Market update | June 2020
The 2019/20 growing season has been affected by the drought in the North Island, and during harvest the industry had to deal with the challenges that the global Covid-19 pandemic presented and the fast-changing global environment. Despite all this, the sentiment in the industry remains very positive.
Growing conditions were affected by the draught and the crop is smaller than the previous season. Total trays harvested are down 4.5% from 155 million to 148 million this harvest. This is mainly a result of drop in volumes for green variety, from 83 million trays to 70 million. SunGold on the other hand, rose from 67 million trays in the 2019 harvest to 75 million in the 2020 harvest.
The change is explained by an increase in production area for SunGold kiwifruit as new greenfield developments are coming to fruition along with ongoing conversions of Green to SunGold. The crop yields between the two main crops also vary with SunGold being 35% more productive on a per hectare basis.
Generally, SunGold plantings are in more recent developments, compared to most of the Green developments that have been in existence since the 1980’s. Newer orchards are more likely to have irrigation and therefore coped better with this season's dry conditions and generally resulted in higher yields compared to non-irrigated properties.
Despite the smaller crop, the industry still expects that the payments to the local kiwifruit industry will be up on last year’s total of $1.96 billion, which was an increase of 9% on the 2018 harvest, confirming the upward trend.
Zespri, known to be conservative in their estimations, has so far revised their forecasts up twice. At their last update on 16 June 2020, their forecast prices for Green are expected to be in the range of $5.40-6.90 per tray and between $12.50-14.50 per tray for SunGold. These forecasts are higher than the average prices achieved for the 2019 harvest of $6.46/tray for Green and $11.71/tray for SunGold, fuelling optimism in the industry.
The forecast Orchard Gate Returns (OGR) for the 2020 harvest have been underpinned by growing demand from key markets despite the pandemic (or because of it) and overall exports are up 7% on the same period last year, according to ANZ.
The result is influenced by the increased share of SunGold, which is harvested earlier. It also reflects the strong demand for healthy, vitamin C rich foods and much stronger supermarket sales, coupled with strong brand position of all Zespri varieties and a nimble response from the New Zealand kiwifruit industry to the logistic challenges presented by the global shutdown and supply chain interruptions it caused.
The 2020 licence tender process has been completed with both the SunGold and Zespri Red pools oversubscribed. 700 hectares of Sungold licence was released at a median price of $400,023 per hectare, up from $290,000 last year. 50 hectares of Organic SunGold was released at a median price of $219,565, up from $153,217. and 150 hectares of the new Red licence was released at a median price of $62,500. This significantly increases the capital requirements for new greenfield developments and underpins the prices for existing orchards.
In the past few months we had a reasonable level of sales activity in the kiwifruit property market, consistent with the current sentiment in the industry. Kiwifruit orchard prices remain strong.
The global events in the past few months and the drop of the economic activity across the world, are casting high levels of uncertainty over how the next few years will play out for the industry. Judging from the industry response and the demand levels that we have observed so far, we have a reason to consider the kiwifruit industry in New Zealand to be well placed to weather the crisis successfully, however, another 6 months to a year will provide more certainty.