Agreement reached on Zespri’s funding model
NZKGI, Zespri Group Ltd. and Suppliers have reached agreement on the Enduring Funding mechanism which determines how Zespri is financed from the sale of New Zealand kiwifruit for future seasons and amends how loyalty payments are calculated from this season.
This marks a major milestone in the completion of outcomes from the Kiwifruit Industry Strategy Project (KISP) which growers voted to support in 2015. Based on key principles outlined in KISP, the agreements recognise that Zespri is a commercial business managed by directors which must be well funded through an enduring mechanism, work in the best interests of both growers and shareholders and focus on achieving the benefits of economics of scale for these stakeholders.
The mechanism includes a reduction in Zespri’s gross margin in 2018/19 and 2019/20 after which an automatic margin resetting mechanism has been agreed that targets a New Zealand supply EBIT of approximately 1 percent. In addition, from the 2017/18 year there is a mechanism to equally share with growers any earnings before interest and tax from NZ Supply over one percent of net NZ kiwifruit sales (if applicable). Assuming formal execution of the agreements in mid-December and based on current forecasts, this will most likely result in a payment to growers above the normal 25 cent standard loyalty payment.
NZKGI Chairman Doug Brown says, “The agreement takes into account that kiwifruit is a primary industry and therefore must be responsive to change as we have seen with events such as Psa. This agreement for Zespri’s funding will be in place for 10 years with a 5-year review. There are trigger events that can stimulate a renegotiation of the agreement”.
NZKGI has been a key partner in the development of the margin agreement and has focussed on ensuring that growers receive the best possible result. NZKGI will also take a lead role in monitoring the implementation of agreement. NZKGI CEO Nikki Johnson says, “Today’s announcement is an extremely important step for the whole kiwifruit industry as it will have a significant financial impact for all stakeholders involved. It has taken many lengthy and robust discussions to get to this stage and the result represents a good deal for all of the parties involved across the kiwifruit industry”.
Further information is located on Unlisted here.