Organic Kiwifruit - Leading the Charge

Organic kiwifruit has been a flagship product for the organic exports sector, and remains the single most important organic product (in terms of FOB value) exported from New Zealand. This article by Irene Parminter and Ruth Underwood reviews the development of the organic kiwifruit sector, discusses some of the issues currently limiting further growth and outlines the approaches being taken to address these issues. It covers the green Hayward variety of kiwifruit only. Organic gold kiwifruit is also produced in small quantities.

Development of the Organic Kiwifruit Industry

Production of organic kiwifruit has increased rapidly from 13,000 trays in 1991 to over three million trays in the 2000 season. Recent statistics covering area and production are presented in Table 1, and longer-term trends in production and the price premium over conventional Hayward green kiwifruit are presented in Figure 1.

Table 1: Production and Area of Organic and Conventional Hayward Kiwifruit in 2000 and 2001

	Number	Total area	Total	Production/ha	Count
	of orchards	(ha)	production	(trays/ha)	(average
			(trays)		number of
					fruit per tray)
2000 season organic	na	522(1)	3,242,307	6,206	37.9
2000 season conventional	na	8341(2)	52,157,054	6,253	35.8
2001 season organic	186	593(1)	2,625,161(3)	4,424	35.2
2001 season conventional	2557	9051(2)	56,346,864	6,226	35.0

(1) Excluding orchards in conversion to organic production (96 ha in 2001).

(2) Including orchards in conversion.

(3) The fall in production in 2001 was largely due to seasonal factors.

Note: kiwifruit are harvested in April-May. In the table, the season refers to the year in which the fruit is harvested.

Source: Securing the Future Through an Integrated ZESPRI™ System: Workbook, 2001, Zespri Group Ltd.

Figure 1: Trends in ZESPRI^TM Organic Kiwifruit Production and Price Premium over Conventional ZESPRI^TM Green

Note: Figure 1 uses the year ending March. This should be borne in mind when comparing with Table 1, as the season in which the fruit is picked is one year behind.

Source: KiwifruitNZ and Zespri Group Ltd Annual Reports 1997 to 2001, Kiwiflier No. 199, 23 April 2002, and Campbell et al, 1997¹.

The table and figure highlight a number of issues:

Organic production has increased steadily over time.
Organic fruit has always achieved a premium over conventional kiwifruit. However the size of the premium has generally declined over time. With the fall in production (related primarily to seasonal factors) and a shift in marketing strategy in the 2001 season (year ending March 2002), the premium rose slightly.
Organic production/ha is usually lower and more variable from year to year than conventional Hayward. Organic growers have fewer tools to use to respond to adverse seasonal conditions. As a result, price premiums per tray do not translate to the same level of premium per hectare.
Organic orchards tend to produce slightly smaller fruit. Larger fruit size (within limits) is preferred in the market, and fruit payments increase with fruit size.

Factors Driving the Expansion of the Organic Kiwifruit Industry

A number of factors have driven the increase in production of organic kiwifruit. Market demand has resulted in a price premium over conventional kiwifruit during the period 1991 to 2002, and this has generally been sufficient to more than compensate for lower average yields and fruit size, and higher labour and other input costs. The price premium for organic kiwifruit has ranged from 89% for the 1992 crop to 5% for the 2000 crop. In 1997, Campbell et al calculated that organic kiwifruit produced net returns between $5,500 and $6,500 higher per hectare than growers producing conventional kiwifruit (produced using the Kiwigreen integrated pest management programme).

In addition, the kiwifruit industry as a whole has been moving towards the use of softer chemicals, increased pest monitoring and the production of low residue fruit over the past decade. Moving to organic production has not been a radically new approach for prospective growers, but rather an extension of what they are already doing.

Finally, some orchardists dislike spraying with conventional pesticides. Many kiwifruit orchardists live on their orchards and don't like spraying pesticides around their own houses. In highly populated areas, organic sprays tend to be more acceptable to some neighbouring landholders. In addition, a bud-breaking chemical used by most non-organic growers is controversial due to its toxicity and visibility (it is applied in winter when the vines are leafless). Foregoing use of the chemical is one of the first key decisions that prospective organic growers have to make as it occurs at the beginning of the production cycle.

Factors Limiting Growth

Given the recent trends illustrated in Figure 1, will the expansion of organic production continue? A number of factors are knocking the confidence of prospective organic producers.

Firstly, the reducing premium for organic over conventional kiwifruit is affecting relative profitability. Preliminary findings from a recent (June 2002) workshop conducted with organic kiwifruit growers suggest that the profitability situation has reversed since the 1997 study by Campbell et al, and in 2001/02, the cash orchard surplus was estimated to be 20 percent lower on a model five-hectare organic orchard.

Secondly, the loss of a premium for transitional² fruit has made the transition period between conventional and organic production more difficult, as yields and fruit size tend to drop, with no corresponding increase in price. In the early years, transitional organic fruit shared in the premiums paid to fully certified organic kiwifruit.

Thirdly, organic kiwifruit has recently encountered difficulties in the Japanese market. A large proportion of the organic crop is marketed in this high priced market. A change of legislation in Japan meant that from 2000, fumigated fruit could no longer be sold as organic (and therefore lost its associated organic price premium). The Japanese quarantine authorities have fumigated considerable quantities of organic fruit over the past two seasons. Not only has this reduced the grower price achieved, it has caused considerable marketing and logistical problems. Currently when organically grown fruit is shipped, it is not known whether the product will be able to be marketed as organic or not. Fumigation tends to apply to the ship's hold or the entire ship, even if only part of a consignment fails a quarantine check. The costs are high if packaging and fruit stickers that identify a shipload of fruit as organic must be removed and the product repacked in Japan. In addition, uncertain product supply is a constraint to the planned and orderly marketing of organic fruit.

As a result of these factors, no new orchards are currently in conversion to organic kiwifruit growing, and some orchards have dropped out. A number of organic orchards are on urban fringe areas and some have been sold into urban subdivision.

Addressing the Limiting Factors

A superficial analysis of the trends in Figure 1 would suggest that the organic kiwifruit market is highly volume sensitive, and that volumes are currently approaching the level where premiums may well disappear. It seems likely that without premiums, organic kiwifruit production will fall. However, Figure 1 does not tell the whole story. The 2000 marketing season was a particularly difficult one. Growing and marketing strategies for organic kiwifruit have been altered to address some of the problems. The main marketer of kiwifruit, ZESPRI, is eager to maintain a strong organic component in the mix of products it is able to offer overseas customers. As a temporary measure, the industry has agreed, after some debate, to making a payment from the conventional pool to the organic pool if necessary. The payment will be based on the estimated reduction in conventional fruit returns if organic fruit were not available in the market mix offered by ZESPRI. This will provide organic growers with a guarantee of a minimum premium in the short to medium term.

The technology to grow organic kiwifruit, and markets that pay a premium for the product, are both relatively well established. The industry is making constructive moves that it believes will take it through the current "rough patch" and ensure that organic kiwifruit continue to be a flagship product for the New Zealand organic sector.

Irene Parminter
Senior Policy Analyst
MAF Policy Information and Regions

Irene has worked in MAF for the last six years. Her background is in horticultural and environmental economics. Irene's work areas include forecasting production, prices and exports for kiwifruit and other horticultural crops (excluding pipfruit), e-commerce, and e-government policy issues. She is also involved with aspects of sustainable agriculture and forestry, particularly the role of quality assurance and environmental management systems, and economic incentives for farm management changes.

Ruth Underwood
MAF Policy Agent
Tauranga

Ruth Underwood is a Horticultural Consultant with Agriculture New Zealand in Tauranga and is also contracted as a MAF Policy Agent. Her background is in horticulture, with 15 years' experience including field reporting and industry analysis for policy purposes, contributing to MAF's Kiwifruit Financial Monitoring, horticultural consultancy and facilitation. She is a Massey graduate, completing an Honours degree in Horticultural Science in the mid-1980s.

1 Campbell, H., J. Fairweather and D. Steven, 1997. Recent developments in organic food production in New Zealand: Part 2, kiwifruit in the Bay of Plenty. Studies in Rural Sustainability Research Report No. 2, University of Otago.

2 A transitional period, usually three years, is required between when the land is first registered with an organic certifying organisation and marketing the product as fully certified "organic".

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