An automatic termination period (ATP) on anti-dumping tariffs, part of the 2014 Budget, would have had devastating flow-on effects for Hawke’s Bay at a time when local producers are already under pressure to lower their prices to the likes of Heinz Wattie’s and McCain.
Heinz Wattie’s already imports all the apples for its sliced, diced, pulped and pureed products, despite Hawke’s Bay being the apple capital of New Zealand. When its King Street site was reconfigured for export production for Australia and Japan in 2000, there was no room for the seasonal apple line.
Tomato volumes vary based on ‘factory capability and mix of produce’ and while pick of the crop canned product including pesto and basil tomatoes are locally grown, the factory is now taking 10,000 tonnes less than the 35,000 tonnes of 2011.
Paste and some whole tomatoes, mostly from the USA, are imported to meet demand for a range of products including sauces, and last year Heinz Wattie’s chopped local asparagus contractors in favour of cheaper Peruvian product, which now travels via California.
Then came the nightmare scenario that the local peach market might become collateral damage to the ATP, which was designed to lower the cost of building materials for new Christchurch homes.
This would have axed the ability to renegotiate tariff protection against Greece, Spain, South Africa and China dumping product in New Zealand at less than the retail price in their home markets.
This is personal
In August a Hawke’s Bay grower’s group challenged Commerce and Consumer Affairs Minister Paul Goldsmith, with lead lobbyist Heinz Wattie’s general manager Mike Pretty telling him and others in the Beehive “this is personal…we cannot let this happen”.
Mike Russell, one of the lobbyists, says dumping would have become a matter of course, with duty only applied retrospectively if it could be proven the market was damaged. “That would have been way too late for most players.”
Russell, whose family business, M.J. & J.J. Russell, was rated Wattie’s Grower of the Year for peaches in 2002, and for plums in 2011 and 2013, says his plum growing would have been an “unintended consequence” of the ill-advised legislation.
The patented machinery hired by Heinz Wattie’s to peel the peaches is also used to peel pears and plums. “They’re not going to hire it for one crop…you would have seen the exit of Heinz Wattie’s from the canned fruit industry…that would have been a tragedy”.
Of the 60-70 submissions on the ATP only three were in favour; the supermarkets: Progressive Enterprises, Foodstuffs and The Warehouse. Any gains, says Russell, would have been short-lived. “If you took Wattie’s out of the picture all the other guys would soon put their prices up.”
If the ATP hadn’t been overturned, container loads of surplus NZ Golden Queen peaches could have been dumped here resulting in up to 3,000 tonne of low-priced local peaches ending up in the domestic market, skewing demand from other fruit.
Asked by 46 peach growers whether the ATP would cause Heinz Wattie’s to close its canning plant, Pretty responded “I don’t know because we’re not going to accept this as an option”.
He does admit the “genuinely significant ramifications” of the domino effect on viability. “If we don’t have peaches we don’t have fruit salad and if we don’t have peaches we don’t have about 80% of the production floor fruit in our canned fruit business.”
Five year cycle needed
Mike Pretty is concerned about anything that impacts Hawke’s Bay crops like peaches. “You don’t just turn them off and then on again … you need a five year cycle as a minimum.” Overturning the ATP was a major relief. “As a consequence we can look forward to another season.”
He continues to have serious concerns about the Government’s fallback position, a ‘bounded public interest test’ weighing the impact on manufacturers, industries and consumers. It’s a “dark cloud … which we are alarmed about”.
Consumer Affairs minister Goldsmith told BayBuzz the test will bring “greater balance” to our anti-dumping regime, “ensuring we have a competitive market where consumers get the best value for their money … while protecting manufacturers from dumping.”
He’ll introduce changes to the Dumping and Countervailing Duties Act 1998 before Christmas and is confident it’ll become law in 2016 after select committee submissions.
Mike Pretty is concerned at the “complete lack of clarity” around “what this new test will be, the conditions and terms of reference and who applies it and oversees it”.
There’s a great deal of uncertainty. “I will be watching those tests like a hawk.” He’ll restate his concerns to Minister Goldsmith when he visits Hawke’s Bay in early November to talk to growers.
Hawke’s Bay Fruitgrowers Association (HBFA) president Lesley Wilson wants anti-dumping measures strengthened to ensure imported fruit can’t be dumped. “If we lose peaches then many growers will also pull out their plums and pears.”
While the Government is aware of all the issues, she says “the devil is in the detail” and cites the closure of Roxdale apricot cannery in Roxburgh, Central Otago, as a warning.
After anti-dumping duties were removed in 2001 the New Zealand market was flooded by cheap, lower quality Chinese canned apricots selling for less than a third of local product.
“They were told they needed to prove there was dumping, but by the time they did they’d been bankrupted.”
Leigh Catley, communications manager with grower advocacy group Horticulture New Zealand (HortNZ), says getting the ATP off the table is “just the sharp tip of the iceberg”.
Backed by growers and other industry groups, HortNZ is asking the Government to dump the “bounded public interest test” or at least ensure it doesn’t impact vulnerable seasonal horticulture and fruit growing.
Evidence from around the world suggests the ‘public good’ test is “always weighted in favour of consumers getting the lowest possible price … even if it is taking jobs from otherwise competitive manufacturers or producers”.
In some cases a whole town might depend on a processor. “If they have to compete at such a low price there’s a risk manufacturing or production stops. There are numerous examples of this in New Zealand’s past.”
And it could impact exports. “If you close down a manufacturing plant, it’s hard to open them again and if people aren’t already growing product they’re less likely to develop new lines.”
For example a Canterbury company producing high quality carrot juice for Japan could be squeezed out of business by imported pre-processed product. “There’s potential for the legislation to push people further away from growing or finding new outlets.”
Hawke’s Bay has seen several canning or food-processing companies close, partly based on competition from imports, including Unilever owned Grower Foods Ltd (Birdseye) and Continental NZ.
While there’s every indication McCain’s has full confidence in the region, seeing it as a frozen vegetables supersite, it closed its Feilding factory in 2006 and a Timaru plant in 2008 and reduced Hastings staff by 14 last year.
Heinz Wattie’s is among New Zealand’s largest food exporters, sending product to over 40 countries, employing 1,500 people nationally; 1,050 in Hawke’s Bay, including 260 seasonal workers.
Annually it produces about 140,000 tonnes of fruit, vegetables, baked beans, spaghetti, soups, meals and sauces, jams and dressings from its Hastings plant including product under the Heinz, Craig’s, and Oak brands.
Any suggestion of Heinz Wattie’s pulling out of Hawke’s Bay quickly resurrects memories of the long-term regional disruption caused in the late 1980s when the Tomoana and Whakatu freezing works shut down with the loss of around 6,000 jobs.
No one wants that, certainly not Heinz Wattie’s, but Asparagus Growers Council Hawke’s Bay representative Lindsay Kay and others BayBuzz spoke to suggest the company needs to build stronger relationships with local producers to restore confidence.
Bigger bean counters
The push for increased profit and productivity has escalated since Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital gobbled up Heinz Wattie’s in 2013 as part of a NZ$27 billion acquisition of H. J. Heinz Co.
In March 2015 the equity partners further expanded their global empire with a US$45 billion deal for The Kraft Foods Group creating the Kraft Heinz Company, the fifth largest food company in the world with annual sales of about US$28 billion.
The Kraft acquisition is unlikely to impact New Zealand as independent cheese and grocery business distributor Mondelez (formerly Kraft Foods) looks after the local market, although there’s speculation it could also become a target.
International business media have called 3G’s management style ‘cut throat’ for its rapid restructuring, layoffs and cost-cutting strategies. 3G slashed 4% of Heinz workforce and is now working on further annual savings of US$1.5 billion by the end of 2017 following the Kraft merger.
This is proposed through economies of scale, reduced headcount, closing less efficient facilities and tightly managing every expense.
New structures for Heinz Wattie’s Pacific region operations resulted in 245 job losses. The first came in October 2014, slicing 100 mainly white collar staff from its books, a quarter of those from its Hastings plant.
Then in June 2015 another 45 jobs were cut across Australia and New Zealand, including at least six mostly voluntary redundancies in Hastings.
Mike Pretty wouldn’t be drawn on whether there would be more structural changes or local job losses. “Market conditions change, we all need to remain flexible and ready to adapt.”
Pretty who’s been with the company for 25 years, says his focus is on doing the best he can to improve, refine, modernise and invest in technology, machinery and graduate programmes and grow its position in the marketplace. “That’s not the signs of someone planning to pull out.”
The continual challenge for growers is not to place all their eggs or fruit and vege in one basket but to diversify produce and outlets. That’s clearly less challenging for those growing annual crops rather than perennials or crops or trees that take years to establish.
In December 2014, Heinz Wattie’s told 15 local asparagus producers they weren’t producing enough, so it would be sourcing lower-priced product from Peru.
Although Heinz Wattie’s had reduced its take to canning 47 tonnes of local asparagus the news still came as a shock. Demand from other sources was high, including exports to
Japan, around 200 tonnes for other canneries, and the fresh produce market taking about 2,500 tonnes.
Heinz Wattie’s insists it did everything to liaise with growers, but Lindsay Kay says, it wouldn’t have taken much effort to get 150-200 tonne “if people had been talking to each other.”
Kay claims asparagus growers were already feeling the squeeze on price and had to take what they could get. “We were pretty submissive as price takers as there was not a lot of choice.”
Heinz Wattie’s Mike Pretty describes the impasse as “a mutual parting of the ways … we were very much the last port of call for supply and could not get a reliable quantity each year so it became non-viable.”
An unexpected reprieve came when Kay negotiated a fractionally better deal for asparagus growers with exporter Gourmet Blueberries, a company that “flies under the radar” but processes thousands of tonnes of asparagus for global markets.
Kay ended up constructing new cool stores at Blueberries’ Flaxmere premises to expand its capacity by 200-300 tonne. “Without Blueberries picking up those contracts we would definitely have been in trouble because the local market is already soft.”
Produce mash up
Kay says the sudden end to asparagus is a warning to other producers being squeezed on price. “You have to be aware that they [Heinz Wattie’s] now see themselves as simply a mixer of ingredients.”
He leases 50 hectares to a tomato grower who only planted 20 hectares last season. “No one talks about it, but Wattie’s simply sees our crops as a commodity. It’s much cheaper to bring in tomato paste from Spain.”
Kay alleges the company has little sense of responsibility toward its growers, sub-contractors or factory workers. “Jim Wattie would be turning in his grave.”
Leigh Catley of HortNZ says anything seasonally overproduced in another country threatens our local producers, but singles out the $100 million market in fresh and processed tomatoes as the most vulnerable.
She warns the market for locally sourced tomatoes could be further depleted by cheap imports. “It’s often the Italians producing massive amounts of tomatoes and then exporting container loads of surplus which local companies can’t compete with.”
In the 1980s Wattie’s was processing 8,000-10,000 tonnes of peaches. After deregulation, competition reduced volumes to 5,000 tonnes, then the market struggled to recover after severe frosts in the early and late 2000s.
For a time imported peaches covered the shortfall but over the past decade Heinz Wattie’s has put its weight behind the local industry with quality, yield and price growing strongly although it’s still a shadow of what it was.
Mike Russell says the 4,000 tonnes of Golden Queen peaches produced in Hawke’s Bay at 70-80c a kilo are part of a $15 million industry, including employment, because we get some of the best yields in the world.
However, if Hawke’s Bay doesn’t meet its quota because of wind, hail or other circumstances, waiting in the wings are the Greeks who produce 300,000 tonnes, the Spanish with 180,000 tonnes annually, massive amounts from South Africa and “God knows how many tonnes the Chinese grow”.
An example of short-lived gain was when Australian company SPC Ardmona undercut Wattie’s selling Home Brand peaches. Then its Golbourne peach cannery was sideswiped by cheap imported product and nearly shut down by new owners Coca-Cola Amatil until chief executive Peter Kelly got tough.
He dropped 60 grower contracts, achieved a $22 million bailout from the State government, won a court case against foreign importers of tomatoes, revived anti-dumping legislation, appealed to the ‘buy local’ sensitivities of Australians and was back in profitability earlier this year.
Renegotiating the ransom
Ross Wilson, a horticultural consultant and founding member of AgFirst in Hastings, says all growers are in the marketing business, and need to work together in the supply chain.
He says any crop grown specifically for processing, whether it’s Black Doris plums, Golden Queen peaches or Williams’ Bon Chretien pears, makes the grower dependent on that processor.
Growers need to work more closely with processors so there’s plenty of advance warning about changes. “Nothing stays profitable for ever … They have to be ready for change, and if things become uneconomic to work with that dynamic.”
He cites the well-organised apple industry as a leading example of how things should be done.
It has good science and investment despite going through some tough years, and has developed a diversity of varieties and markets reducing the risk of being held to ransom.
“There’s even competition for the juice and overrun.”
He says multi-national processors go where the product is cheapest, building up supply where it makes economic sense. “They can easily gear up a factory in another country in order to compete.”
Veteran grower Mike Russell says he’s been supplying Heinz Wattie’s for 40 years and every few years there’s the threat that “we can’t ask for a price increase or they’ll shut the factory”.
He raised concerns 10 years ago while growing 200 tonnes of asparagus. “I told them they weren’t paying enough and they would kill the industry and that’s what’s now happened.”
Today he grows 350 tonnes of Black Doris a year and Heinz Wattie’s get 50 tonne or 20% of his ‘desert plums’, less than 10% of his gross income.
They were bringing in Angeleno plums from Argentina, but Russell insists his are better and now that he’s breeding later varieties the importing stopped because New Zealand supermarkets won’t stock them.
Even if Wattie’s decided to look elsewhere he says his plums are unique and he’s confident “out of the chaos would come some new order”. He might vacuum pack or freeze them or go to another cannery.
His advice to growers nervous about the processing end of their supply chain: “Focus on quality and keep talking and negotiating … If you only have one outlet you’re vulnerable and if no one else wants it maybe it’s time to move on.”
Heinz Wattie’s general manager Mike Pretty does his best to sound reassuring. “Hawke’s Bay and Wattie’s share the same DNA. We are in the same pod,” and committed to working alongside growers to prevent the Government “doing stupid things such as the ATP”.
Steady but no growth
While beetroot, peaches and corn are the big cash crops for Heinz Wattie’s in Hawke’s Bay, there’s no significant growth in processing.
The company works closely with 62 contracted growers to achieve “predictability and consistency” with overall production volumes steady, but no increase in fruit and vege volumes this season.
Beetroot has increased dramatically since 2012 and is now one of the biggest processing crops, alongside Golden Queen peaches, since Australian production was relocated to Hastings.
To help growers produce to specification, Heinz Wattie’s is investing $480,000 over two years in tools to more accurately develop beetroot crop scheduling and management.
The company produces 110 product variants using Hawke’s Bay boysenberries, Black Doris plums, pears, sweetcorn, pumpkin and tomatoes.
Corn volume has increased from 3,000 tonne in 2011 to 7,500 tonne in 2015. All canned corn comes from Hastings and frozen corn from Gisborne.
Heinz Wattie’s managing director Mike Pretty says in the past four years the company has spent $10 million on processing facilities and more than $5 million will be spent in the next couple of years.
Although open to new product opportunities, “beyond the current crops we have no ambitions to get into any different crops at this point.”