exporters, and far too many exporters shipping our product. So that brings us to where I finish, so thank you. [Applause]

Michael: Thank you very much, David.

David: You’re welcome.

Excellent and fascinating summary of the New Zealand Apple and Pear Board, and while I liked the stories of the black market [chuckles] it’s very sobering, the last part of your speech, in terms of the industry. When you listen to it, you think, ‘what on earth were the thought processes going on there?’

David: Not everybody would agree. I mean, there’s a few exporters in the district I think, that’ve done reasonably well. You want to make a comment, Doug?

Doug Coles: Well, we’ve gone from eight hundred growers down to a hundred and twenty.

Michael: I understand … I think part of the move was there was frustration with the Board, wasn’t there?

David: Oh yes, there was. And we should have thrown a few of the personnel that were in that away and kept the basic structure, and maybe made some changes – I don’t know; I’m sure that that could’ve been accommodated and should’ve been done, but we threw the baby out with the bathwater.

Michael: Thank you very much, David.

[Applause]

Original digital file

MardonD_Final_Jul19.ogg

Additional information

Landmarks Talks 9/8/2011

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407154

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