Avocado prices may have snared all the headlines in recent weeks in New Zealand — at $6 per fruit it has become a prize target for thieves — but horticulture as a whole is in good shape.
For the year to May, total export revenues reached $3.4billion; an almost 140% increase during the past 16 years.
Cherries make a $68 million contribution to the overall fruit basket of exports and Otago grows the lion’s share of cherries.
Westpac industry economist David Norman said the recent "recipe for success" was down to several factors.
"Many industries, including kiwifruit, apples and cherries, have increased yields by up to 50% through new on-farm practices, or growing different varieties," Mr Norman said.
The sector was enjoying a period of "exceptional growth" across almost all sub-sectors.
"Kiwifruit, apples, honey, and even much smaller subsectors like cherries are enjoying solid gains in export revenues," he said.
Mr Norman said in the last four years growth had accelerated, in spite of the strength of the New Zealand dollar against the currencies of our major trading partners.
"Cherry exports, mainly from Otago, are going to a larger number of significant markets," Mr Norman said.
However, he noted the top seven destinations for cherries were all in Asia.
"Substantial opportunities for further growth exist if avocados and blueberries can expand beyond Australia and if cherries can expand beyond the continent of Asia."
Mr Norman said while the cherry sector continued to grow, he questioned if the industry could diversify.
"New planting approaches are helping increase yields and product quality in cherries.
"There is a lot more scope to grow exports but risks arise because exports focus on one part of the world [Asia] albeit there are several countries there," he said.
For the year to May, exports of cherries to Taiwan were worth $22 million, to China, $18million, Thailand, $7 million, South Korea, $6 million, and exports to Hong Kong, Singapore, Malaysia and the US were worth $2 million or less. Exports to other countries totalled $7 million.
However, beneath the industry’s lustrous veneer, many sub-sectors faced several negative issues, including corporatisation, export market concentration, rising debt, labour shortages and tariffs.
Mr Norman said "huge changes are underfoot" for horticulture, with some opportunities for growth but also considerable risk.
He expected to see more corporatisation across sub-sectors, especially in manuka honey, as the cost to enter the sector rises.
"Reasons for this consolidation include the importance of scale in ensuring financial viability through better technology, being able to attract more skilled management, and reducing risk across the business through geographic dispersion of growing capability," he said.
He noted some horticultural land was selling for $200,000 per hectare, which meant if 10ha was the minimum viable space, $2 million was needed for land only.
Mr Norman noted Zespri could next charge $200,000 per ha for licensing to grow gold kiwifruit.
On export market concentration, Mr Norman said some products were sold "overwhelmingly" to just one or two major export markets; key examples being 94% of blueberries, and 86% of avocados, both sold to Australia.
"Increasingly, China is coming to play a dominant role in some product categories, particularly in honey.
"Over the short term, we expect to see more export concentration in China, but opportunities in emerging markets like India and Indonesia may offer some diversification."
The combination of strong yields for some fruit was pushing up land values, in turn foisting more debt on owners.
During 2012, 47% of business owners had less than 50% equity in their company but that level declined to 41% by 2014, as more debt was taken on.
Mr Norman said because some sub-sectors were returning yields of 7% to 12%, land values had almost doubled during the past four years.
"This is increasing debt levels in the sector and creates the risk of financial strife for some growers making purchasing decisions on the expectation that yields will stay this strong," he said.
He said external events, such as a regulatory change in a major export market, could affect the ability of some growers to service debt.
Based on present returns, Mr Norman expected to see more gains in land values, especially in the kiwifruit and apple sectors.
While horticulture relies on the Recognised Seasonal Employer scheme, under which growers bring in overseas-based labour for seasonal work, there were other labour issues to consider, aside from just harvesting.
Mr Norman said there were structural concerns around succession planning in an ageing workforce, and the supply of skilled scientists and teachers to ensure businesses remained globally competitive.
"Without planning to attract and keep younger people in the sector, and to boost the number of technical experts in the sector, New Zealand risks falling behind competitors."
Another risk was the possibility the global political environment may be turning away from free trade, and more non-tariff trade barriers could be adopted.
"Examples already in play include subsidies to local growers, changing relationships in markets where trade is driven by government-to-government negotiations, and the use of biosecurity regulations as a trade barrier."
