Press Release – Independent Kiwifruit Growers Association

The Independent Kiwifruit Growers Association (IKGA) is deeply concerned that the compulsory levy funded kiwifruit grower organisation NZ Kiwifruit Growers Incorporated ( which shares offices and reception functions with Zespri and so called industry …28 October 2013

Why There Must Be an Independent Enquiry Into the Kiwifruit Industry

The Independent Kiwifruit Growers Association (IKGA) is deeply concerned that the compulsory levy funded kiwifruit grower organisation NZ Kiwifruit Growers Incorporated ( which shares offices and reception functions with Zespri and so called industry regulator Kiwifruit NZ) still does not see the need for an independent enquiry into Zespri and the New Zealand Kiwifruit Industry in light of the fact that the Serious Fraud Office of New Zealand has confirmed that it is investigating Zespri and despite the revelations about Zespri’s actions in China made on Friday 25th October by the National Business Review.

IKGA believes that a wide ranging independent enquiry into not just Zespri but the operation of the Kiwifruit Export Regulations and the Kiwifruit industry generally is essential for the following reasons:

1.0 GOVERNANCE SHORTCOMINGS AT ZESPRI

• Zespri subsidiary ZMCC has been found guilty of being an accessory to customs fraud in China, fined $1 million and had a staff member jailed for 5 years. It now appears from the lead article in the National Business Review of October 25 that Zespri’s internal documents show that Zespri was trading in China on “consignment” and not on a “buy – sell” contract as Zespri had advised the Shanghai court. If that is true then ZMCC was the guilty party and stood to gain from the customs fraud as the principal offender not an accessory. If true it also means that Liu Xiongjie , the director of former Zespri importer Neuhof Trading Co. Ltd, has been jailed in China for 13 years on the basis of misrepresentations made to the Shanghai Court by Zespri . As indicated by Liu Xiongjie’s New Zealand based nephew on TV One news on Friday night, Zespri could face a significant claim for damages from Neuhof.

• These alleged misrepresentations appear to have been facilitated by current Zespri senior management including Zespri General Counsel Katherine Evans.

• To the best of our knowledge, Zespri did not suspend trading in its shares during the period between 26th December 2012 when Zespri first learned of the Chinese customs prosecution and the 11th January 2013 when it was made public. An investigation of share trades during that period should be conducted.

• Zespri does not appear to have any mechanism for dealing with commercial advantages able to be leveraged by Directors and their associates in the trading of Zespri shares and within the kiwifruit industry generally from information about Zespri’s new kiwifruit varieties or the evolving situation with PSA before such information is available to the industry. Any share trades or industry investments made by directors and their associates during periods when information regarding Zespri’s new varieties and the evolving situation with PSA was not available to the kiwifruit industry needs to be investigated.

• Zespri has refused a shareholder request for them to give him copies of expense account and credit card records for directors and senior managers on grounds of “confidentiality” relating to spending patterns in foreign markets being able to reveal market plans. We think that growers and shareholders of Zespri are entitled to know what business related expenditure their directors and managers claim when on Zespri business.

• Zespri was fined 427 million Won by the Korean Fair Trade Commission in November 2011 for anticompetitive behaviour. How this came about and the impact for NZ Trade into Korea needs to be investigated.

In the view of IKGA , these issues highlight governance and management shortcomings at Zespri that are systemic . These shortcomings are both current and historical including the documented leaking of proxy voting information to some directors. To label the Chinese situation as “historical” is disingenuous as if to say that “historic“ incidents are unimportant and should not be investigated and learned from. These comments clearly demonstrate that there is little willingness on the part of Zespri to be either accountable or transparent.

2. LESS THAN A QUARTER (25%) OF KIWIFRUIT GROWERS OWN THREE QUARTERS (75%0 OF ZESPRI

• An analysis of Zespri’s latest annual report and annual review show that 75% of the shares in Zespri (which is described by the New Zealand Government in filings with the WTO as a State Trading Enterprise) are now owned by fewer than 25% of NZ Kiwifruit growers.

• Shareholdings by some growers in excess of their production and shareholders who no longer produce kiwifruit but still hold shares and get Zespri dividends further threaten the underlying concept of the regulations governing the kiwifruit industry that they will produce a greater good for the greatest number of growers. The opposite appears to have happened with captive growers funding super profits paid in the form of dividends to the privileged 25% as well as funding year on year the Zespri brand and other intellectual property rights that they do not own.

A review of the regulations is needed to determine how this has happened and decide if this should be changed and how it can be changed equitably.

3. PUBLIC GOOD FUNDED KIWIFRUIT VARIETIES HAVE BEEN PRIVATISED

• Tax payer funding was responsible for establishing the kiwifruit variety breeding programme that produced the successful Hort 16A (Gold) kiwifruit variety. A further $35.7 million has been given to a joint venture between government agency Plant and Food Research and Zespri to breed new kiwifruit varieties, the licence fees and royalties from which are now flowing to those privileged 25% who own 75% of the shares in Zespri.

• A review is needed to determine if taxpayer funds should be privatised in this way and whether these varieties should be entrusted to Zespri which is a private company incorporated under the Companies Act , or held for the benefit of NZ Inc and all NZ Kiwifruit Growers. (Remember that public good funded apple varieties are now controlled by German company Baywa – arguably because of the ambitions of Trade Minister Tim Groser. The same could happen with public good funded kiwifruit varieties ).

4. KIWIFRUIT VINE HEALTH REFUSES TO BE SUBJECT TO PROBITY AUDITING

• Taxpayer funding of $25 million has gone into Kiwifruit Vine Health Incorporated and KVH has now been given compulsory levying powers under the Biosecurity Act but there is no requirement for KVH to be subject to any sort of probity audit. In fact, KVH has refused to allow an audit to check the probity of their spending of the taxpayer funding. An audit was requested to ensure, amongst other things, that Compensation payments to growers who voluntarily cut out vines to try to contain PSA when it was first discovered were applied with an even hand between growers.

• A board member of KVH at the time that the KVH Board refused to allow an audit has been appointed by the Minister for Primary Industries to a Ministerial Biosecurity committee.

• It is arguable that the Minister of Primary Industries has acted outside his powers in granting a National Pest Management Plan under the Biosecurity Act to KVH without following the correct consultation requirements of the Biosecurity Act.

• There does not appear to be any systematic peer review of the scientific research and recommendations made by KVH and the board of KVH arguably lacks the breadth and depth of disciplines, particularly scientists, to effective perform its role as lead agency for PSA and other biosecurity matters affecting kiwifruit.

A review is needed to determine the probity of the research, science and spending by KVH and decide whether the governance structure is appropriate for effective performance .

5. THERE IS NO EFFECTIVE REGULATORY SUPERVISION OF ZESPRI

• The NZ Government has misled the World Trade Organisation by describing kiwifruit industry regulator Kiwifruit New Zealand ( KNZ)as being “independent”.

• KNZ has not once in its 13 year history been required to or offered to a supervising Minister any report on the efficacy of the Kiwifruit Export Regulations in doing what they say they are supposed to do which is to mitigate the effects of the monopoly granted under the regulations to Zespri. In other words , no one has bothered to check if there is , in fact, what the regulations call a “monopsony” .

• Collaborative marketing, one of the pillars of the regulations, is , on any objective assessment, a total failure.

• It appears to us that Zespri’s monopoly on information is being used to inform MPI policy and advice to the Minister with little or no objective asessment. ( Answers given to questions raised with both MPI and Zespri seem to be written from the same song sheet when it should , in our view, have been obvious to officials that other views should have been sought.)

6. THE REGULATIONS BREACH WORLD TRADE RULES AND INFRINGE INTELLECTUAL PROPERTY RIGHTS and DENY NZ GROWERS ACCESS TO NON-ZESPRI KIWIFRUIT VARIETIES

• The regulations breach reciprocity principles in the way that they have been applied with respect to the commercialisation of new kiwifruit varieties.

• The operation of the regulations breaches specific reciprocity provisions of the UPOV treaty governing international Plant Variety Rights. (i.e While Zespri is free to plant its taxpayer subsidised new kiwifruit varieties offshore and commercialise those varieties for 12 month supply , foreign , and some NZ , kiwifruit plant breeders are not able to do the same in NZ and are therefore planting in other Southern Hemisphere countries such as Chile and South Africa.)

NONE OF THIS WOULD MATTER IF KIWIFRUIT GROWERS WERE PROTECTED BY THE REGULATIONS AND INTELLECTUAL PROPERTY RIGHTS WERE RESPECTED BY THE REGULATIONS. THIS IS NOT A CALL TO CREATE A DISASTOROUS POWER VACUM BY WHOLESALE DEREGULATION. IT IS , HOWEVER, A CALL FOR RESPONSIBLE GOVERNMENT .

Kiwifruit growers deserve better than this from their government. We also say that Our Prime Minister and Trade Minister have no authority to talk about free trade or push for the inclusion of agriculture as part of the TPP when –

1. They continue to support the Kiwifruit Export Regulations and the monopoly given to Zespri .

2. The NZ taxpayer has subsidised a joint venture kiwifruit variety breeding program to the tune of $35.7 million.

3. NZ law means that US , Chinese, European and other breeders of kiwifruit varieties cannot enforce and exercise their IP in their varieties here in NZ in the same way that Zespri can ( with NZ Govt help ) in their own countries.

4. The NZ Government describes Zespri as a State Trading Enterprise in its filings with the World Trade Organisation and misleads the WTO by saying that there is an independent regulator that oversees this State Trading Enterprise.

Issued by IKGA Inc. 25 October 2013

Information about IKGA

IKGA was established in May 2010 by a group of concerned kiwifruit growers.

IKGA aims to provide an independent voice for kiwifruit growers because it has no confidence in the ability of KNZ or NZKGI to act as effective watchdogs on the activities of Zespri.

IKGA believes there are questions that are not being asked about the activities of Zespri, the way it operates and how grower funds are dealt with.

IKGA is concerned that Zespri has become another corporate and lacks proper accountability to growers.

IKGA  is not seeking the removal of the SPE – it wants the SPE to work better for Growers

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ENDS

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