TABLE OF CONTENTS
1. INTRODUCTION
2. DEMAND AND SUPPLY OF KIWIFRUIT
3. MARKET STRUCTURE OF KIWIFRUIT
4. IMPACT OF NATIONAL POLICIES on Kiwi Fruits
5. GLOBAL ECONOMIC TRENDS of Kiwi Fruits
6.
REFERENCES
This essay is an
analysis of the Kiwifruit industry, which is a major player of the horticulture
landscape of New Zealand. It is exported to 53 countries and 30% share of the
global export is with this country.
This essay examines and
analyses the factors effecting the demand and supply of the product, the market
structure of the industry both domestic and international and the dimensions on
which the firms in the sector interact with each other. The analyses also cover
the impact of the national polices over the industry and how it is affected by
the global economic trends.
It may be pertinent to
mention here that in New Zealand the kiwifruit Industry is a regulated
Industry. Two of the important
legislations which govern it are the Kiwifruit Industry Restructuring Act, 1999
and the Kiwifruit Export Regulations, 1999.
2. FACTORS AFFECTING THE DEMAND AND SUPPLY OF KIWIFRUIT INDUSTRY
·
TASTESAND PREFERENCES - Advertisement, lifestyle, customer perception, health considerations,
and memories of eating the good on previous occasions influence tastes and
preferences(Sloman, Norris, & Garrett, 2013). First and foremost, in the case of
kiwifruit, being its high rating as a super food. Its distinctive melon like
taste is unique. A recent nutritional study showed that the kiwifruit has more
fiber than bran. Its vitamin ‘C’ contents are thrice as rich as an orange. It
has low-calories and is sodium-free. It contains lot of potassium and calcium.
· INCOME - As income increases, people's demand for most commodities will increase. These goods are normal goods. When people are wealthier, they spend less on inferior products, such as bad fruit cuts, and turn to higher quality products (Sloman et al., 2013).Within the fruit bowl the Kiwifruit is still in an underdeveloped category. But the fruit has huge further growth and demand potential. As incomes in many countries increased, imports (especially from new emerging markets) also increased, particularly in Asia. (Bano. S, Scrimgeour F, 2012).
· THE NUMBER AND PRICE OF SUBSTITUTE GOODS – Apple and Pears are substitute for Kiwifruit. When the prices of inferior fruits (Apple and Pears) rise the demand of normal fruit (Kiwifruit which has higher nutritive value) will increase because price is sensitive and once it gets increase the people will prefer more kiwifruit. The higher the inferior product price, the higher the demand for normal goods would be as people turn from the substitutes ((Sloman et al., 2013).The price will not differentiate much between inferior goods and normal goods. People will prefer kiwifruit more than apple and pears if price increases.
· DISTRIBUTION OF INCOME - If national income were allocated to high-income earners from those with low incomes, the demand for luxury goods would increase. Kiwifruit is the super-food with high nutritive value. The cost of kiwifruit is high and cannot be purchased by low income earners frequently. Kiwifruit has always been the preference of higher income earners.
Impact of changes in determinants of demand on market equilibrium price and quantity
There is increase in demand (shift the demand curve right/up) due to positive change in determinants of Kiwifruit. Positive changes result in an increase of both equilibrium price and quantity. This is easily visible by looking at the red dots marked 1 and 2. Initially equilibrium point is at 1 but when there is a rightward shift in demand curve the price as well as quantity of Kiwifruit has increased.
There is decrease in demand (shift the demand curve left/down) due to negative change in determinants of Kiwifruit. Negative changes result in a decrease of both equilibrium price and quantity. Initially equilibrium point is at P and Q but when there is leftward shift in demand curve the price as well as quantity of kiwifruit has decrease and new equilibrium has been formed at price P1 and quantity Q1.
· USE OF TECHNOLOGY-
Technology in the form and robotics and automation helps improve efficiency in
the horticulture sector including kiwifruit supply chain in New Zealand.
Sensors used in the supply chain provide accurate real time information and
data for analysis. Robotic harvesters which work day and night are deployed in
the orchards to pick up fruits. High accuracy GPS units; Drones (UAV) used to
capture aerial imagery; and, Geographic Information Systems (GIS) software to
process and present the maps are being deployed to map the orchards with high
value kiwifruit varieties. High accuracy results about crop estimation,
biosecurity readiness, pest and disease management and more are obtained with
the use of these three complementary technologies for advance planning with
confidence and precision. In post harvest operations automated bin trippers ,
infra red camera and robotic packing and stacking technology is being deployed.
The use of this advanced technology has brought in accuracy and speed in the
supply chain.
·
GEOPOLITICAL UNCERTAINTIES - In this connection mention may be made
of the Brexit induced negotiations for the exit deal of United Kingdom from the
European Union. Due to delay in this process there have been considerable
distractions as well as uncertainty since the last two years. The process of
FTA with EU and New Zealand has also been hanging fire. US/China tariff war is another factor under this
category. Similarly, in the name of food security and self-sufficiency
protectionist policies are being espoused by some of the countries. All these
factors represent a significant risk in so far as the international trade
environment is concerned and have jeopardized the growth of New Zealand’s
export business of Kiwifruit. Non tariff
barriers have impacted the demand of the fruit internationally.
·
THE
NUMEBR OF SUPPLIERS AND THE ALTERNATIVE PRODUCTS-
In order to beat the competition,
new varieties of kiwifruit better in taste, quality and consistency needs to be
introduced and given proper branding and promotional campaigns. This is,
however, a cost intensive exercise needing high spending in research and
innovation. Moreover new varieties take several years to grow. It can be made
available in sufficient quantity when a large number of growers cultivate the
same. All these issues add up to increased cost of production. The other
alternative to compete with the rivals in the market is to ensure that Zespri
manage to supply the kiwifruit to the international market throughout the year.
This is achieved by getting the fruit cultivated offshore in the southern
hemisphere region in Italy and China as the harvesting seasons in the northern
and southern hemisphere complement each other. When the harvesting season ends
in northern hemisphere, it starts in southern hemisphere. (NZKGI,
2018-kiwifruit book).
· NATURE, ‘RANDOM SHOCKS’ AND OTHER
UNPREDICTABLE EVENTS -Adverse weather such as frost,
cyclone, drought, etc, Biosecurity incursion, Food safety/contamination risks,
labour constraints are some other factors which impact the supply of the
kiwifruit. (NZKGI, 2018-kiwifruit book). PSA the bacterial disease which effected
the kiwifruit in 2010 devasted the harvest and had hindered the supply ( NZ
herald,2010)
Supply curve
shifts rightward leading to new equilibrium price and quantity. New equilibrium
price is less than initial equilibrium but quantity has been increased in new
equilibrium.
There is decrease in supply (shift the demand curve left/ up) due to negative change in determinants of Kiwi. Negative changes result in a decrease of quantity and increase in price. Initially equilibrium point is at P and Q but when there is leftward shift in supply curve the price Kiwi has gone up and quantity supplied went down.
Price elasticity of demand of Kiwi fruits
Demand of
kiwifruits are inelastic( very less elastic) in nature in short run as it is
categorized as a super product among various fruits available in the market in
terms of health benefits, minerals and vitamins available in Kiwi fruits.
Increase in price of Kiwi fruits tends to decrease demand of Kiwi fruits in
short run to a very lower extent. Generally, in long run, demand of products
remain more elastic, however, looking into nutritious benefits of kiwi fruits
as compared to its substitutes , it tend to remain less elastic in long run as
has been observed in continuous increase in demand of kiwi fruits year over
year around the importing countries.
Price elasticity of Supply
Supply
elasticity of Kiwi fruits is very less elastic near to inelastic in short run
due to limitation of resources required to produce Kiwi fruits however, in long
run, supply elasticity is elastic in nature as production capacity can be
easily increased in long run as has been seen from statistical data of increase
in quantity of exports over year and year.
(Market structure may be different domestically and internationally. Justify your conclusions about the structure. Consider also carefully the interactions. The firms may not interact only on price. They may also cooperate at some levels and not just compete with each other.)
There are 2681
kiwifruit growers in New Zealand with 2900 registered orchards spread in 12185
hectares. In 2017/18 the earnings from the export of the kiwifruit produce was
$1.859 billion, up significantly 12% from 2016/17(Retrieved from http://kiwifruit-Book.pdf). In 2018 New Zealand exported 417000
tonnes of kiwifruit. (Global Trade, Nov5, 2019 issue).
Market Structure for EXPORT of Kiwi fruits –
For most of exports of
Kiwi fruit there is monopoly market that exists in Newzealand. However, for
export to Australia, there is oligopolistic market structure.
MONOPOLY
– A monopoly exists when there is only one firm in the industry. Zespri is the
major player in export market from Newzealand to other countries except
Australia. The Kiwifruit Export Regulations, 1999 govern and regulate the
export. Under the provisions of the said regulations only a single marketer,
namely, Zespri Group limited has been permitted to export and market the
Kiwifruits grown in New Zealand to the countries outside Australasia (Retrieved
from http://kiwifruit-Book.pdf).The firm’s monopoly position by patents on the
essentials(Sloman et al., 2013). Zespri has
patent gold kiwi. Zespri has copyright. The various forms of licensing and
tariffs and trade restrictions are applicable to keep the one firm to operate
from Newzealand for exporting kiwifruit. This arrangement is what is called the
Single Point of Entry (SPE). Provision for collaborative marketing arrangements
between other marketers and Zespri has also been made under the Regulations and
is defined as “an arrangement by which a person may export New Zealand grown
kiwifruit in collaboration with Zespri Group Limited”. Collaborative marketing
has “the purpose of increasing the overall wealth of New Zealand kiwifruit
producers.” This arrangement makes Zespri, in effect, a monopsony buyer of kiwifruit, grown in New Zealand, for export. The New Zealand Kiwifruit Authority has the look and most of
the mechanisms of a state- sanctioned
marketing monopoly. It
is not mandatory for the producers of the NZ kiwifruit to have share ownership
in Zespri. The growers receive the payment for their produce form the packhouse
and cold storage Company, or a legal entity of group of growers which
negotiates the contract with the packhouse on their behalf. The Zespri and the
packhouses have a direct contract called the ‘Supply agreement’. The packhouses
are called the registered suppliers.
OLIGOPOLY
– Oligopoly occurs when there are few firms sharing a large proportion of the
industry(Sloman et al., 2013).There are few
firms like SEEKA which exports to AUSTRALIA. Export of kiwifruit to Australia is governed under the New
Zealand Horticulture Export Authority Act,1987. Both firms have
identical product kiwifruit. Both the firms SEEKA and ZESPRI are
interdependent. Each firm is affected by its rival’s action. Both the firms
SEEKA and ZESPRI does not ignore the actions and reactions of each other in
kiwifruit industry. The price change or product enhancement will affect the
other firm and vice-versa. The companies are interdependent. If a company
changes its price or product quality it will be influenced by the rival's sales(Sloman et al., 2013).
INTERNATIONAL MARKET STRUCTURE of KIWI Fruit-
Zespri is the largest firm to export
globally the kiwifruit. ZESPRI is among the top choice for the kiwifruit
because of its superior quality of kiwis. Zespri grows the best-tasting
kiwifruit whichever variety to be choose either green kiwi or gold kiwi. The
size of the kiwis are large as comparing it global varieties. Zespri has a
brand name in the global market because of its better nutritive content. There
are several other countries who are the producers of kiwifruit like Italy,
Chile, Greece, Belgium, Iran and many more.
As stated by globaltrademag.com “ EXPORTS BY COUNTRIES IN 2007 TO 2018
New Zealand (417K tonnes) and Italy
(289K tonnes) were the key exporters of kiwi fruit in 2018, resulting at near
29% and 20% of total exports, respectively.
By
making use of the economy scale, setting for high standard quality, developing
markets and spending in Research and Development, the SPE arrangement has been
instrumental in improving the value of the kiwifruit industry exports. All
these measures have helped Zespri to compete effectively in international
markets and command a premium for its world leading brand. The kiwifruit
growers of Newzealand have benefitted from the price that the Zespri pay for
their fruits (Retrieved from http://kiwifruit-Book.pdf).
Impact of national Policies on kiwifruit industry of NewZealand
(Note the broadness of this. The industry may be affected by the government’s fiscal and monetary policies. There could be other areas where they are also impacted. For instance transport and environment policies may have strong impact. Try not to just list the policies that apply but focus on the most important ones for the industry.)
The National Policy of
a country provides an operating environment which is fundamental to any
industry for its operation. Therefore, the responsibility for success of
kiwifruit industry is to be shouldered not only by the kiwifruit growers, post
harvest operators and the exporter but also on the environment in which they
operate. Any change in the operating environment influences the structure and performance
of an industry. The major policy change for the kiwifruit industry had been the
regulation the industry through legislation. In 1977 the New Zealand Kiwifruit
marketing Authority was created by the Government under its power under the
Primary Product Marketing Act 1953. The authority not only provided controls to
the producers but also regulated and coordinated the number of exporters
through issue of license. It also set high quality and enforced the standards
set for the kiwifruit industry. The other interventions by the authority were
through controls on packaging and marketing. It also funded R&D (Wills
1994).
Q4. How it is affected by the global economic trends.
(Note again that this is general. Many thins have the potential to affect your industry. These could range from other country’s economic performance, political stability, trends in energy prices etc. Focus on most important and analyze them.
In its annual report
for the year 2019 the NZ horticulture Export Authority has identified following
global trends which impacted the New Zealand exports.
1.Turbulent international trading conditions and sluggish growth (World Economic Outlook, July 2019)
New Zealand Dollar was
less volatile. It remained at slightly lower levels which helped New Zealand to
retain the export competitiveness across a range of international markets with
a weighted trade index of 71 down by one point.
In 2019 a balancing
occurred in the supply/demand of fright environment. Low performing and
obsolete vessels were cut down with a view to rationalizing efficiency. Freight
rates eased for the three quarters of the year. These recovered in the last
quarter of the calendar year. Bunker fuel prices also fluctuated, 10 to 20%
lower from previous year. Competition among carriers remained strong. Trade
uncertainties combined with the January 2020 deadline for introduction of the
Global Sulphur Cap (whereby the cap on sulphur content of marine fuels will be
cut from 3.5% to 0.5%), will impact the supply/demand situation as shipping
lines will hasten the scrapping of older vessels. This may also impact the
future freight cost structure dynamics. The decarbonisation of shipping is a
leading issue for the industry to address.
Following global issues
are of concern to the horticulture sector of New Zealand:
·
Delayed progress in negotiations for a
Free Trade Agreement with EU due to the uncertainty of a deal between UK and EU
over Brexit
·
The US/China tariff war
·
Protectionist policies that are being
espoused in the name of food security and self-sufficiency represent a
significant risk to the international trading environment and jeopardize our
growth prospects.
·
Non-tariff measures in particular are
impacting on the development of our export sectors.
·
As far as horticulture is concerned, the
usage, availability and sustainability of water is a key issue in developed
markets in Europe and North America.
·
In Asian and Latin American economies,
investment in large infrastructure projects relating to food production
continued at pace, and contingent upon access to water, horticulture crops
retained prominence as a desirable land use,.
·
More products with less sugar and/or
additives, plant-based products, probiotic foods, food waste reduction/management,
traceability and integrity, convenient online food shopping to save time, all
continued to feature as themes in the top ten consumer trends.
·
Search for plastic packaging and
wrapping alternatives is a key issue for the horticulture sector.
· The carbon footprint of food production is being debated globally with renewed vigor which, may require public reinforcement of earlier research on New Zealand’s positive credentials as regards production and transport to markets. Encouraging a more Collaborative Horticulture
REFERENCES
Sloman, J., Norris, K., & Garrett, D. (2013). Principles of economics. Pearson Higher Education AU.
Bano, S., & Scrimgeour, F. (2012). The export growth and revealed comparative advantage of the New Zealand kiwifruit industry. International Business Research, 5(2), 73.
Scrimgeour, F., & Locke, S. (2015). Review of Kiwifruit
New Zealand. Available at SSRN
3286701.
Jim (2020).Monopolostic
competition
http://www.investopedia.com/m/monopolisticmarket.asp
Newzealand horticulture
export authority. (2012). Kiwifruit.
http://www.hea.co.nz/2012-05-11-03-05-28/kiwifruit-trade
https://www.globaltrademag.com/
http://www.hea.co.nz/2012-05-11-03-05-28/kiwifruit-trade
https://www.nzkgi.org.nz/wp-content/uploads/2018/12/2018-Kiwifruit-Book.pdf
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