THENEWZEALAND HONEYPHENOMENON& INTHEUSA - Honey … · An!analysis!of!New!Zealand!honey!exporters!in!the!USAfrom!an!in8market! perspective! [UNCLASSIFIED]-1"|Page"-CONTENTS"

[UNCLASSIFED]

[NEW ZEALAND HONEY EXPORT ANALYSIS IN THE US]

New Zealand Consulate-‐General Los Angeles May 2015

THE NEW ZEALAND HONEY PHENOMENON IN THE USA An analysis of New Zealand honey exporters in the USA from an in-‐market perspective

[UNCLASSIFIED]

1 | P a g e

CONTENTS

Preface .................................................................................................................................................................... 2

Executive Summary ................................................................................................................................................ 3

1. introduction ........................................................................................................................................................ 5

Purpose of report ..................................................................................................................................... 5

Report scope ............................................................................................................................................. 5

Limitations and Assumptions ................................................................................................................... 5 2.Market Snapshot ................................................................................................................................................. 6

US export market in a global context ....................................................................................................... 8

What drives the premium in the US market? ........................................................................................... 9

New Zealand honey store presence in the US ........................................................................................ 10

Store presence of NZ honey from visited grocers .................................................................................. 11

NZ honey sits apart ................................................................................................................................. 12 3. About Honey ..................................................................................................................................................... 13

Chinese Honey ........................................................................................................................................ 14

US – More than honey ............................................................................................................................ 15

France – the mystery of coloured honey ................................................................................................ 16

New Zealand production in context ....................................................................................................... 16 4. Product Differentiation ..................................................................................................................................... 17

Country Brand ........................................................................................................................................ 17

Health ..................................................................................................................................................... 19

Trust and Safety ...................................................................................................................................... 20

Taste ....................................................................................................................................................... 22

Differentiation summary ........................................................................................................................ 23 5. Structure of the New Zealand Industry and exporters to the us ...................................................................... 24

Māori honey business ............................................................................................................................. 25

New Zealand Honey in the US ................................................................................................................ 25

Industry Coordination and bodies .......................................................................................................... 27 6. Cost of Sale ....................................................................................................................................................... 29

Cost structure for selling to the US ......................................................................................................... 29

Waterfall diagram based on cost data from companies ........................................................................ 32 7. Future for New Zealand Honey & Government interventions .......................................................................... 33

Existing New Zealand Government support and involvement ............................................................... 34

Recommendations .................................................................................................................................. 36 APPENDIX A: UMF Honey Association Manuka ID Project .................................................................................... 38

[UNCLASSIFIED]

2 | P a g e

PREFACE

The New Zealand Consulate-‐General, Los Angeles was primarily motivated to prepare this report to provide current market data, consumer-‐focused information and consumer experience for New Zealand Government policy-‐makers to assist them to develop the best policies to support the development of New Zealand’s honey export industry.

This is the first project of a wider North American (NAM) food and beverage programme. The programme and this report is overseen by the North American Food and Beverage Working Group, chaired by Fonterra USA Chief Executive, Mark Piper, with the support of Beef and Lamb’s Terry Meikle who is providing secretariat support. The group currently includes the NAM NZTE food and beverage team; New Zealand High Commission, Ottawa; New Zealand Embassies in Washington and Mexico; New Zealand Wine Growers, ANZCO, and White Cloud/Kura. The working group oversees this work and also facilitates better information flow between NZ Inc. and private sector companies and encourages increased collaboration to advance the separate and collective interests of the New Zealand food and beverage industry in North America.

Honey was chosen as the first sector to be reviewed in the NAM food and beverage programme because it is a product that is attracting a brand premium; it is growing fast and it appeared to be a useful first case for developing a report template and methodology that can be used to review other food and beverage sectors.

The opportunity for New Zealand honey in the United States is incredibly positive. Despite the fact that, as it currently stands, New Zealand exporters could not have provided a more confused message about manuka honey if they had tried. There are as many versions of “standards” on manuka honey labels on the supermarket shelves and on Amazon as there are exporters.

Ultimately it is up to the honey producers of New Zealand to collaborate on standards and the promotion and development of “New Zealand”, “Manuka”, and other “mono-‐floral” categories in the United States. A lack of cooperation will lead to missing some of the opportunity. While preparing this report on 27 March 2015 New Zealand honey exporter, SWCC USA 1234, LLC (formerly known as Wedderspoon et al) was sued in the US District Court, Eastern District of New York in a Class Action Complaint (Kong et al. v. SWCC USA 1234, LLC, et al., No. 1:15-‐CV-‐01635 (E.D.N.Y. complaint filed on 27 March2015)) that claims Wedderspoon undertook deceptive practices in their marketing, advertising, labelling and promotion of their manuka honey products. This and consumer confusion remarks on Amazon suggests this is not a trivial issue and if remained unchecked it will damage the industry and jeopardise the industry’s ability to grow from $200 million in exports to $1.2 billion by 20271.

We conclude that policy-‐makers in New Zealand would be best to focus on supporting the industry to (1) develop more coherent leadership (2) develop consistent certification and standards, (3) increase supply and (4) support the industry to develop common promotion platforms and also develop greater capacity and capability in online marketing.

For the last 25 years the rampant individualists of the New Zealand wine industry have found ways to come together to develop common sustainability systems; consistent labelling and a common platform for promoting New Zealand wine and its categories. There is no reason the apiarists and honey exporters cannot do the same and like New Zealand wine growers the United States could become its biggest by volume and highest by margin market.

1 A Primary Growth Partnership joint venture project between government and industry has set a target of growing the manuka honey industry to a $1.2 billion export market by 2027

[UNCLASSIFIED]

3 | P a g e

EXECUTIVE SUMMARY

This report is the first prepared for the North American Food and Beverage Working Group. It is a review of New Zealand honey performance and issues in the US market. The purpose of that review is to improve information for honey exporters, and also to ensure New Zealand policy-‐makers have relevant, current market information on the performance of New Zealand policy settings. The report has recommendations for policy makers focused on supporting the New Zealand honey industry’s export growth in the United States. Globally, New Zealand honey exports are experiencing rapid growth in both volume and margin, which has been attributed to the popularity of manuka honey. The value of New Zealand’s honey exports reached $200 million for 2014, up from $36 million in 2005.

The New Zealand honey industry has a target of growing the export value to NZ$1.2 billion by 2027. The US has been identified as a market with potential for strong continued growth and will be essential to meeting the industry’s target. The importance and potential of the US market is clear:

• The US is the largest importer of honey in the world (146,700 tonnes in 2013), however only consumes approximately 5% of the total volume of New Zealand honey exports (471 tonnes in 2014).

• The average FOB value per kilogram is significantly higher in the US (NZ$30 per kg) compared to all of the other main export destinations (China averages NZ$22 per kg).

• Manuka honey sells at up to 25 times the retail price of US honey. • Non-‐manuka New Zealand honey varieties also achieve a 20% market premium over other honey sold

in the US market.

Based on analysis of market data and interviews with those in the industry, the following observations can be made about the current state of New Zealand honey in the US market:

• The fragmented approach of the honey industry has failed to develop a consensus on standards or certification of New Zealand honey resulting in a wide range of standards and rating systems being used on manuka honey labels in the US, which is confusing from a consumer point of view;

• Honey is a distrusted product in the US market with consumers concerned with the source and safety of their food. There are opportunities for New Zealand honey to leverage its superior quality, production standards and traceability through developing trusted standards and certification;

• Demand for manuka continues to be strong, however is constrained by a lack of supply; • The price premium for non-‐manuka New Zealand honeys indicates there is an opportunity for other

New Zealand native honey varieties to pivot off the success of manuka in a similar manner to New Zealand wine off Sauvignon Blanc;

• The online marketplace is increasingly being used by honey exporters both big and small. It provides companies with direct access to the US without having to sell through distributors;

• Consumers are also turning to the internet to not only purchase honey, but to research and testify about the products themselves. The online “chatter” reiterates the consumer confusion, but also has the effect of carrying out a lot of the marketing work for the companies; and

• The US provides a market with less risk than Asia (in terms of adulteration and product fraud) and the US market will sustain high margins and absorb significant volume if investment is made in marketing, sales and distribution.

The opportunities are plentiful in the US market, however the current lack of industry consensus and coordination is creating risks that could prevent the industry from reaching its targets. The report has identified four areas of focus where improved support for the US market can be provided and provides recommendations for actions (page 36) by the following government agencies: the Ministry for Primary Industries, New Zealand

[UNCLASSIFIED]

4 | P a g e

Trade and Enterprise, Department of Conservation, Te Puni Kokiri, and the New Zealand Story. The recommendations also rely heavily on involvement by the honey industry.

The recommendations are categorised into four themes:

1. The first is building industry consensus and leadership and encouraging the industry to take inspiration from the sustained positive leadership of the New Zealand Wine Growers.

2. Developing clear standards, certification and traceability to ensure New Zealand honey continues to stand apart from all other country competitors.

3. Increase the supply for a product in heavy demand by increasing land availability of public and Māori-‐owned land.

4. Build a stronger, more collaborative marketing effort and build skills in online marketing and introduce New Zealand Story disciplines as the industry pivots off manuka into new monofloral honeys.

The next steps are in the hands of New Zealand policy-‐makers who, it needs to be clearly pointed out, are already working on many of these issues. The report’s market focus has been designed to strengthen their hand and narrow their purpose to where there is the greatest leverage from a US market perspective. It is too big an opportunity to miss.

Once government agencies have responded to this report, we will re-‐edit this report to include their initiatives so that in the future this report and the responses to it can be used to benchmark progress.

[UNCLASSIFIED]

5 | P a g e

1. INTRODUCTION

PURPOSE OF REPORT

This report is the first sector in a series of North American Food and Beverage reviews being undertaking for the North American Food and Beverage Working Group by the New Zealand Consulate General, Los Angeles. It has been prepared to understand the current position of New Zealand honey in the US market in terms of competitive performance; current market and consumer trends; the volume of US sales; the value of US sales; the role of product brand in driving value; product differentiation; and the cost of sales in the US (distributor; retail, marketing and sales support).

By providing up to date market information, New Zealand honey exporters will be able to benchmark themselves against their peers, if they are not doing so already, and government support for the industry (Ministry of Business Innovation and Employment (MBIE), Ministry for Primary Industries (MPI), New Zealand Trade and Enterprise (NZTE) and MFAT) can be better focused based on current US market data and US market potential.

REPORT SCOPE

The report is solely looking at honey as a food item. Skin care products, propolis, bee venom etc. are outside the report’s scope. Although they cannot be ignored, the issues around the regulation of manuka “claims” and labelling guidelines are also not the focus of the report, nor is it to advocate for one approach over the other. The report is also not an assessment of individual company performance and commercial in confidence information will not be published.

LIMITATIONS AND ASSUMPTIONS

The report was compiled using various data sources including numerous store visits in Los Angeles, online sales sites, news and research articles, and interviews with honey exporters and relevant experts in the honey industry. The data obtained through store visits was limited to the Los Angeles area and is therefore constrained in its ability to represent the US as a whole. However, Los Angeles is considered as one of the focus areas for the sale of New Zealand honey that already has an established presence in the market. It is therefore assumed it provides a decent blueprint for the market situation where New Zealand honey exporters have been focusing their efforts (other key areas include San Francisco, New York, Florida and Texas).

The report does not include information on all the different honey exporters selling in the US, but aims to provide an overview that covers the majority of New Zealand honey being sold in the US from the perspective of both large, medium and small scale sellers.

[UNCLASSIFIED]

6 | P a g e

2.MARKET SNAPSHOT

This market snapshot provides an up to date overview of New Zealand export sales to the United States in a global context. New Zealand honey is experiencing significant growth overseas and this section outlines the areas where growth and margin are greatest. It also demonstrates that the US is the most valuable market destination for New Zealand honey. The “New Zealand” and “Manuka” brands are driving this growth and are commanding significant premiums over competitor products in the US.

In the US market, New Zealand honey sits apart. As a product it outperforms all competitors in terms of price and performance. The average New Zealand consumer is a far more discerning honey consumer. Basic standard New Zealand honey sold in New Zealand supermarkets is a vastly superior product to the standard honey sold in the US which tastes more like “golden syrup” to the New Zealand palate than honey, suggesting that bees are obtaining their food from sugar, rather than nectar. It is most often sold in “bear” shaped packages and is squeezed into drinks as a “sugary” sugar substitute. US honey also receives poor media coverage as a product that is untrustworthy from a food standard and food safety perspective. Honey, along with milk and olive oil, is one of the top three most fraudulently labelled and adulterated products.

“New Zealand” and “Manuka” are the brand drivers of New Zealand honey in the United States. Consumers respond to both of these drivers and pay a premium for New Zealand honey, trusting its standards and its benefits. Coriolis published a 2012 study, as part of the Food and Beverage Information project, which profiled the potential of the New Zealand honey export industry. Coriolis identified the USA as one of the markets with potential for strong continued growth. Since then, the US has continued to grow strongly and New Zealand honey exporters make more per kilo in the US for New Zealand honey than in any of the other market destinations.

GLOBAL NEW ZEALAND HONEY EXPORTS ARE GROWING STRONGLY BY BOTH VOLUME AND MARGIN. Over the past ten years the volume of honey exported increased at a compound annual growth rate (CAGR) of 12.07% (8,645 tonnes from 3,631 in 2005). The value of New Zealand honey exports grew at almost twice the rate of export volume. The free on board (FOB) value over the same ten year period increased at a CAGR of 21.68%. The value of honey exports reached $200 million in 2014, compared to $36 million in 2005.

Figure 1 -‐ Source: Statistics NZ

$0

$50

$100

$150

$200

$250

0

2,000

4,000

6,000

8,000

10,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$FOB (m

illions)

Volume (ton

nes)

Global Exports of New Zealand Honey in NZ$

Volume (tonnes) FOB ($millions)

[UNCLASSIFIED]

7 | P a g e

THE USA IS THE HIGHEST VALUE MARKET FOR NEW ZEALAND HONEY EXPORTS AND IS SETTING THE GLOBAL PRICE FOR PREMIUM NZ HONEY. The US is one of the world’s largest importers of honey importing 146,700 tonnes in 2013, which equates to 65% of its honey supply. New Zealand honey is just a drop in the bucket, accounting for less than 1% of all honey imported to the USA. Over the last ten years, the volume of exports to the US has increased at a rate (CAGR) of 23%, almost double the rate for the New Zealand honey exports as a whole.

New Zealand currently exports 471 tonnes of honey to the US, which is about 5% of New Zealand’s total honey exports by volume. However, the margin earned on New Zealand honey in the US is significantly higher than all other major export markets. Figure 2 below shows the FOB price per kilo for New Zealand honey in different export destinations. New Zealand honey exports to the US have an average FOB value of $30 per kilogram, whereas the three largest export destinations (China, UK and Hong Kong) average between $19 and $22 per kilogram.


$0

$5

$10

$15

$20

$25

$30

$35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Average FOB Per Kilogram for New Zealand Honey Exports by Des[na[on Market (NZ$)

Australia

Japan

Singapore

China

USA

UK

Hong Kong

[UNCLASSIFIED]

8 | P a g e

US EXPORT MARKET IN A GLOBAL CONTEXT

Figure 3 below shows the export statistics of the top honey exporting countries. Despite a relatively small volume, the total value of New Zealand’s honey exports was ranked 9th highest of all honey exporting countries (FAO 2011 data). This is because the FOB price per kilo of New Zealand honey is significantly greater than all other leading honey exporters. When comparing the 2011 FOB price for Chinese honey (the world’s largest exporter), New Zealand honey attracts a price almost six times greater. Since 2011, New Zealand honey prices have continued to increase steeply, so we would expect the current difference to be even greater.

When New Zealand’s honey exports to the US are added to the picture as a separate market (circled in red below), it shows that the US is a highly valuable market (measured by price per kg), and is driving the global price, particularly for manuka honey.

Figure 3 -‐ Source: FAOSTAT -‐ Food and Agriculture Organisation of the United Nations, Statistics NZ

While the US market might only be 5% of New Zealand’s total honey exports, at these prices it would be the number one expected destination for high grade manuka honey. This effect will likely be skewing the data in Figure 2 and Figure 3.

SKYROCKETING EXPORT GROWTH BY VOLUME INTO CHINA AND HONG KONG. The growth in New Zealand honey export volume in recent years has been driven by North Asian demand. The rise of Chinese demand is fundamentally shifting the dynamics of the export picture. By the end of the 2014 calendar year, the volume of honey exported to China and Hong Kong alone comprised 31% of all honey exports out of New Zealand. China has shown significant growth in a very short period of time with export volumes increasing from 194 tonnes in 2011 to 1,356 tonnes in 2014. China is on track to overtake the UK as the number one country for New Zealand honey exports in 2015.

Argenrna

Brazil

Canada Chile

China

France Germany Hungary

India

Mexico

New Zealand

Spain

Thailand

USA Belgium

NZ Honey exports to USA

0

2

4

6

8

10

12

14

16

18

20

0 20,000 40,000 60,000 80,000 100,000 120,000

US$ per Kg

Volume (tonnes)

Export volume vs. export value per kg vs. export value for top honey expor[ng countries (2011 US$)

Export value = size of circle

[UNCLASSIFIED]

9 | P a g e


STEADY GROWTH IN EXPORTS TO AUSTRALIA. Australia, another major destination for New Zealand honey, has seen an increase in the volume of exports over the last ten years. While there has been a significant increase in the past two years, over the ten year period it has grown at a rate similar to total exports.

SLUMP IN EXPORTS TO THE EUROPEAN UNION. From 2006 to 2011 exports to the EU accounted for over 50% of all New Zealand honey exports. Those sales have not been growing and in 2014 accounted for less than 30% of all exports.

EXPORTS TO THE USA ENJOY HEALTHY GROWTH RATES. From 2005 to 2015 NZ honey exports to the US grew a healthy 23% CAGR which is almost twice the growth rate of total New Zealand honey exports in that period.

WHAT DRIVES THE PREMIUM IN THE US MARKET?

There are two factors driving the price premium in the US: the “New Zealand” and “Manuka” brands. While official statistics are not kept on the type of honey exported, based on interviews with those selling in the US market, it is estimated that honey labelled as manuka currently makes up 85-‐90% of New Zealand honey exported to the US. Manuka honey is widely recognised as the key driver for the premium price attributed to New Zealand honey worldwide given the claimed health benefits associated with the product.

New Zealand honey sold in the US is available for purchase through certain supermarket retailers, health food stores and online through sellers like Amazon.

Figure 5 below shows the retail price impact of the New Zealand brand and the retail price impact of the manuka brand benchmarked against a standard US honey retail price.

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Volume (ton

nes)

Volume of NZ Honey exported to Major Export Des[na[ons

Australia

Japan

Singapore

China

USA

UK

Hong Kong

[UNCLASSIFIED]

10 | P a g e

Figure 5 – Source: Data from Amazon website and retail store visits

“NEW ZEALAND” AND “MANUKA”, PARTICULARLY “MANUKA”, ARE DELIVERING SUSTAINED MARKET PREMIUMS OVER THE COMPETITION. A sample of the price data for honey available in the US was taken from the online website Amazon and separated into different categories of honey products to try and prise apart any differences in the price points2. The above graph clearly shows the premium for manuka honey over the rest of the products. It also shows that non-‐manuka New Zealand honey receives a premium over other honey brands sold in the US. The average price for other national honey products sold on Amazon was $33 per kilogram compared to $41 for non-‐manuka New Zealand honey – approximately a 20% market premium for non-‐manuka honey. The graph above also shows that New Zealand manuka honey sells at up to 25 times the retail price of US honey.

NEW ZEALAND HONEY STORE PRESENCE IN THE US

Retail data was gathered by visiting a sample of supermarkets in the Los Angeles area represented by the black line (where sample data is available). The supermarket visits were undertaken to gather data on the retail prices of honey and also the shelf market share of New Zealand honey in supermarkets. The sample included big name national supermarket chains including those owned by Safeway Inc., Kroger as well as a range of speciality” supermarkets including Whole Foods Market and Bristol Farms. Whole Foods Market and Bristol Farms are supermarket chains that specialise in providing consumers with healthy, fresh, and organic options selling upscale and premium products.

2 The prices of the first 90 non-NZ honey were taken from Amazon’s online listings ordered by popularity (these consisted of mostly premium/gourmet products). Prices for NZ honey (both manuka and non-manuka) were taken from a total of 102 honey products listed on Amazon.

$0

$50

$100

$150

$200

$250

US Honey in Standard Supermarkets

Non-‐NZ Honey Honey on Amazon

Non-‐Manuka NZ Honey on Amazon

Manuka with no rarng on Amazon

Manuka honey with a non UMF/MGO rarng

on Amazon

Manuka with UMF/MGO rarng on

Amazon

Retail Price Comparison (US$ per Kg)

2nd Quarrle 3rd Quarrle Average Retail Visit

[UNCLASSIFIED]

11 | P a g e

Stores visited:

Standard Supermarkets Speciality Supermarkets • Vons (Safeway Inc.) • Pavilions (Safeway Inc.) • Ralphs (Kroger) • Albertsons

• Whole Foods Market • Gelson’s • Sprout’s Famers Market • Bristol Farms • Trader Joe’s

Of the stores visited, New Zealand honey was not present in any of the “standard” supermarket stores of Safeway, Kroger and Albertson’s brand. While New Zealand honey was not present in any “standard” stores, it was represented in all of the specialty upscale grocers visited. The honey selection in the speciality stores contained more of the premium/gourmet brands and varieties. The New Zealand honey selection in these stores was all manuka labelled, but for two products.

STORE PRESENCE OF NZ HONEY FROM VISITED GROCERS

These graphs show the shelf space of New Zealand honey in supermarkets from our sample. Store brand honey dominated the standard US supermarkets with no New Zealand honey present. New Zealand honey did however comprise approximately 25% of the selection in some of the speciality stores as represented in the blue sections below.

Standard US Supermarkets

Speciality/Upscale Supermarkets

Figure 6 -‐ Source: Data collected from retail store visits

Ralph's (Kroger owned)

Store Brand

Store Brand Organic

Other (Non-‐NZ)

Pavilions (Safeway owned)

Store Brand (USA Brand)

SueBee (USA Brand)

Other (Non-‐NZ)

Whole Foods Market

NZ Manuka Honey

NZ Non-‐Manuka

Honey Pacifica (USA)

Store Brand Organic

SueBee (USA)

Other (Non-‐NZ)

Bristol Farms NZ Manuka Honey

NZ non-‐Manuka

SueBee (USA)

Big Island Bees (USA)

Other (Non-‐NZ)

[UNCLASSIFIED]

12 | P a g e

NZ HONEY SITS APART

Figure 7 -‐ Source: FAOSTAT -‐ Food and Agriculture Organisation of the United Nations

Figure 7 above shows the average FOB price per kilo of honey from the world’s top honey exporting countries. It serves to reinforce the ever widening gap between New Zealand honey and that of other honey producing nations. It also illustrates that the rise in New Zealand honey is a recent phenomenon. This rise is generally recognised as being due to growing demand for manuka honey, which is proven to have unique antibacterial properties, not seen in other honeys. Manuka honey was, for a long time, a product that beekeepers didn’t want to collect and was previously used solely as a feed for bees over winter. The graph above shows how things have changed dramatically and since 2011, the gap indicated above is likely to have widened even further as demand for manuka has continued to skyrocket.

$0

$2

$4

$6

$8

$10

$12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Export Value Per Kg of Top Honey Expor[ng Countries (US$)

Brazil

Canada

Germany

Hungary

India

Mexico

New Zealand

Spain

China

Argenrna

[UNCLASSIFIED]

13 | P a g e

3. ABOUT HONEY

In this section, we survey the issues associated with bee husbandry and honey production that affect consumer perceptions, globally and in the United States in particular. This contextual information provides background information for the next section of the report which is focused on product differentiation.

Honey is defined by the Codex Alimentarius (established by the Food and Agriculture Organization of the United Nations and the World Health Organization) as “the natural sweet substance produced by honey bees from the nectar of plants or from secretions of living parts of plants or excretions of plant sucking insects on the living parts of plants, which the bees collect, transform by combining with specific substances of their own, deposit, dehydrate, store and leave in the honey comb to ripen and mature.” The Codex also outlines the essential composition and quality factors that constitute honey.

Honey is a naturally made, single ingredient food. Its consumers expect a “pure” product, free from contamination. Despite having the codex guidelines available, these are voluntary, and many countries have their own standards in place for what constitutes or is defined as honey which may or may not be aligned with those in the Codex. In the US for example there is currently no federal standard of identity for honey.

THE THIRD MOST ADULTERATED FOOD IN THE WORLD. Honey is however, according to research carried out by the Journal of Food Science, the third most adulterated food ingredient in the world, behind olive oil and milk. There has been significant media attention on widespread global honey fraud with issues from the contents of honey not living up to the claims made on product labels to the product itself not actually being honey.

The problem starts with the fact that bees will process more than nectar. They will process sugar into honey and even liquefied sugar water from M&Ms (see below). That “product” can be masqueraded as “honey” and blended with real honey and fraudulently mislabelled. Another problem is that a single bee will operate across a large radius and verifying whether its nectar source is “organic” or toxic is very difficult. A bee with no choices, in a large mono-‐cultural production area (such as an almond orchard), will be forced to collect nectar even while agricultural chemicals are being applied. Those chemicals are carried back to the hive on the sprayed bees. Also, unscrupulous beekeepers use antibiotics that are not registered or use excessive amounts of antibiotics to mitigate unsustainable and reckless animal husbandry. As a consequence, honey is a distrusted food product.

NEW ZEALAND HONEY HAS BEEN ADULTERATED AND/OR MISLABELLED. New Zealand honey has not escaped scrutiny and has been the subject of criticism surrounding the claims made on manuka honey products. In the UK, which has long been the biggest market for New Zealand honey, New Zealand honey came under fire following an investigation by “The Grocer”, a UK magazine which ran an article about false claims made on manuka honey being sold in the UK. The Grocer claimed that only 1700 tonnes of true manuka honey was produced annually in New Zealand, yet 1800 tonnes was apparently sold in Britain among 10,000 tonnes globally. The investigation revealed that a large amount of the honey sold in the UK labelled as “manuka honey” either did not contain the levels of manuka activity as claimed on the labels or did not contain any manuka honey at all.

In July 2014, the Ministry for Primary Industries (MPI) published an interim labelling guide for manuka honey, which was created to help address concerns about the authenticity of New Zealand honey products. The interim guidelines set out to advise what types of claims can legally be made on honey food products and develop characteristics that can be used to identify manuka-‐type honey. The guidelines determined that

[UNCLASSIFIED]

14 | P a g e

further research is required in order to clearly define what constitutes monofloral manuka honey and revisions of the labelling guidelines are expected once there is sufficient research to support a definition.

The MPI guidelines state that a honey being sold as food cannot make any therapeutic or health claims. Health claims cannot currently be made on honey as it does not meet the Standards introduced in 2013 under the Australia New Zealand Food Standards Act 1991. The MPI guidelines also state that the following therapeutic claims should be removed from honey labels and advertising: “Non-‐Peroxide Activity”, “Total Peroxide Activity”, “Peroxide Activity”, “Total Activity” and “Active”.

This has affected the Unique Manuka Factor Honey Association’s (UMFHA) trademarked UMF® grading system for manuka honey, which was traditionally a measure of non-‐peroxide activity (NPA). NPA is often referred to as a benchmark standard for measuring the potency of manuka honey. The UMFHA have been positioning their rating away from being activity based to one measuring the chemical components that comprise manuka honey. (NB the role of the Association is addressed in the “Industry Structure” part of this report).

CHINESE HONEY

China is the world’s largest producer and exporter of honey by volume, producing 430,000 metric tonnes in 2011. (FAO Stats). Unsurprisingly, China provides the world’s cheapest honey with an export value of approximately US$2 per kilogram (2011 data).

Chinese honey is notoriously cheaper than its competitors; so much so that the US effectively stopped imports of Chinese honey by placing anti-‐dumping tariffs on Chinese honey imports to protect domestic US producers after it assessed that honey from China was being sold at less than fair market value. Duties were imposed in 2001 and the import of honey from China to the US dropped off. At the same time however, imports from other countries, not traditionally known for producing honey (such as India and Malaysia), rose significantly seemingly filling the void left by Chinese honey imports.

Chinese honey manufacturers set up elaborate routes for their honey to get to the US, sending it through intermediary countries and relabelling it as non-‐Chinese honey to avoid anti-‐dumping duties. This process, known as “honey laundering” is used to conceal the true country of origin and has been proven to be widespread in honey imported to the US.

Figure 8 – Source: http://urbanmilwaukee.com/2013/05/29/plenty-‐of-‐horne-‐milwaukees-‐global-‐honey-‐scam/

CHINESE HONEY -‐ THE LARGEST FOOD FRAUD IN US HISTORY. The laundering of Chinese honey into the US didn’t go unnoticed and US authorities soon undertook investigations into the practice. According to the US Department of Justice, investigations beginning in 2008 resulted in charges against individuals and two US honey producing companies for the illegal importation of honey from China. There were a total of six legal

[UNCLASSIFIED]

15 | P a g e

cases involving avoidance of alleged antidumping duties totalling more than US$180 million. (http://www.justice.gov/usao/iln/pr/chicago/2013/pr0220_02.html)

The case involved two of the largest domestic US honey supplying companies, Groeb Farms and Honey Holding. Groeb Farms was charged with buying 1,578 container loads of Chinese-‐origin honey between February 2008 and April 2012 in an effort to avoid almost $80 million in duties. Honey Holding admitted it purchased Chinese made honey and avoided more than $33 million in antidumping duties. Both companies entered into deferred prosecution agreements and were fined $2million and $1million each respectively.

The laundering of Chinese honey raised serious concerns about the honey being sold in the US as the volumes involved contributed a large percentage of the US’s imported honey supply. Not only do the problems lie with the low cost of Chinese honey, but also with safety concerns around the honey itself. Chinese honey has been known to be contaminated with certain antibiotics which are banned in food items in the US.

The USDA has also issued import alerts against some Chinese honey and there have also been allegations that some of the honey produced in China is cut with cheap sweeteners such as high-‐fructose corn syrup and undergoes an ultrafiltration process in which all pollen is removed, making it impossible to determine the honey’s origin. All of these practices have increased US consumer concerns.

US – MORE THAN HONEY

The rise in imports of honey to the US has coincided with declining honey bee numbers in due to colony collapse disorder (CCD). The world-‐wide decline in bee population and the global importance of honey and the bees that produce it is captured in a 2012 German documentary “More than Honey”. The film explores honeybee colonies in Switzerland, USA, China and Australia and possible causes for CCD and what it could mean for the future.

The film looks at the commercial beekeeping pollination services used in California. California’s agricultural industry relies on commercial beekeeping services to produce some of its speciality crops. Almonds for example are wholly dependent on pollination by honey bees and California produces approximately 80% of the world’s almonds (2013 Almond Almanac, Almond Board of California). Commercial beekeepers transport hives on the back of large rigs across the country to the almond orchards to pollinate the trees. The US has approximately 2 million colonies of honeybees that are rented for pollination services. At least half of the colonies are used during February and March in the 800,000 acres of almond fields in California.

There are several factors that are believed to be contributing to CCD and are covered in the documentary. These are pathogens, parasites (including Varroa mites), management stressors and environmental stressors. The honey bees used for pollinating the almond crops are shown in the film to be susceptible to a variety of these factors.

MEGA OPERATIONS SPREADING BEE DISEASE ACROSS THE UNITED STATES. The bees are subject to migratory stress by being transported thousands of miles to several locations across the US, lack diversity in nectar/pollen, are coated in pesticides when the almond farmers spray their crops, and are fed antibiotic laden sugar water during the winter. The animal husbandry practices of these mega bee operations seem designed to spread bee disease across the whole of the US, which requires extensive usage of antibiotics to be sustainable. The bee colonies are regularly all mixed together which results in an even spread of disease. There is no chance to isolate colony infections. Whole colonies and types of bee are mixed together randomly during the large-‐scale harvesting processes These risks are then systematically transported around the country which increases the risks of spreading diseases and parasites and increases the need to apply antibiotics. These large

[UNCLASSIFIED]

16 | P a g e

scale bee pollination businesses work seasonally across the whole North American continent, which means that the entire US honey production is afflicted and all beekeepers are affected. It hobbles the US honey industry from developing a premium honey product. The economics of the industry is driven by the agriculture “fees for bees” pollination business as opposed to quality honey production.

FRANCE – THE MYSTERY OF COLOURED HONEY

The food, water and air that bees have access to play a huge part in the quality of honey that is produced. It is normal beekeeping practice to feed sugar water when there is no nectar available and to prevent colonies from starving during winter. However the product produced cannot be considered honey as it is not obtained from the nectar of plants.

In 2012, several news agencies reported strange coloured honey being produced in a small winemaking part of north-‐eastern France. The bees started producing honey in different shades of blue and green. Reuters reported that “the beekeepers embarked on an investigation and discovered that a biogas plant 4 km (2.5 miles) away had been processing waste from a Mars plant producing M&M's, bite-‐sized candies in bright red, blue, green, yellow and brown shells.”

Instead of sourcing nectar from flowers neighbouring the apiaries, the bees decided to feed on the leftover M&M shells which produced the unnatural honey colour differences. The story shows that bees will source any sweet substance in their flight path within a five kilometre radius.

NEW ZEALAND PRODUCTION IN CONTEXT

The comparatively high standards and regulation of beekeeping in New Zealand sets New Zealand honey apart from major producing countries like the United States, China and parts of Europe. Problems the New Zealand honey industry has had to address have arisen due to mislabelling and either fraud or poor product security (allowing for New Zealand manuka honey to be mixed with other types of honey).

However, in contrast to many other countries, the production system in New Zealand is more sustainable and well regulated and can sustain intense consumer scrutiny. Further work is needed to leverage the quality of the New Zealand production system and develop standards, certification and branding that can be used by major New Zealand exporters and trusted by regulators, retailers and consumers offshore.

Because of the fundamental credibility of New Zealand’s beekeeping operations (and the comparative ease of regulatory control), the good news is it is possible to develop a bullet-‐proof standard for New Zealand honey. Countries like China, the United States and Europe will find it almost impossible to achieve a similar standard or industry coherence. It is a competitive advantage that could help sustain high prices for New Zealand into the foreseeable future.

[UNCLASSIFIED]

17 | P a g e

4. PRODUCT DIFFERENTIATION

This section on product differentiation reviews different factors that may affect consumer perceptions and decision making in the purchase of honey. Manuka is a major product differentiator for New Zealand honey exporter. This section identifies four factors that differentiate honey products in the United States market more generally. They are country brand; health; trust and safety; and taste. Manuka is a part of these factors.

This report has identified that New Zealand honey is set apart from the rest and receives a premium over other honeys sold in the US. There are two brand factors driving this premium position and they are “New Zealand” and “Manuka”. It is also clear from the data that “Manuka” drives the significant proportion of this price premium.

The table below is a device created for this report to analyse and order the wide range of product factors that make up honey characteristics from a consumer perspective. It has been prepared based on a limited data set gathered in the US market. The aim is to provide a framework for considering honey product differentiation issues in the US market.

Country brand Health Trust and safety Taste

NZ Manuka High High Medium High

New Zealand High Medium High High

Brazil (organic) Medium Medium Medium Medium

Euro (organic) High Medium Medium Medium

US Medium Low Medium Low

China Low Low Low Low

Mexico Low Low Low Low

COUNTRY BRAND

Honey’s country of origin (COO) can affect the consumer attitude towards that product based on perceptions of country reputation and ecology. It is highly likely that the perceptions of the overall health of the ecology of a country affect perceptions of the quality of the honey produced.

Without the benefit of market consumer research, to analyse this we have assumed that producers will respond to this consumer perceptions by how they label their products. The hypothesis is that a country with a poor reputation (or honey blended from more than one country) will use fine print to state the Country of Origin (COO) and a country with a good reputation will state the COO boldly. A sample of the products in stores and online was assessed. Although it is highly likely that large volumes of Chinese honey is sold in the US, officially there are very few honey imports from China due to the anti-‐dumping tariffs in place. Because Chinese honey is likely being sold under other country labels, it was given a low score nevertheless.

To score the placement on the labels, a scale was used giving weight to the size of the font relative to the product name, the location of the claim and whether it formed part of the focus of the product.

[UNCLASSIFIED]

18 | P a g e

Scale:

1 Fine print, back of the label

2 Medium print, back of the label

3 Fine/medium print, front of label

4 Medium print, front of label, focus of label

5 Medium or Large print, front of label, focus of label and main logo

Sample of honey products from retail visits listed in highest to lowest retail price:

Brand Name Honey Type (as per label)

Country of Origin Retail price per Kg (US$)

Placement of Country on Label Score

Manuka Health (MGO 400)

Manuka honey New Zealand $127.96 • Large print • Front of label & focus of brand

5

Wedderspoon (16+) Manuka honey New Zealand $99.98 • Small Print, but front and centre of label

4

Pacific Resources International (5+)

Manuka honey New Zealand $55.98 • Large print • Front of label

4

Mielbio Italian Honey – Mandarin

Italy $39.99 • Medium print • Front and centre of label

4

Hungary Bees Acacia honey Hungary $33.02 • Large print • Front of label & focus of brand

5

Honey Pacifica Wildflower honey

California, USA $22.00 • Fine print • Front of label

3

Wholesome Sweeteners (Organic)

Raw honey Mexico, Brazil & Uruguay

$20.90 • Fine print • Back of label

1

Madhava (Organic) Raw honey Brazil $19.21 • Fine print • Side label

2

Y.S. Organic Bee Farms

Raw honey Canada & Mexico $14.91 • Fine print • Back of label

1

SueBee Clover honey USA $14.69 • Medium print • Directly below product name

4

Wild Mountain Honey USA, Thailand and Viet Nam

$13.22

• Fine print • Back corner of label

1

365 Honey (Organic)

Mountain forest honey

Mexico, Brazil & Uruguay

$13.22 • Fine print • Back of label

1

The evidence suggests that country brand matters. There is a strong correlation between price and the prominence of COO. Other observations are that:

• New Zealand and European honey are prominently promoting country of origin. • The New Zealand brand was found to be prominent on the front of all the New Zealand honey

products and in far greater use than honey from other countries. • Many of the honeys being sold in the US are a mix from several countries, which is not promoted and

often difficult to find on the label.

[UNCLASSIFIED]

19 | P a g e

What is also noticeable from the analysis is that “New Zealand” is secondary to “manuka” brand in labelling. While USDA labelling does require the name of the food to be the prominent factor on the food label, the positioning and appearance of manuka honey products clearly emphasises the honey as a manuka product over a New Zealand product in the eyes of the consumer. Nevertheless, the presence of the New Zealand brand is important. As we established earlier, it attracts a 20% retail price premium over other honeys. It is also important if the New Zealand honey industry wants to pivot off manuka and into other monofloral varieties.

HEALTH

The associated health benefits of honey play a large part in the popularity of honey and the reputation of the product is crucial in consumer decision making. Most honey in the US would be consumed as a perceived healthier substitute for sugar in hot drinks. Its other health and anti-‐bacterial benefits for topical application are well recorded in history. In 1550 BC, Egyptian medical scrolls (Eberus Papyrus) provided instructions for the use of honey for 140 different medical preparations and treatments, including wound dressings following surgery.

Historically, because manuka honey is thicker than its New Zealand native honey counterparts and more difficult to extract and strain, it was inexpensive to buy in New Zealand. In fact, New Zealand beekeepers would try and avoid putting their beehives near manuka plantations for that very reason. If the beekeepers found that their hives contained manuka honey, they would not extract it and instead leave it for the hive to feed on during winter when it was too cold for the bees to forage.

In the early 1990s, the University of Waikato’s Dr Peter Molan and Kerry Simpson discovered in laboratory tests, that in certain situations, manuka honey has a non-‐peroxide anti-‐bacterial factor that other honeys tested do not possess. In late November 1991, Dr Molan and Mr Simpson issued a press release about their findings in relation to manuka honey. A variety of media (from international bee journals to the US’ Cosmopolitan magazine) outlets rushed to them for comment and sought more information around their findings.

Manuka honey is a unique product, different from other honeys. It is claimed that the anti-‐bacterial activity in manuka honey has unique health and medical benefits and scientific research papers have been produced supporting these claims. There is however an absence of evidence to show that manuka honey has any antibacterial effect when eaten, but this does not appear to have dampened consumers’ desire for the product.

THE HIGHER THE MANUKA GRADE, THE HIGHER THE PREMIUM IT RECEIVES. MPI recently released interim guidelines for labelling manuka honey which have made it clear that honey sold as a food cannot make any health-‐related or therapeutic claims on the labels. This extends to labels that claim “activity” level ratings. MPI says these should be removed.

It would seem from online commentary on sites like Amazon that this more conservative approach has not dampened consumers’ desire for the product or their clamour for its health benefits. There is no doubt that the perceived health benefits of Manuka honey are the main reason why such a premium price is put on the product and also why many in the industry are positioning it as a health product and/or nutraceutical and distributing it in health supplement retail outlets.

The New Zealand manuka industry has only just begun responding to the new MPI guidelines. Most of the manuka honey product in US stores continues to sell using potency and activity measures which are not in line with the guidelines. New Zealand honey marketers are also inconsistent in their approach to manuka honey

[UNCLASSIFIED]

20 | P a g e

labelling. There is currently no single industry standard. The UMF Honey Association is working on developing its standard along with new testing for those using its UMF brand. Other companies have established standards based on measurements of the chemical components of the honey (such as MGO) or a range of other factors such as pollen counts. MPI is also funding research to better define mono-‐floral manuka honey which could impact the current MPI labelling guidelines. The current numbering systems promoted on manuka honey are confusing from a consumer perspective and Amazon consumer commentaries demonstrate there is confusion and a desire for clarity. Despite these issues the one thing that is clear from the grading systems is that the higher the manuka grade, the higher the premium it receives.

Examples from products found in the US demonstrating diversity of labelling claims:3

MGO™ 400 UMF® 15+ Bio Active 10+ KFactor™ 16+ Active 15+

While sellers of manuka honey are unable to make health or therapeutic claims on their products it has not prevented the spreading of messaging around the benefits of manuka. You don’t have to look long online to find consumer feedback, reviews and promotion of the health benefits of manuka honey and stories of the ailments consumers claim it has cured. Customer online commentary and word of mouth on manuka honey health benefits are doing most of the manuka honey marketing work for companies. Many New Zealand manuka honeys are supported by review threads on Amazon that have hundreds and hundreds of comments and stories. The online activity demonstrates that customers are thoroughly investigating and researching the product before making the purchase, which is not surprising given the price they are paying.

Despite the inconsistent and confusing labelling of New Zealand manuka honeys, there remains strong consumer belief in the product. Ultimately the evidence for this is that it sells for multiple times the price of other honeys sitting on the same supermarket shelf and supermarkets are giving it the best premium space (eye level) in their stores.

TRUST AND SAFETY

Trust is about whether the product in the pot is true to its label. Country of origin, which has already been addressed in this report, is part of this consumer equation. The media attention and investigative reporting surrounding the industry has shown that there are significant issues around the claims made on honey and that trust is an important factor for consumers. Claims and certifications that this report has observed that are designed to increase consumer trust, include “USDA”, “USDA Organic”, “Non-‐GMO”, “Kosher”, “Raw”, and “Traceability”.

3 It is likely that the labelling of some of these products will change as a result of the MPI guidelines; however differences in grading systems will still be present.

[UNCLASSIFIED]

21 | P a g e

There are USDA standards for honey and organic honey. In New Zealand, AssureQuality and BioGro are accredited to certify USDA standards. In the US, True Source Honey provides a private standard and certification system for honey. This sub-‐section of the report outlines these different food safety systems and issues.

Honey sold in the US can promote USDA quality standards, which are based on measurable attributes that describe the value and utility of the product. Honey is graded based upon a number of factors, including flavor and aroma, absence of defects and clarity. These standards speak to the quality factors of the honey, however do not provide verification for the source of the product. (www.usda.gov “United States Standards for Grades of Extracted Honey”).

The USDA also provides organic certification for labels that meet their set standards for an organic product (www.ams.usda.gov/NOPOrganicStandards). Organic labelling provides for a level of trust in consumers as the origin of the product must meet strict standards to make the organic claims. Based on data obtained for the report, most of the organic labelled honey sold in the US originates from Brazil and Mexico. This is because the bees in those countries have demonstrated resistance to the Varroa mite, meaning the use of chemicals is not required for Varroa management. It is unlikely that much US produced honey will ever be able to make the organic claim, apart from small quantities of Hawaiian honey.

In New Zealand there are two organisations accredited (AssureQuality and BioGro) to providing USDA organic certification. There are specific requirements that apiaries need to meet to become organic certified including verification and monitoring of any pesticide and chemical use within a three kilometre radius of the beehive (www.biogro.co.nz/organic-‐standards). Organic beekeepers are also unable to use the most effective chemical strips that are used to treat Varroa meaning they are more likely to be susceptible to large hive losses. For these reasons, New Zealand beekeepers would have to change their practices (i.e. use formic acid instead of Bayer chemical strips to control Varroa) in order to produce higher quantities of honey that meets organic standards.

Private verification certification systems are also being used. In the US, there is a certification called True Source Honey (www.truesourcehoney.com), which is described as a voluntary system of traceability involving third party audits, third party sampling and container shipment oversight. True Source was established by members in the industry in response to the concerns in the US over the honey laundering problem. True Source claim that the companies that have joined this verification currently represent 25% of the honey sold in the US.

All New Zealand honey includes specific batch numbers on their labels and the address of the New Zealand producer or packager. Airborne honey brand also has its own verification consumer traceability system which allows consumers to track online the areas in New Zealand where the honey was sourced.

UP TO 75 PERCENT OF HONEY SOLD IN THE US HAS ITS POLLEN FILTERED OUT MEANING THERE IS NO WAY TO TRACK WHERE THE HONEY ORIGINATES. One of the only measures for actually determining where a honey is sourced is the pollen found in the honey. When analyzing the pollen of honey, it is possible to determine the floral sources from which the honey was produced. An investigation carried out by Food Safety News in 2011, prior to the Chinese honey laundering prosecutions, discovered that as much as 75 percent of honey sold in the U.S. had its pollen filtered out meaning there was no way to scientifically track where the honey originated. It was found that a lot of the honey sold in the US was heat treated, pasteurized and/or finely filtered to remove the pollen.

The New Zealand honey industry’s opportunity to continue to differentiate itself is supported by the promotion of healthy New Zealand bees and the superior quality and non-‐industrial nature of New Zealand beekeeping (as

[UNCLASSIFIED]

22 | P a g e

compared to China, North American and Europe). Before 2000, New Zealand bees were the healthiest with American foulbrood (AFB) the only disease present. AFB is rigorously monitored and every beehive in New Zealand has to be checked for AFB by a qualified beehive inspector and signed off annually. Despite the presence of Varroa mite in New Zealand, the bees are still considered some of the healthiest in the world. Compared to other countries, there is relatively low pesticide use on the fauna that the bees are foraging and they are not routinely fed antibiotics. Varroa is treated by topical application of the bees and is not part of their food source.

Countries including China are known to have problems with their standards and their exports are restricted into the US and EU, particularly as it relates to concerns with the use of antibiotics banned in food items. There have also been media claims that honey from China and India is contaminated by heavy metals, which can occur by beekeepers storing bulk honey in old lead barrels.

The premium and gourmet brands tend to be promoted on the basis that they are raw, unprocessed and unfiltered which signals that there is definitely a consumer desire for “real” honey products. Pasteurisation, which is prevalent in the manufacture of US honey, can increase food safety from honey coming from unsafe production systems. However, in many experts’ view pasteurised honey is no longer honey as it has been treated at temperatures up to 75°C thereby destroying all unique enzymes and amino acids usually found in raw honey.

A recent episode of CNN’s Inside Man, airing in March 2015 also looked into the honey industry in the US and carried out similar pollen tests on store bought honey. Four honeys were selected, including a New Zealand manuka. Two honeys were found to have no pollen, while the New Zealand manuka was true to label with significant amounts of manuka pollen present. The episode also claimed that based on industry estimates, the FDA only checks about 5% of the honey coming into the US. This not only reinforces the high level of uncertainty that is still current in the US, but also that New Zealand honey can differentiate itself as a trustworthy product if it adopts consistent labelling and certification standards.

TASTE

An obvious characteristic that can sometimes be overlooked in honey is the flavour profile and whether it delivers a unique experience for consumers. US honey products tend to taste the same no matter which product you buy. This could be put down to the fact that the majority of honey for retail sale in the US is pasteurised and filtered and the contents of a single jar can be sourced and mixed from multiple countries.

Manuka honey is distinctly New Zealand and provides startling taste qualities. Its global uniqueness is as significant as New Zealand Sauvignon Blanc’s distinctive flavour profile. New Zealand honey shares a lot of similarities with New Zealand wine in that Manuka is the signature brand, just like Sauvignon Blanc. And as with New Zealand wine varietals, there is the opportunity for other New Zealand honeys to leverage off the Manuka brand into new varietals. The UMF Honey Association and most New Zealand companies that have supported this report have made this comparison and noted the potential for other unique New Zealand monofloral honeys.

These include Rata, Rewarewa, Kamahi and Pohutakawa. As with manuka honey, certification standards would need to be developed to support this.

Consumer awareness and education is also an important factor for the promotion of the taste experience associated with New Zealand honey. This is also recognised by New Zealand companies. Airborne honey, who have recently re-‐entered the US market have an employee on the ground conducting consumer tasting and is

[UNCLASSIFIED]

23 | P a g e

making efforts to inform the public of the wide variety in taste outside of the generic pasteurised “sugar substitutes”.

DIFFERENTIATION SUMMARY

The prices speak for themselves when it comes to the value of the New Zealand brand in the honey industry. The New Zealand brand brings with it the vision of clean, green, free from pollutants and for honey this is extremely important as a reflection of the quality of the product.

Figure 9 -‐ Source: Data from Amazon website and retail store visits

The honey bees in New Zealand are some of the healthiest in the world and unlike those in other countries, they are not routinely fed antibiotics, there is relatively low pesticide use across the country and there are many different native nectar sources for bees to forage. All of these factors lead to a superior product and the New Zealand brand encompasses that.

There is a clear opportunity for New Zealand honey to promote the different monofloral varieties available off the back of manuka’s success as well as providing assurances for the trust of the consumer. This will require clear standards in place in the New Zealand industry to define honey varieties and systems of certification to promote a trustworthy honey source.

$0

$20

$40

$60

$80

$100

$120

US Honey in Standard Supermarkets

Non-‐NZ Honey Honey on Amazon

Non-‐Manuka NZ Honey on Amazon

Retail Price pe

r Kg (US$)

Retail Price Comparison in US$

3rd Quarrle

2nd Quarrle

Average

Retail Visit

[UNCLASSIFIED]

24 | P a g e

5. STRUCTURE OF THE NEW ZEALAND INDUSTRY AND EXPORTERS TO THE US

This section provides background into the honey industry in New Zealand as context for identifying the main New Zealand honey exporters operating in the US market. Online sales are growing for New Zealand honey exporters focused on Amazon’s shopping platform. Supply is the currently the biggest limiting factor on growth in the United States.

Information regarding the number of beekeepers, the volume of production and size of the apiaries is provided in MPI’s annual apiculture monitoring report4. The report states that as at 30 June 2014, there were approximately 4,814 registered beekeepers and as a group accounted for 507,247 hives in total. Hive numbers in New Zealand have been increasing in response to the boom in manuka honey exports over the past ten years, rising by approximately 67% (200,000 hives) in that time.

Figure 10 -‐ Source: MPI Apiculture Report 2014

MPI’s apiculture reports have indicated that the growth in hive numbers continues to move toward the North Island. New commercial beekeepers are entering the industry and existing enterprises are increasing hive numbers for the production of manuka honey to take advantage of the high manuka prices. Areas in the North Island are known for producing higher grades of manuka honey. Commercial beekeepers that previously provided pollination services for the kiwifruit industry have also been moving into manuka production due to the more lucrative rewards.

New Zealand’s beekeeping industry has been described as a small “cottage” industry with approximately 85% of beekeeping enterprises considered hobby beekeepers. Hobby beekeepers are enterprises that operate between one and 50 hives. Of those hobby beekeepers, 76% are operating just five hives or less. While hobby beekeepers make up the majority of beekeeping enterprises, the other 15% of apiarists (each with more than 50 hives) operate at least 87% of the total number of hives.

The New Zealand honey industry is characterised by a large number of small honey producers with a few large dominant players. The large number of small producers is common in the beekeeping industry as those in the trade tend to be family based operations and volunteer hobbyists.

4 MPI Apiculture Monitoring Report 2014 - https://www.mpi.govt.nz/document-vault/5302

Distribu[on of Hives in New Zealand

Manawatu/Taranaki/Hawke's Bay/Wairarapa/Wellington Coromandel/Bay of Plenty/Rotorua/Poverty Bay Northland/Auckland/Hauraki Plains

Waikato/King Country/Taupo

Canterbury/Kaikoura

Otago/Southland

Marlborough/Nelson/West Coast

[UNCLASSIFIED]

25 | P a g e

The manuka honey boom has raised the ‘farm gate’ price of honey paid to beekeepers. An increase in the number of new commercial beekeeping enterprises entering the industry, as well as competition between producers, is driving up the price of bulk honey. There are numerous smaller players that have been forming cooperatives to compete and achieve economies of scale.

A recurring theme in interviews with honey exporters is they are unable to keep up with the demand for manuka honey and supply is an issue limiting their potential. Companies have reported raising prices due to the lack of supply, but have still seen increased demand for their product. The limited supply and high prices coupled with the independence of beekeepers gives rise to opportunistic overseas buyers offering above market rates for one-‐off bulk product orders. In return for a quick sale, some beekeepers are taking the money when on offer, which causes further problems with those trying to secure supply.

In an effort to address these problems, the main players are vertically integrating from hive to honey production and consolidating the industry through acquisition of smaller producers. Comvita is a prime example, making several acquisitions including New Zealand Honey Ltd in May 2014 to increase their production capacity. Comvita now owns over 50% of its more than 30,000 hives. It also has a contracted relationship with NZ Honey Producers Co-‐op (which produces 25% of the national supply). Comvita has reported that they will have access to roughly 50% of New Zealand’s total honey supply and are looking to increase their own hive numbers to 85,000.

MĀORI HONEY BUSINESS

There are also examples of Māori-‐owned businesses starting to make an impact in the New Zealand honey industry by utilising Māori land for beekeeping to increase supply. Taku Honey, established in 2013 and based in the Bay of Plenty, is an example of this. Taku Honey source their honey from Te Whanau a Apanui (East Cape) and Ngati Porou (East Coast) and Tai Tokerau (Northland), which are all areas where high-‐grade manuka honey is produced. Earlier this year, a 51% share of the business was purchased by a US firm looking to expand their New Zealand honey business. Taku Honey is currently exporting to several overseas markets, but is not yet in the US market.

Another company, which has recently moved from being a supplier of raw honey to selling product under its ‘Pai Honey’ brand, is Tai Tokerau Honey Ltd. Tai Tokerau Honey Ltd is a 100% Māori-‐owned Company which promotes itself as working closely with iwi, land trusts and landowners throughout the North Island. The company also recognises the potential of utilising undeveloped Māori-‐owned land which is covered with the now prized manuka foliage. Both Taku Honey and Tai Tokerau Honey demonstrate the opportunity for both the development of Māori-‐owned export businesses and the opportunities for further utilisation of Māori-‐owned land to increase honey production.

NEW ZEALAND HONEY IN THE US

The US market is small in the scale of total honey exports from New Zealand, accounting for about $14 million of the $200 million total. Based on our analysis of the market, Wedderspoon (in the US since 2006) and Pacific Resources International (selling NZ honey in the US for over 25 years) account for an estimated 50-‐60% of New Zealand honey being sold in the US. These companies both have a presence on the ground and have well established distribution into major retail stores. Manuka Health, Haddrell’s of Cambridge and Comvita would be the next biggest suppliers to the US market. There are also a number of other companies (listed in table below) that have a presence in the market, with many smaller companies using online sales as a way of direct access to the US.

[UNCLASSIFIED]

26 | P a g e

The main New Zealand exporters in the US market5:

Name Ownership Production6 About Method of Sale Comvita

NZX-‐listed Supply from 30,000 hives, reportedly increasing to 85,000 hives. More than 50% of supply under full ownership or contract. Comvita estimate they have the capability to produce 5,000 tonnes.

2014 Revenue: NZ$115m Has just exceeded NZ$1m in sales to the US in 2014 financial year. 450+ staff (including 2 full time in US)

Sold in retail stores but focus is online.

Manuka Health Ltd

NZ private, 20% ownership by NZ Super Fund

Capable of producing 2,200 tonnes.

New Zealand Superannuation Fund invested in Manuka Health for a 20% shareholding in May 2012 through Waterman Investment fund.

Retail (health stores) and online.

Pacific Resources International

US owned Importer

Does not produce honey, but imports a considerable volume. Estimated as the number two brand by volume in the US. Reported online as importing US$4million of product in 2013.

Sells a range of manuka honeys and some non-‐manuka blends. Sources from specific family businesses in New Zealand and sells on behalf of Arataki, Nelson Honey and Mossops. Honey is packaged in New Zealand under the Pacific Resources labelling.

Predominantly in Retail with small online presence. Has a large presence in upscale supermarkets such as Whole Foods Market.

Wedderspoon

Canadian private

Based on observing the market, it is estimated that Wedderspoon is the largest seller of New Zealand honey in the US

Sources honey in New Zealand, packages and ships to the USA. Wedderspoon is ultimately a Canadian owned company and sells a range of honeys from around the world, including a large range of New Zealand and manuka honey.

Retail and online. Is the number one selling manuka honey on Amazon

Airborne

NZ private Produces over 1,000 tonnes Re-‐establishing themselves in the US after a couple of years out of the market Focused initially on the East Coast of the US and are selling a range of monofloral honeys including manuka. They do not include manuka grades on their products.

Focused on Retail and selling honey solely as a food product

Haddrell’s of Cambridge

NZ private 3000 + hives

Selling direct to Trader Joe’s, a speciality supermarket chain with over 400 stores in the USA.

Retail

Happy Valley Honey

NZ private Packages about 225 tonnes of honey total.

Recently entered the US market through online channels – predominantly Amazon. Selling for about 6 months so far with an additional 6 months testing the market. Brand became the number one selling UMF manuka honey on Amazon

Online – predominantly through Amazon

Tahi Honey

NZ private 3,200 hives New to the US market and selling through an importer based in Texas. The US based importer is selling direct to retail stores

Retail (speciality health and import stores) and online

5 This is not a comprehensive list of all New Zealand honey sellers in the market, however provides coverage for the majority of the market and includes large, medium and small scale sellers who we have interviewed. 6 Estimates based on publically available information and observations in the market.

[UNCLASSIFIED]

27 | P a g e

The online market

ExportX is a New Zealand company that provides support for New Zealand products to sell direct-‐to-‐market in some of the world’s biggest markets including the US. ExportX uses online marketplaces such as Amazon to sell direct to buyers, cutting out conventional distribution systems. Happy Valley Honey is sold through ExportX to the US using Amazon and has experienced strong growth in a relatively short period of time. Happy Valley Honey was an unknown brand in the US, however after a concerted effort in marketing and establishing their brand online, it has become the bestselling UMF manuka honey on Amazon.

The power of the online marketplace cannot be underestimated. It is allowing smaller honey producers, like Happy Valley Honey, access to a vast client base through direct channels with greater control of their brand and marketing. Online opportunities are also recognised by New Zealand’s largest honey producer Comvita, which stated in its latest annual report that its “business in the US is targeted at online business supported by select retail partners for our wholesale business”. Comvita’s US market entry strategy has been supported by NZTE and in interviews Comvita executives spoke highly of the value of this support.

As noted earlier, the US consumer is spending significant time researching and commenting online before and after making their purchase. With the interest in the claimed benefits of manuka honey, it should come as no surprise that consumers are turning to the internet to assist them to research their purchasing decisions.

INDUSTRY COORDINATION AND BODIES

The producers in New Zealand have a fractured relationship and there is a lack of consensus about the best way to self-‐regulate and grow the industry. The absence of a single industry body has led to a lack of leadership and clear direction for the industry to move forward. This leaves the credibility of New Zealand’s honey industry open to threats from those willing to adulterate and sell product that is not true to label.

While there are no common industry standards in place, individual companies or groups have developed their own verification and certifications for their products. One of the most widely used and recognised grading systems for manuka honey is the UMF® standard, which has been a trademark of the Unique Manuka Factor Honey Association (UMFHA) since 1998. The UMF® brand can only be used by licensed companies who meet auditing and monitoring criteria to ensure that their honey meets the UMF® standards. There are currently 64 licensed companies using the UMF® rating system to identify their manuka honey and the UMFHA currently represents about 70% of the manuka honey being exported in retail packs.

The UMFHA receives funding through membership fees and levies paid by licensees. The association has invested heavily on their Manuka ID project aimed at developing scientific testing to identify specific chemical markers of manuka honey in order to provide a profile of differing grades under the UMF® brand. This has positioned the UMF® rating away from an activity-‐based system to one that is based on the chemical components of manuka honey. The UMFHA has provided some background and information on their Manuka ID project for this report, which is attached at Appendix A.

Another quality measure for the manuka grading is the MGO™ brand, which has been trademarked for use by the Manuka Health company. The MGO™ rating is a measure of the compound methylglyoxal present in manuka honey. Methylglyoxal is a chemical marker attributed to the unique antibacterial activity found in manuka honey and the MGO™ grading is used as an indicator of the strength of activity by measuring the

[UNCLASSIFIED]

28 | P a g e

volume of methylglyoxal present in each jar. This gives it a similar approach to measurements seen on supplements such as Echinacea and Omega 3.

Manuka Health has positioned itself as a natural healthcare company whose core business is producing health food products. Its strategy is to develop high value manuka-‐based health products including supplements and wound dressings. Manuka Health has experienced rapid growth since being established in 2006 and has become one of the major players, along with Comvita in the New Zealand honey industry. The trademarked MGO™ rating is solely used by the Manuka Health company; however the measurement of methylglyoxal levels in manuka honey is now being used by multiple companies in their labelling and marketing.

Recognised need for an industry body

The UMF® and MGO™ brands are the most frequently benchmarked against, amongst the many the standards used to measure quality in manuka honey. However, without a common standard or single industry voice for consumers to refer to, there is little to stop a host of other honey companies continuing to create their own standards and grading systems. In the recent lawsuit filed in the US against Wedderspoon (Kong et al. v. SWCC USA 1234, LLC, et al., No. 1:15-‐CV-‐01635 (E.D.N.Y. complaint filed on 27 March2015)), the plaintiff alleges that the company uses a deceptive marketing approach in its labels to look like those under the UMF® brand. It remains to be seen whether the case has merit, but the risks it raise nonetheless are cause for concern.

In 2014, some of the industry’s sector groups started the process to form a single representative body. Representatives from the National Beekeepers Association of New Zealand (NBA), New Zealand Honey Packers and Exporters Association, the Federated Farmers Bee Industry Group (FFBees), and the hobbyist sector have come together for the Industry Unification Project to determine how an industry body can be formed. The project hopes to establish a unified body to address some of the industry’s challenges, which it has stated as:

• bee health, disease management and biosecurity; • getting and retaining international market access for our products; • having a unified and credible voice with government on development of New Zealand honey

standards, truth in labelling, and legislation such as health & safety; and • funding

Representatives from the unification project appeared before a primary production select committee in March 2015. National Business Review reported that the group said “government support is needed to re-‐impose commodity levies to help fund a single, comprehensive national association to represent the industry”. The group also stated that “the model for the proposed industry association was based on the wine industry, which would allow for smaller, niche beekeepers, as well as larger, consolidated commercial operations.” (http://www.nbr.co.nz/article/nzs-‐basketcase-‐bee-‐industry-‐seeks-‐govt-‐help-‐get-‐national-‐body-‐levies-‐bd-‐170975)

[UNCLASSIFIED]

29 | P a g e

6. COST OF SALE

In this section, we compare the different factors that affect the cost structure of different markets compared to the US. The cost structure of selling honey in the US market is broken down using averages of data provided by honey companies to give a picture of how the different costs affect the profitability of honey exporters.

The companies that are currently selling product to the USA are doing so in a variety of methods, from selling through distributors to direct to the market via online channels. One thing that is apparent from talking to companies is that establishing a presence and developing relationships with distributors requires a significant initial investment and a settling in period of 12-‐18 months. Once those relationships are in place however, distributors and retailers will continue to be satisfied as long as their accounts are being reliably served within its contractual terms.

With the growth in manuka honey, there has been an emphasis on New Zealand producers to focus on adding value to the product before exporting. This is apparent in the overall increase of exports of retail packs of honey as opposed to bulk exports, which are becoming a smaller percentage of overall exports. Much of the exports of bulk honey are shipped to the UK where it is packaged for retail sale in the UK or Europe.

New Zealand honey is well established in the UK and the success and premium prices it commands has led to UK producers selling their own brands of manuka honey supplied in bulk from New Zealand. Despite the overall trend away from exporting bulk honey, it remains a large proportion of exports to the UK, averaging approximately one third of those exports over the past five years. In comparison, out of all honey exported to the US, bulk honey has averaged a mere two percent over the same period.

As outlined in The Grocer, more manuka honey (or honey labelled as manuka) is sold in the UK alone than is actually estimated to be produced in New Zealand. It is understandable that slightly more manuka would be sold than actually produced as manuka is often mixed with other honeys for manuka blends, however this could not account for the variance outlined in the report. It is widely claimed by those in the industry, that despite the noise created in the media, there is still widespread sale of manuka that is not true to label.

Those selling genuine manuka products true to label are seeing smaller margins in the UK due to the large amounts of honeys being passed off as manuka. It is easy for competition to undercut the retail prices of genuine products and still make greater margins.

Problems exporting to China

The demand for manuka honey out of China alone, could easily consume all of the production out of New Zealand. There are however, problems with exporting to China that have been identified by New Zealand honey producers. Many experience difficulties at the border with product shipments being held up or refused with specific testing for customs and port entry that can be different from port to port.

There are also challenges in establishing distribution and finding the right partners that suppliers can trust with their product and company values can be more difficult than in the US. This creates a significant risk to the seller.

COST STRUCTURE FOR SELLING TO THE US

The report has gathered data from various sources including honey companies and industry reports to provide a breakdown of the average cost of selling honey in the US. The analysis is based on manuka honey and is

[UNCLASSIFIED]

30 | P a g e

limited by the wide variance seen across the range of manuka grades, with the higher grade manuka honey earning higher margins.

Raw honey cost (prices paid to beekeepers)

The prices paid to beekeepers have been increasing in part due to worldwide shortages, increased overall demand and the “manuka effect”. The wide range in prices paid for manuka is due to the varying activity levels of the honey. While the base price for non-‐active manuka has remained relatively constant, the prices at the higher end of the range fetch up to NZ$85 per kilogram.

What is also noticeable is that the price and range for other dark honeys has increased quite dramatically. Dark honeys are often used to blend with manuka for manuka honey products.

Source: MPI Apiculture Reports

Processing

Much of the New Zealand honey observed in the US is labelled as raw and/or unpasteurised. All honey however, still requires a level of processing before being packaged for shipment. This includes liquefying and straining (or filtering) honey as well as testing.

Average processing costs: US$2 per kilogram.

Packaging

As noted earlier, the majority of honey exported to the US is packaged in New Zealand before being shipped (bulk honey exports average 2%). Honey exporters need to ensure the labelling on their products meet the required US standards and time must be spent obtaining approval at the initial stages of market entrance.

Average packaging costs: Approximately US$4 per kilogram.

Shipping Cost

As reported by honey exporters, due diligence on the paperwork and knowledge of the US customs regulations is required to deal with the sometime tedious US bureaucracy and avoid undue delays with shipments. Because

$0 $2 $4 $6 $8 $10

2008 2009 2010 2011 2012 2013 2014

Light (Clover Type) Honey

$0

$2

$4

$6

$8

$10

2008 2009 2010 2011 2012 2013 2014

Light Amber Honey

$0 $2 $4 $6 $8 $10 $12

2008 2009 2010 2011 2012 2013 2014

Dark Honey

Prices per kilogram

(NZ$)

$0

$20

$40

$60

$80

$100

2008 2009 2010 2011 2012 2013 2014

Manuka Honey

[UNCLASSIFIED]

31 | P a g e

of the attention received from the honey sandal, US authorities are strict when testing is carried out on samples from shipments. Failing tests can result in shipments being denied and sometimes worse, being the subject of an import alert, preventing any future shipments from the associated company.

New Zealand honey companies have been the subject of import alerts in the US, due to failing adulteration tests. Manuka honey has been known to provide false negatives for certain sugar tests meaning it is crucial that New Zealand exporters test all their products before shipping to have confidence the honey will make it into the US. Companies that have been subject to import alerts have had to invest significant sums to have the alerts removed and re-‐enter the US market.

Freight costs to the US: approximately US$3 per kilogram (however, is dependent on freight speed)

Tariffs

Tariffs charged on honey imported in to the USA are relatively low and do not appear to be a significant barrier to entry. New Zealand honey is charged a tariff of US$0.019 a kilogram, which is unlikely to make a considerable difference in the decision to enter the US market given that the average FOB price is approximately US$22 per kilogram.

Marketing

Approaches differ depending on the sales channel that companies take. Those selling into retail have reported that during the early stages of market entry, these costs will be much higher as retailers do expect strong start up support. Most retailers will expect a certain amount of free fill (up to 25%) on initial orders adding to the initial costs.

Many of the companies focused on online sales are going to spend more on marketing the product as they will not be using the services of distributors or retailers to push the product. They will however, be taking a larger proportion of the sales.

Marketing costs across companies average between 10% and 20% of sales.

In Market Delivery and Handling

This can vary significant depending on the volumes and frequency of orders. Some online sales marketplaces have these costs absorbed as additional expenses paid by the buyer on top of the retail price. In the US however, much of the online retailing takes place through Amazon, which prides itself on providing customers with a fast, high quality delivery service. Many goods sold on Amazon qualify for free shipping and that can include guaranteed two-‐day delivery anywhere in the US. These costs are borne by the sellers and make handling and delivery one of the highest cost elements of selling online through a service like Amazon.

The costs range from between 5% and 20% of sales depending on the sales model.

Sales Agent (Broker)

Traditional sales agents (or brokers) usually charge around 5% plus expenses for orders that oversee. Using online sales ventures such as Amazon also involves referral fees that average around 15% of the retail price.

Distribution

Establishing distribution in the US takes a considerable investment, however companies have reported that finding a trusted partner that understands the company brand is easier than other markets such as China. Once established with a distributor, the US system is disciplined and as long as companies fulfil their contractual

[UNCLASSIFIED]

32 | P a g e

agreements especially regarding supply, the relationships are relatively easy to manage.

Distributors average between a 25-‐35% margin.

Retail Mark-‐up

As noted earlier in the report, New Zealand honey is primarily being sold in speciality/upscale supermarket stores (e.g. Whole Foods) and health food or supplement stores (e.g. The Vitamin Shoppe)

It is reported that retail margins generally average around 33%

WATERFALL DIAGRAM BASED ON COST DATA FROM COMPANIES

The waterfall diagram in Figure 11 below has been produced based on information provided by honey companies and from observing the US market. It is used to create a picture of the average selling costs for manuka honey (of relative grade UMF 10+) in the US based on a traditional sales model of selling through a distributor to get onto shelves. It is by no means a comprehensive model, but demonstrates the main factors influencing the returns of New Zealand honey exporters.

Figure 11

The three main drivers of costs are the retailer mark-‐up, distributor mark-‐up and the cost of honey at the hive entrance (farm-‐gate). The waterfall diagram shows strong profit for a relatively unprocessed (lightly branded and low-‐cost marketed) food product. Exporters selling online will be capturing more of the distributor mark-‐up, which will increase their profit, however the associated cost of shipping can be much more expensive. As a result, selling online won’t increase profits by the total distributor mark-‐up, but it can boost final profit by up to 50% of traditionally distributed products.

$0

$20

$40

$60

$80

$100

$120

Retail Sales Price

Retailer Mark-‐up

Distributor Mark-‐up

Sales and Markerng

Shipping (export) Cost

Tariffs Packaging Cost

Processing Cost

Raw Honey Cost

Profit

Cost Breakdown of Manuka Honey Per Kg (US$)

[UNCLASSIFIED]

33 | P a g e

7. FUTURE FOR NEW ZEALAND HONEY & GOVERNMENT INTERVENTIONS

This section outlines targets that have been set in the industry and discusses the opportunities for growth in the US market to achieve these targets. It also identifies risks for the future of the industry from a US market perspective. It then considers the opportunities for New Zealand Government policy-‐makers to support the industry’s growth bearing in mind that MPI and NZTE are already highly active.

The dramatic growth in New Zealand honey exports is a recent phenomenon. Export revenue currently stands at NZ$200 million of which about $14 million comes from the US. New Zealand honey exporters could look to the New Zealand wine industry as an example of success in promoting exports to the US. In the year 2000, New Zealand Wine Growers exported $200 million of wine and about 20% ($40 million) went to the US. Wine exports are projected to top $1.4 billion this year and in late 2015 it is expected that the US will be New Zealand’s biggest wine market by margin and volume. New Zealand only produces around 1% of the world’s wine and yet it is the 8th largest wine exporter by value. To achieve this kind of growth the New Zealand honey industry will need to change and adapt, as have New Zealand Wine Growers, in order to fulfil its potential. New Zealand honey industry leaders have already identified an export value target of $1.2 billion by 2027.

The graph below shows the growth of New Zealand wine exports and the role of the US market in the growth.


As with the manuka story, New Zealand wine’s success has been built off the back of a highly distinctive and differentiated wine style in Sauvignon Blanc. The wine industry is working hard to pivot off that success and is promoting other varietals, with Pinot Noir leading the charge, followed by Pinot Gris, Riesling, Syrah and Chardonnay. New Zealand Pinot Noir is starting to get significant critical attention and credit in US media. The honey industry could adopt a similar strategy, but, as with the wine industry, it will require a concerted and

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

NZ$ m

illion

NZ Wine Export Value by Des[na[on Market (NZ$m)

Australia

Canada

China

Netherlands

Singapore

UK

USA

[UNCLASSIFIED]

34 | P a g e

coordinated effort and a disciplined approach to developing standards, certification and verification and consumer marketing.

Each new wine varietal requires a separate vineyard, viniculture practice, wine-‐making skill and marketing effort. In comparison, non-‐manuka, mono-‐floral honeys are produced at marginal cost. Before and after the manuka trees flower, if the weather is warm and dry enough, the bees just keep working. The flowers of the native New Zealand forest tend to flower in sequence and not in parallel. The development of export premium honey mono-‐floral varietals such as Kanuka, Rewarewa, Rata, Pohutakawa and Kamahi leverages existing hive and honey extraction and packaging infrastructure.

To meet the billion dollar target, significant growth in the US market will be required. Demand out of Asia is also, of course, strong. Exporters have said that Chinese demand alone is able to consume the entire volume of New Zealand’s current honey exports. However, the New Zealand food exporters report that the US market offers retail price stability that is better than most, supported by disciplined distribution systems and a large population of high net worth consumers who are ever more concerned with the provenance of their food. With honey exports to the US currently comprising only 5% of New Zealand’s total, there is plenty of room for growth and for the US to become one of the top destinations for New Zealand honey.

There is still a lot of potential growth in manuka honey supply and market development, but there is also a significant mono-‐floral honey opportunity utilising New Zealand’s extraordinarily unique flora natural heritage. When you combine the manuka and new mono-‐florals opportunity with crucial factors such as New Zealand’s “clean green image”, our comparatively healthy bee population, supported by superior science and animal husbandry, there is no reason to doubt New Zealand honey exports can grow like wine exports.

Yet, in the United States, all this potential is being put at risk by inconsistent behaviour by New Zealand honey exporters. As demonstrated earlier in this report, New Zealand manuka honey in the US market is represented by a range of labelling claims and grading systems as different as the number of brands on sale. This creates utter confusion for the consumer, especially those looking to make first time purchases. Verbatim examples of consumer confusion are plentiful online and a sample of comments and questions from Amazon clearly demonstrate this:

• “How can I tell if the jar that I will receive has the real honey and not a fake one?” • “Where is the proof that this is pure manuka honey?” • “The product has ????s and the description is not clear to show what they claim” • “There needs to be more transparency, consistency and governmental oversight in the marketing of

manuka honey and its potency claims across the board” • “How do I distinguish this from other honeys?”

EXISTING NEW ZEALAND GOVERNMENT SUPPORT AND INVOLVEMENT

The honey industry’s issues of opportunity and risk are not news to New Zealand Government agencies. In response to negative media coverage in the UK, MPI and MFAT has moved quickly to address those issues. Below are some of the existing interventions.

PGP joint venture investment

MPI’s Primary Growth Partnership Programme (PGP), a joint venture between government and industry, invests in long-‐term innovation programmes to increase the market success of primary industries. The PGP started a seven year programme specific to the manuka honey industry in 2011 with the aim of increasing the

[UNCLASSIFIED]

35 | P a g e

supply, yield per hive and quality of manuka honey through science-‐based farming of manuka plantations. The PGP has partnered with Comvita Ltd and the Manuka Research Partnership (NZ) Ltd and together they have committed almost NZ$2million for the project.

Bee health science research

As well as the PGP project, MPI is carrying out work on projects to help support the health of New Zealand’s honey bees. The biggest threat to the industry remains that of disease, parasites and other suspected factors that have attributed to the colony collapse disorder seen around the world. The health of New Zealand’s bees is vital to promoting the New Zealand brand and maintaining and growing the capacity to supply the volumes of manuka honey currently being demanded.

Market development assistance

NZTE already assists exporting honey companies in the United States providing the types of support for market entry it provides other exporters. One of these companies is developing online sales as well as specialist retailer distribution.

Labelling guidelines and standards

NZTE and MPI have worked together to try and address the problems facing the industry that have occurred as a result of its fragmented and non-‐cooperative approach. MPI has taken the lead on policy issues in the industry and this has led to the interim labelling guidelines for manuka honey. The labelling guidelines produced by MPI are a beginning for a programme to address the issues affecting manuka honey. The guidelines are unable to be enforced in overseas markets. However, if clear industry standards are developed to distinguish genuine manuka honey, it is possible that they will be adopted overseas in labelling practices. Products that are not genuine manuka or are not true to label are likely, over time, to face consumer backlash that starts in online forums and in court rooms around the globe, particularly the litigious US.

Paul Grey from ExportX said about labelling: “The rating of manuka honey is the single biggest determinant of the value and price. Customers pay dramatically more for higher-‐rated manuka honey. Selling against products with unsubstantiated or misleading ratings is the single biggest problem marketing New Zealand manuka honey in the USA and in the UK. Customers have been mis-‐educated on ratings, and most customers do not make (or understand) the important distinction between UMF/MGO honey and the rest. There are people out there trying to provide the facts, and other people out there confusing the issue with incorrect comparisons, including incorrect MGO to UMF conversions. Individual marketers can do their best, and the UMF association could do more in the USA, but a huge difference could be made by an 'official voice' providing reference facts, e.g. a NZ Government web page that listed the key facts, UMF to MGO conversions and specified what customers should look for on a honey label, and what to avoid. Such a web page should be aimed at consumers in overseas markets and should answer questions such as, “Which is the best honey?”, “How do I compare the ratings of these honeys?” and, “How do I tell if the honey I'm about to buy is authentic?”

Note: Mr Grey’s direct criticisms of specific companies and their own labelling solutions have been deleted, but the editing does not reduce the impact of his comments.

The MPI guidelines clearly state what claims cannot be made on a label, but have not yet been able to clearly define what constitutes manuka honey or come to an industry agreement on what grading system is best to use as an international standard. Companies are responding to the MPI guidelines and changing product labels. This has yet to show up on US supermarket shelves. Also, once in the US, as long as the labels meet US

[UNCLASSIFIED]

36 | P a g e

regulations, it is up to the companies selling the honey to follow the MPI guidelines. There is also an increased risk of non-‐compliance for bulk honey exports that are packaged overseas that are packaged in ways that do not comply with the guidelines. The credibility of New Zealand’s honey has already come under threat with UK media reports exposing manuka honey that was not true to label. If the problem is not adequately addressed, the damage to the industry could be catastrophic. The US market is not immune to the problems as is evidenced with the recent filing of a lawsuit against Wedderspoon (Kong et al. v. SWCC USA 1234, LLC, et al., No. 1:15-‐CV-‐01635 (E.D.N.Y. complaint filed on 27 March2015)) claiming deceptive marketing and labelling on their products.

RECOMMENDATIONS

This report has identified four areas for New Zealand Government agencies to focus their efforts to improve the performance of the New Zealand honey industry in the US market. These are:

• Build industry consensus and improve leadership; • Support the industry to develop consistent certification, standards, verification and traceability

systems ; • Identify ways to support the industry to increase supply; and • Support the industry to develop common promotion and marketing platforms and also develop

greater capacity and capability in online marketing.

These have been prepared to initiate a discussion with policy-‐makers that can assist the development of an NZ Inc. approach to supporting the New Zealand honey industry achieve its targets, particularly in North America.

Report recommendations for New Zealand policy-‐makers

Industry consensus and leadership

1. Support initiatives to build a consensus on industry-‐led, cohesive governance that can oversee the international development of the New Zealand honey industry. If consensus is unachievable consider alternatives that address the risks (litigation and consumer confusion) that are currently playing into the US market. (MPI, NZTE)

2. Consider NZ Wine Growers model where companies effectively collaborate but also compete; also consider Fonterra farmer consultation processes to support the industry to coalesce. (Honey industry, MPI)

Standards, certification 3. Move forward from the interim manuka guidelines and develop new labelling guidelines built on industry agreed standards for certification and verification. (MPI)

4. Communicate those standards online to build consumer confidence. (Honey industry, MPI)

[UNCLASSIFIED]

37 | P a g e

5. Build traceability systems built on science that can be used by honey companies to build greater trust with US consumers and to enhance marketing in the US and leverage New Zealand’s brand reputation. (Honey industry, PGP)

6. Encourage industry to develop standards for other claims important to US consumers including “organic”, “raw”, “kosher”, and “non-‐GMO”. (Honey industry, MPI)

7. Develop mono-‐floral standards for Kanuka, Rewarewa, Pohutukawa, Rata and Kamahi (and others) to ensure new products introduced into the US start with strong foundation. (Honey industry, MPI)

Increase supply (the US wants more)

Note MPI’s PGP work with the industry is already focused on improving productivity of the manuka production system.

8. Review government owned (Department of Conservation) and council land (Regional Park system) to assess its current and potential capacity to host greater honey production and any policy changes required to facilitate increased production. (MPI, DoC)

9. Discuss with Maori Trustee whether Māori land could be surveyed for its current and potential capacity to host greater honey production and any policy changes required to facilitate increased production. (MPI, TPK)

Marketing and promotion platforms

10. For the US, encourage the industry to develop collaborative and cooperative marketing programmes similar to a New Zealand Wine Growers programme. (Honey industry, NZTE)

11. Scope US market support options for Māori-‐owned honey export businesses leveraging off Māori land. (TPK, NZTE)

12. Given the critical importance of online sales in building product awareness, focus on online marketing skills and capabilities at the firm and industry level. (NZTE, New Zealand Story)

13. Develop industry consensus on the next mono-‐floral for positioning in the US market after manuka. (Honey industry, MPI, NZTE, New Zealand Story)

14. Introduce the New Zealand Story disciplines into marketing the provenance of native New Zealand honey varieties including manuka and link to industry efforts to introduce traceability standards. (New Zealand Story)

[UNCLASSIFIED]

38 | P a g e

APPENDIX A: UMF HONEY ASSOCIATION MANUKA ID PROJECT

From John Rawcliffe, General Manager UMF Honey Association Inc.

“The UMF Honey Association represents more than 70% of the export retail packed Manuka honey from New Zealand. Five years ago it recognized that this unique honey required standardization with a quality mark, and as the science evolved it was added to the standards underpinning this mark. As it can continue to develop with emerging research, the mark has become ‘future proof’ and can provide the best protection for the consumer. The UMF Mark includes all the known properties that support the Quality and Purity of this honey. For the last four years the Association has committed all of it resources to research.

The following is from Dr Terry J. Braggins, describing one of the Associations key research projects. This project is near to rollout and the Association will be providing verification testing in the USA. “

Dr. Terry J. Braggins, Analytica Laboratories Ltd:

“There is significant cause for concern that manuka honey is being sold not true to label and evidence that the honey is being adulterated with synthetic equivalents of chemicals that give manuka honey its unique antimicrobial properties. Physiochemical and organoleptic testing of honey currently recommended by Codex Alimentarius (an organization that sets international food standards, guidelines and codes of practice) are not discerning enough to reliably allow distinction between New Zealand honey floral types. Currently, honeys of different floral origin can be blended with smaller quantities of manuka honey and sold as pure manuka honey without detection.

A research initiative, funded by the Unique Manuka Factor Honey Association (UMFHA), is underway at Analytica Laboratories in Hamilton New Zealand, to develop new chemical tests that can distinguish manuka honey from all other floral-‐type honeys. Using some of the latest high resolution mass spectroscopic technologies, the scientists at Analytica have ‘finger-‐printed’ the chemical profiles of New Zealand’s major honey floral types and discovered many plant-‐derived chemical ‘markers’ in flower nectar and honey that are unique to each floral-‐type. These discoveries allow reliable distinction between pure manuka honey, manuka honey blends and non-‐manuka honeys. It has resolved the particular issue of distinguishing between manuka and kanuka honeys which, until now, have been indistinguishable using traditional pollen testing methods (pollen from these two species look the same). The research programme spans three harvest seasons and covers representative honeys from all major areas of the country to ensure that the testing procedure is robust enough to allow for seasonal, climatic, and geographic variation that might potentially have an influence on the chemical ‘markers’. Accelerated shelf-‐life studies take into account any changes that may occur during honey processing and retail storage.

The UMFHA initiative also includes scientists from the University of the Sunshine Coast, Australia; FERA in the UK, the Technical University of Dresden, Germany; the University of Hyogo, in Japan; and the Jiangsu Inspection Service, Nanjing, China. Verification and acceptance of the laboratory protocols developed at Analytica Laboratories by the international collaborators will ensure continuity of testing around the world that will help protect New Zealand’s valuable manuka honey industry.”

Documents

THENEWZEALAND HONEYPHENOMENON& INTHEUSA - Honey … · An!analysis!of!New!Zealand!honey!exporters!in!the!USAfrom!an!in8market! perspective! [UNCLASSIFIED]-1"|Page"-CONTENTS"