The role of governance in the success of the New success of the New Zealand kiwifruit industryJohn LoughlinChairman

ZESPRI International

This presentation outlines:

The success of the New Zealand Kiwifruit Industry

– Historic performance

– Global context

The role of Governance in facilitating the success

The future goals of the Industry

The challenge of Psa and Governance during a crisis

The Success of the New Zealand Kiwifruit Industry

The NZ Kiwifruit Industry went through a classic bubble phase - then a rebuild

Kiwifruit Land Use

Source: Statistics NZ, ZESPRI, NZIER

The last 10 Years have seen strong growth in Export Sales

$ (

mill

ion)

Source: Statistics NZ, ZESPRI

9.8% compound average growth rate (CAGR)

$ (

mill

ion)

Kiwifruit Growth vs

Comparative Industries

Source: Statistics NZ, ZESPRI

Reasons for Growth

Orchard Productivity GREEN and GOLD

Revitalised the category with ZESPRI GOLD

Extremely competitive land use from outstanding

market returns derived from:

Price premium in markets with quality Price premium in markets with quality

branded proposition

Investment in brand marketing $90m in 2010

Knowing and understanding our consumers

Stability in pricing internationally through

market allocation

Market penetration during the season over

80% in our seasonal window

– Japan 90%+

Orchard ProductivityKiwifruit Trays – per hectare

New Zealand Horticultural ExportsFOB Return 2008

Fresh and Frozen Vegetables

20%

Prepared Fruit and Vegetables

11%

Apples, Pears and Quinces

16%GOLD Kiwifruit

Other Fruit and Nuts7%

Total Horticulture NZD FOB : $2,097m

Total Kiwifruit NZD FOB : $967m

16%

GREEN Kiwifruit32%

GOLD Kiwifruit14%

Other NH

3

Chile

159

9%

New Zealand

350

19%

Other SH

39

2%

OVERVIEW – New Zealand is ONLY 19% OF GLOBAL PRODUCTIONWhile New Zealand first commercialised the kiwifruit, today it

accounts for only 19% of global production

Global kiwifruit production by key country and region(tonnes; 000; 2006)

Southern Hemisphere456 30%

East Asia 493 27%

China (all vars)

450

25%

Japan

33

2%South Korea

10

0%USA (California)

22

1%

Italy

467

26%

France

66

4%

Greece

44

2%

Portugal

13

1%

Spain

13

1%

Iran

150

8%

3

0%

Page: 9

Europe (ex Iran/Turkey)603 33%

493 27%China = 25%

FRUIT CONSUMPTION RATIO IN PIECES

Kiwifruit has yet to break into the top league of major “fruit bowl” fruit; for

every 1 piece of kiwifruit consumer eat, they eat 50 apples, 60 oranges and 80

bananas.

Global fruit consumption ratio: kiwifruit vs. select other fruit(Select fruit; 2007)

50

60

80

Page: 10

1

World’s Largest Kiwifruit

Marketer

350

200

250

300

350

400 Estimated kiwifruit export volume by leading company(tonnes; 000; 2006/2007)

16x

Source: IKO, Export Data Yearbook, ZESPRI International Limited

22 18 18 17 9 9 8 8 8 8 8 5 5 4

-

50

100

150

200

Unique Features

of the NZ Kiwifruit Industry

Kiwifruit is New Zealand’s only major export product where we have

created the global category.

Kiwifruit is a small category – less than 0.5% of the global fruitbowl

The only way we compete is through a differentiated market position

based on a high quality branded product due to:based on a high quality branded product due to:

– NZ’s high cost of production (land, labour, freight);

– Seasonal product with limited shelf life and a narrow selling window.

Some of the best growing conditions in the world

Unified Industry

The benefits that arise from the

regulated Single Point of Entry

structureFocus on market demand not procurement

Allows long-term planning and investment – including

in the brand, in category expansion and in R&D

Managed introduction of new products

Managed approach to market allocation and phasingManaged approach to market allocation and phasing

Greater cohesion and flexibility throughout the supply

chain

Maintenance of high quality production systems

Enables maximum value from the market to be

returned to NZ growers

Checks within our regulated

structure

International competitive pressures

Grower activism

Regulatory measures

Collaborative marketing

Obligation to Parliament

Industry forums

Transparency

Reasons for Success

Innovation with ZESPRI® GOLD

Gold Kiwifruit Production Increase 2000 – 2009

Criteria for New Cultivars

� Broadens consumer appeal

� Productivity per hectare

� Storage & shelf life

� Higher return on investment

Source: Statistics NZ, ZESPRI, NZIER

Reasons for Success

Outstanding Track Record as Marketer

Most successful horticultural marketer in the world

Know and understand our consumers

Investment in brand marketing $86m in 2009

Price premium in markets with quality

branded propositionbranded proposition

Stability in pricing internationally through

market allocation

Market penetration during the season over 80%

– Japan 90%+ in our seasonal window

Reasons for Success

Innovation Focus: From Soil to Spoon

Innovation Investment 2010

Innovation Strategy

• Optimise core performance

• Build competitive advantage

• Pursue growth horizons

Innovation Investment (as a percentage of revenue) (2008)

$,000

Not one single factor but a web of interrelated factors that contribute to industry success…

Launching and differentiating the brand

Marketing and branding

– Taste and health benefits

Innovation

– Taste and health benefits

– New cultivars

– Sustainability

Integrated system

Global industry leadership

Year round supply

Excellence in execution

The role of Governance in facilitating the successfacilitating the success

The role of Governance in the

transformation & success

Strategic Insight:

� Commodity product with high cost to market

� Opportunity to focus on customers and consumers

� Opportunity to leverage collective industry strength in R&D and marketing investment

Designed an innovative and ambitious strategy:

� Differentiated product position was needed to attract premium prices

� Redefined the category by supplying a premium quality product and service offering that worked for customers and consumers

The role of Governance in the industry

transformation, continued

Selection and mentoring of key management

Continuous focus on performance and core purpose –

increasing grower returns

Evolution of key strategies

- 12 month supply (category management)

- China- China

- Sharply focussed innovation

- Investment in global talent

Pro-active stakeholder management

Lengthening the strategic planning horizon (out to 15 years)

Shared vision between Board, management and wider

industry.

The Future Goals of the IndustryThe Future Goals of the Industry

ZESPRI Promise to New Zealand

To Triple Our Export Earnings by 2025

$ (

mill

ion)

Requires 9.8% annual growth (achieved 2000 to 2009)

$ million

Business Plan

Increase kiwifruit’s share of the fruit bowl

– Health, taste, value add

Innovative new cultivars increase

productivity and grow the category

Brand differentiation for price premium Brand differentiation for price premium

in market

Focus on Asia for growth (fourfold

increase)

Sustainability in grower investment

and returns

What is Required

to Achieve this Goal?

Increased productivity of GREEN

and GOLD

Transfer from GREEN to higher

productivity variants e.g. GOLD,

new cultivarsnew cultivars

Increased land use from 13,600 ha to

16,800 ha.

Stability in international pricing

achieved through the Single Point of

Entry structure

Source: Statistics NZ, NZIER

Future product development opportunities

Horizon 1

Category development

Horizon 1

Category development

New Gold

New Novel

New Novel

New Novel

New Novel

Horizon 2

Category expansion

Horizon 2

Category expansion

New Novel

Three year window

1513 14 2019181716 21

ZESPRI GOLD

ZESPRI GREEN

New Green

Gold 3 (early)

Gold 5 (early)

Y356 (early)

Gold 9 (late)

Green 14(early)

2012

Globalising production for 52 / 7

supply

California

Chile

ChinaSouth KoreaJapan

Australia

ItalyFrance

New Zealand

New opportunities

New challenges

Different climates

Different soils and diseases

Page: 27

ChileNew ZealandDifferent soils and diseases

Different cultures and different economics

Building links between NZ and offshore providers

Resource intensive

Higher risk profiles

ZESPRI Global Supply

The Challenge of Psa and The Challenge of Psa and Governance During a Crisis

Bacterial aerosol disease affecting kiwifruit vines for over 25 years – spread more aggressively in cold, wet conditions – no evidence of soil or fruit infection

Japan (since 1989)– 4-6% (58ha) of GOLD affected by Psa each year

– Managed by cutting back, strict orchard hygiene and the use of antibiotics

South Korea (first confirmed in 1992)– GREEN thriving until the late 1980s when Psa wiped out the industry

– Reduced infection due to tunnel house production methods – several orchards still battling Psa

Italy (since 1993)

The Global Challenge of Psa

Italy (since 1993)

– Significant vine damage and crop losses in 2007, 2008, 2009 and 2010

– Approx. 30% of vines cut out

– 25% of ZESPRI GOLD orchards have had complete vine removal - 70% are reporting Psa

New Zealand (since 2010)

– Approximately 1% of orchard area affected (across more than 115 orchards)

– Approximately 20 orchards have cut out vines to some degree (3 have removed the majority of vines)

– Urgent industry action and warmer weather reducing spread within and between orchards

Also recorded in China (2004), France (2010), Portugal (2010) and Chile (2011)

30

The Challenge of Psa – in NZ

Industry Strategy

– Initial focus was on urgently understanding how widespread the issue was

and mitigating risk of spread through orchard hygiene

– Strong two-way industry communication and wider stakeholder

communication (incl. “not a fruit issue”)

– Industry agreed that aggressive action was

necessary to minimise potential destructionJapan

Chile

Italy

necessary to minimise potential destruction

– Strong Government/Industry partnership with

$50m support package

Kiwifruit Vine Health Inc.

– Implement the aggressive containment strategy including financial

assistance to growers

– Industry leadership of long-term management strategy

(grower/supplier/ZESPRI)

– Ongoing R&D and industry communication regarding Psa

Governance During the Psa Crisis

Management invoked the Crisis Management Plan

Work streams identified and responsibilities allocated within the

team (e.g. market access, technical / scientific, grower support,

communications). Key project roles filled by staff pulled out of

their roles. Huge hours were worked.

Some grower directors involved to bring practical orchard skills

and insights.and insights.

Chairman an observer at daily crisis management team

meetings and adviser to CEO.

Chairman regularly briefed directors on issues / progress and

special Board conference calls were held.

Questions