- The Apple and Pear Industry
- The Kiwifruit Industry
- Further Evolution of the Regulatory Regimes
- Conclusion
The Regulatory Framework: Specific Issues
The Apple and Pear Industry
43. Under the new regulatory regime, most of the new obligations to be imposed on ENZA Limited now apply to the NZAPMB (as if it was ENZA Limited) by way of a transition regime through to 1 April 2000. The new Apple and Pear Board is required to act as a regulator now in respect of actions carried out by the NZAPMB.
44. In this regard, officials are aware of at least two commercial arrangements involving the NZAPMB that give rise to questions of consistency with the new non-diversification rule. Both arrangements involve the apparent entry by the NZAPMB into joint venture arrangements with other parties in areas of business outside of the core monopsony business. It will be an important test of the long-term effectiveness of the new regulatory regime to see how the Apple and Pear Board investigates and rules on these commercial arrangements.
45. Before 1 April 2000, the Apple and Pear Board is required, after consultation with persons who are to be the initial directors of ENZA Limited, to prepare the formal text of ENZA Limited’s export authorisation. The critical element of that will be the enforcement regime. The proposed enforcement regime must be submitted to the Minister for approval by 1 April 2000. To the extent that the proposed enforcement regime is inadequate, the Minister may seek amendments. Note that a transitional enforcement regime is included in the regulations for the period 1 October 1999 to 1 April 2000.
46. As noted above, the NZAPMB is required to move to FAS
by 1 February 2000. In extraordinary circumstances the Minister may extend that deadline
to 1 April 2000. The NZAPMB’s progress is being monitored. The NZAPMB advises that it
does not expect that an extension will be required. Given the current state of the
industry and the consequent rationalisation occurring, any delay in implementation of FAS
from
1 February 2000 would be costly to the industry.
47. Finally, and as noted above, the level of business activity specified in Schedule 2 of the Act (the ‘grandparented’ non-core businesses) currently is being verified. Ministers wrote to the NZAPMB in September 1999 advising that to the extent the stated figures could not be verified, amendments to Schedule 2 would follow to ensure accurate information was contained in the Schedule. Present indications are that amendments to Schedule 2 may be required.
The Kiwifruit Industry
48. Before 1 June 2000, the Kiwifruit Board is required,
after consultation with persons who are to be the initial directors of Zespri Group
Limited, to prepare the formal text of Zespri Group Limited’s export authorisation (a
transitional regime applies between
1 April and 1 June). The critical element of that will be the enforcement regime. The
proposed enforcement regime must be submitted to the Minister for approval by 1 June 2000.
As with the apple and pear model, the Minister may seek amendments if the proposed
enforcement regime falls short of requirements.
Further Evolution of the Regulatory Regimes
49. The regulatory regimes described above represent some progress towards a more commercial environment for exporters of pipfruit and kiwifruit. They define ownership of the Boards, move the Boards to a more responsive corporate structure, decrease their reliance on special legislation and have mechanisms intended to partly mitigate the costs of statutory controls over the industry and New Zealand.
50. However, the regimes are negotiated outcomes and reflect the Government’s decision to retain export controls. The changes do not move the industries to a fully commercial basis and, as such, do not maximise incentives for value adding, innovation and efficiency.
51. Looking to the future, it is likely that further commercial pressure will come to bear on the legislative environment for the statutory monoposonies. Markets will become more demanding and New Zealand fruit exporters will have to become increasingly commercial and niche-oriented. Commodity prices are likely to continue trending downwards in real terms and this will continue to require increased efficiency and innovation. The New Zealand industry is likely to continue consolidating and, as the emerging commercial players develop greater resources and competencies, the Government can expect to face increased pressure for the export controls to be removed.
Conclusion
52. Although the corporatisation process in train for both industries is a step forward, the continuing export controls do not allow either industry to become fully commercial; nor do the controls allow maximum incentives for value-adding, innovation and efficiency over time. Industry participants are increasingly realising this and are likely to seek further flexibility in a more commercial operating environment.
53. The regulatory restraints on each Board are extensive and would not be necessary in the absence of the export controls.
54. The regulatory restraints are designed to help protect growers against abuse by the Boards’ continuing near-monopsony powers. But problems with the regulatory regime may well emerge. For example, it may be possible for the new companies to exercise an excessive degree of influence over the regulatory Boards, particularly because the Boards will have access to considerably less information than the companies. Alternatively, the new Boards themselves may become overly aggressive regulators, imposing unnecessary costs and commercial inflexibility.
55. Further, as some of the regulatory measures start to bite – particularly the non-diversification rule – the companies may begin to chafe against them and pressure the Government to allow bypass (at the likely expense of growers and shareholders).
56. The key for the Government will be to maintain a watching brief, continue (and, if necessary, improve) the integrity of the system in place, and encourage further competitive commercial evolution.
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