Zespri ordered to reconsider collaborative marketing proposals

The High Court has told kiwifruit industry regulator Kiwifruit New Zealand  to reconsider collaborative marketing proposals from Splice Fruit and Seeka Kiwifruit to sell fruit offshore that its board had previously rejected.

When Zespri was set up in 1999, the government made it the sole entity entitled to export kiwifruit to anywhere other than Australia but also allowed for collaborative marketing where third parties can seek approval from the Kiwifruit NZ board to export in association with Zespri.

Te Puke kiwifruit exporters and marketers Splice Fruit and Seeka Kiwifruit sought approval from the High Court at Tauranga for a judicial review of three Kiwifruit NZ decisions last December rejecting collaborative marketing proposals in the 2016 export season. Splice wanted to export 400,000 trays of green Class I fruit to Austria while Seeka wanted to export 400,000 trays of green fruit to Hainan Island in China and 120,000 trays of green fruit to Xinjiang province in China.

A fast-tracked court hearing was held because the 2016 season is already under way.

The applicants claim the Kiwifruit NZ board acted unreasonably in rejecting their applications. The rationale for rejecting Splice's proposal was that it wasn't entirely consistent with Zespri's marketing strategy of creating brand value and premium returns to New Zealand suppliers and didn't meet the test of creating overall wealth.

In the two Seeka cases, it was considered there was the danger the fruit destined for Hainan Island could "leak" into mainland China and create "confusion and disruption" in a very large market which could depress prices while for the Xinjiang province Zespri said it was worried selling under the Seeka brand would lead to a "substitution risk for Zespri branded programmes."

It had been industry practice for some years to allow parties to appeal decisions made by the relevant collaborative marketing committees to a Kiwifruit NZ board appeal committee. Seeka chief executive Michael Franks told the court the appeals process was important because members of the board committees making the decision on collaborative marketing "often have conflicts of interest" as they are direct competitors. "In the past, the appeals process afforded Seeka an opportunity for a cost efficient review by alternative members," he said.

Kiwifruit NZ had legal advice from senior counsel in November that the board had no jurisdiction to hear appeals.

However, Justice Paul Heath said in his written judgment that "it was open to the board to regulate its own procedure by incorporating a review process of that type, whether the label 'appeal' or 'review' is used is beside the point."

Based on past experience, both kiwifruit exporters were entitled to believe a process of that type would be followed if applied for, he said, and a rehearing by the board or a nominated committee is necessary in all three cases.

Kiwifruit New Zealand's 2014/15 annual report shows collaborative marketing volumes dropped during the season to 1.6 million trays out of 97 million trays exported. The report said on average 93%  of collaborative marketing applications in the past decade had been approved although "disappointedly, none has evolved into high volume, significantly innovative and wealth-enhancing arrangements that meet the regulatory criteria."

In February this year, Zespri signed a memorandum of understanding with T&G to increase exports, three years after the listed produce company abandoned its long-running legal fight against the kiwifruit marketer's statutory export dominance. It is was the first deal of its kind to be approved by Kiwifruit NZ.

(BusinessDesk)