ISSUE 7 APRIL/MAY 2014

APPLE GROWER UPDATE

MARKET OVERVIEW NORTHERN HEMISPHERE SUPPLY 2013 HARVEST Continental Europe ›› The European 2013 harvest was large across all varieties with fruit volume impacting prices and sales flow. Despite the sluggish market, Jazz™ prices have not fluctuated demonstrating “controlled scarcity” is working as a mechanism to deliver value to growers. Sales are on target to finish selling French and Italian Jazz™ prior to the first arrivals of NZ/Chilean Jazz™ ensuring retailers will be able to continue stocking the variety. We envisage a smooth transition between northern and southern hemisphere Jazz™. United Kingdom ›› The UK apple market has been weak due to the large harvest of British

apples in late 2013. Traditional varieties such as Cox and Braeburn continue to sell at low values to push sales velocity. Despite unfavourable general market conditions, Jazz™ has continued to thrive, with strong retail support ensuring the variety continues to grow in popularity. Market share for Jazz™ has risen from 2% to 2.5% in the last 12 months. North America ›› The North American market has been very strong for the last three years with increased consumption and high values underlining strong optimism in the industry. Jazz™ sales have been positive with support from key retailers. The size profile of the crop ex-

Washington was smaller than estimated and while large sizes have sold out easily, small sizes still present a challenge to market in a timely manner. Pacific Rose™ sales have gone well in the 2013/14 season with greater emphasis on domestic sales underpinning this programme, but the Chinese market has provided the premium that makes this variety attractive for growers. Envy™ has sold remarkably well in its first commercial season (approximately 200k TCES). Two major retailers – Safeway’s and Sam’s Club have given strong endorsements for this variety. Half of the US Envy™ crop was exported this season with China, Hong Kong, Thailand and Vietnam all wanting more volume. 1

SOUTHERN HEMISPHERE SUPPLY 2014 HARVEST Continental Europe ›› Stock in Europe remains high with currently 25% more fruit in warehouses than the same time in 2013. Despite the promise of prices at levels of equal or above 2013 record levels, major German retailers have been offered prices well below what could have been achieved from NZ exporters selling via Dutch wholesalers. Prospects are very good for the 2014 season with New Zealand the only producer having fruit supply in the key sizes for the German market 90/100/110 with Chile and South Africa being very light due to adverse weather events. Jazz™ prospects are very good as sales continue at strong values and the New Zealand crop will smoothly transition into existing retail programmes. The prospects for Braeburn are less certain with domestic crop (French/Italian) selling at very low values. We expect key German retailers to change to imported NZ Braeburn as quality deteriorates with domestic fruit. Pink Lady prospects are very good with European stocks low.

United Kingdom ›› The large British crop will impact the New Zealand import season. Large stocks of British Cox are still selling and UK growers are heavily discounting to ensure fruit finishes before the NZ fruit arrives. The domestic fruit will be selling at 40% of the value of the New Zealand fruit. We expect the New Zealand selling season to start later than last year with some British and European Jazz™ still selling through April and into May. We expect pricing to be consistent and strong regardless of origin. We expect a good Pear season as traditional Pear suppliers to the UK and South Africa have been hit heavily by flooding and hail. The same prospect for Pink Lady as South African suppliers will be down due to adverse weather events. Prospects for Braeburn are mixed as we wait and see the impact of the large stock of unsold northern hemisphere Braeburn.

Australia Jazz™ in-store

Engaging consumers with Jazz™ on Facebook

North America ›› The US market is strong across all varieties and the window for apple imports looks to be solid as domestic fruit is not storing well due to

extreme heat during harvest. Royal Gala has started well with good demand. Demand for Fuji is strong as domestic fruit quality diminishes and pack-out’s drop away. We expect Braeburn, Granny Smith and Pink Lady to all perform well. Jazz™ is eagerly awaited by key retailers as large fruit is in short supply in the US. The Envy™ programme has generated a lot of hype and interest. We are restricted on what we can offer with demand outstripping supply significantly. We need to carefully allocate the fruit to ensure we keep key retail customers satisfied. Australia ›› Australia, with Australian grown Jazz™, is the first market underway with new season southern hemisphere grown Jazz™ apples. Building on a strong 2013 season the market has been eagerly awaiting the start with customers and consumers alike excited to have Jazz™ back on the shelves. The first month of the Jazz™ season has been heavily loaded with promotions and activity helping drive sales to be 32% higher than for the same period last year.

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REST of WORLD Japan ›› We have a solid programme to Japan in 2014, with strong focus on promotion and our licenced varieties. We continue to focus on educating trade and customers in this new market for imported apples. Thailand ›› Despite the political unrest besetting Thailand over the last 24 months, we have very good demand and expect volumes to be slightly up on 2013. We continue to build our customer base with on-going focus on promoting our brands and varieties. Our promotions will have a strong emphasis on social media and we will continue to be innovative in our approach to this market. The FTA continues to give New Zealand an advantage over its competitors. China ›› We are about to resume shipping apples to China with late season varieties being focussed on. We are confident this market can deliver significant premiums over other Asian markets and will use Envy™ to spearhead our programme. With the

complexities and cost of the new protocol delaying market access, we will not achieve pre-season volume targets. However, our customer base is very excited at resuming Envy™ shipments and the first arrivals are awaited with anticipation. Taiwan ›› 2014 has heralded another FTA, with New Zealand apples now able to enter Taiwan duty-free. This has given NZ an advantage over our competitors (Chile in particular) with duty levels at around 20% for apples. The NZ season started well with a large volume of Royal Gala selling into Taiwan and we have followed this up with good demand for Fuji. Vietnam ›› We have a strong presence in this growing market for apples. It has been dominated by the USA in the past, but they have recognised the quality of NZ apples and in particular have become aware of Envy™ and this has provided strong leverage and assisted in building our programmes.

Hong Kong ›› We have strong programmes through our retail customers in Hong Kong and have commenced mixed variety loads. We have focussed on increased promotional support to drive sales and have a lot of branded packaging to assist in building consumer awareness. Middle East ›› The Middle East has started slowly with demand not quite matching parts of Asia, but as the season has continued we have seen demand pick up and Royal Gala and Jazz™ sales are now very steady. India ›› We have traditionally only shipped small volumes of Royal Gala into India as our programmes have traditionally yielded better returns in Asia. We are now underway with Red Delicious programmes and the business is going well. Other markets ›› Most markets in South East Asia are performing well – Singapore, Indonesia and Malaysia. We have a strong focus on retail programmes and continue to build our volume and presence.

FIRST ENVY™ PLANTED in FRANCE Following extensive testing and grower trials in France, under the guidance of ENZAFruit European Manager Marc Le Prince, the first commercial plantings of Envy™ are now in the ground in a specially selected area in the South West of France. With the assistance of the commercial partner Brun this is a very exciting next step for the evolution of the ENZA supply base in Europe with the addition of Envy™ to the portfolio. Initially 5,000 Envy™ trees will be planted across 4 hectares, with a similar amount to follow with Brun in 2015. Strategically this move is important for Turners & Growers to further develop the global Envy™ branded offering, building a foothold in the EU and supporting further growth opportunities in the more developed Envy™ markets. It is envisaged that there will be more commercial plantings of Envy™ in Europe over the next 1 – 2 years.

Field manager Olivier Dutertre with the Envy™ plantings 3

WHAKATU DEVELOPMENT

Turners & Growers is continually looking at ways to improve the quality of the pipfruit offering taken to market as an overall means to increase grower returns. Upgrades recently completed at the Whakatu site are an example of this in action. The new 6,000 bin capacity Controlled Atmosphere (CA) store at Whakatu is state of the art with energy efficient electronic controlled fans alongside other top of the line equipment. The facility has the capacity to load 1,000 bins a day and will assist the business in better meeting the requirements of our customers with improved product quality through the later parts of the selling season. Having significant CA capacity enables fruit to be allocated more evenly through time,

providing the ability to better match supply with demand. In addition to increased CA capacity, the packhouse has also been upgraded with a new six lane defect sorter. The defect sorter can simultaneously feed i) four lane sizers, ii) pre-size bins, iii) waxer and iv) the bagging/ punnet machine. It is capable of sorting approximately 80+ bins an hour and will provide significant benefits when fully on-stream. Furthermore, Key Performance Indicators (KPI’s) are being implemented that provide staff with more visibility around productivity and performance. “It’s important that our people get real-time information about what they are doing and how they perform. This is not about controlling people,

Growers’ Kirsty and Phil Greer viewing their fruit at Whakatu packhouse

it’s more about giving them tools to improve their areas of responsibilities on a daily basis and be able to react quickly if the system or process limps or even fails. This is another piece of the puzzle enabling our managers be more proactive” says Philipp Wahl, Chief Operations Officer. “This NZD $6.4 million investment is very exciting for Whakatu and for our Pipfruit category. It’s a critical step in the right direction and a signal to our growers and customers that we are serious about investing in Pipfruit. We continuously need to invest in our supply chain to be able to meet our long-term global goal of 20 million TCEs in 2020 and remain competitive against our global competitors.” says Philipp.

Ollie Shutt, Philipp Wahl & Ivan Angland at Whakatu site

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Meet IVAN ANGLAND REGIONAL MANAGER at WHAKATU Our grader and CA store are not the only new things at our Whakatu site. Ivan Angland has taken on the Regional Manager role, replacing Simon Beale who has become the Group Shipping Manager. Ivan began working as the Regional manager in February and previously spent 10 years at Heinz Wattie’s in Hastings. Originally from Gisborne, Ivan grew up on a family farm and spent time

in Australia managing 3,000 hectares of irrigated tomatoes, sweetcorn, faba beans, soya beans, rice, wheat, barley and canola.

have him on our team.” says Ollie Shutt, International Supply Chain Manager Pipfruit.

“Ivan is the ideal profile for this role. He brings strong expertise in Production Planning, Lean Management and Quality Management with him and that’s exactly what we need to improve our Operations in Hawkes Bay. We are very glad to

ALLAN BROTHERS EXPAND ORCHARDING OPERATIONS Allan Brothers, one of Turners & Growers key partners in the USA, is a fruit growing, packing and shipping company situated in Naches, Washington State, with orchards located throughout the eastern area of the state. Allan Brothers have recently bought Sagemoor Farm’s orchards and vineyards, effective as at the end of April 2014. The Allan Brothers family has a long and rich history in the horticultural and fruit packing industry which began over 100 years ago in the Yakima Valley. The Allan Brothers progressive approach to apple growing and the industry saw them become one of the early supporters of the ENZA programme in the USA growing Pacific Rose™, Jazz™ and Envy™. The Sagemoor Farms and Sagemoor vineyards acquisition totals 880 acres of wine grapes, 230 acres of cherries, and 190 acres of apples, bringing the Allan Brothers’ holdings to around 2,400 acres. General Manager of Sagemoor, Kent Waliser has known George and Dave Allan for around 30 years and has served with them on various tree fruit industry organizations and boards. Through the years they have forged a strong relationship making this acquisition a good fit. The linkage between Sagemoor and Allan Brothers goes beyond personal relationships. Allan Brothers has packed Sagemoor’s cherries for many years. Both companies grow Jazz™, Pacific Rose™, and Envy™, through the ENZA programme. This is a major move for Allan Brothers which nearly doubles their existing acreage as they look to continue to grow their business.

Workers in the orchards picking some of Washington’s premier apples

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APOLLO ACQUISITION

Bruce Beaton, Alastair Hulbert & Ross Beaton

We are pleased to welcome a new and exciting addition to the Turners & Growers family – Apollo Apples (2014) Limited. Apollo, a significant Hawkes Bay based growing, packing and exporting company, has spent the last five years transforming the business into a large vertically integrated apple operator. Apollo Apples has over 500 Hectares of its own fruit producing orchards in the Hawkes Bay region, and it grows, packs and exports 1.4 million cartons of apples to 43 countries around the world. The global demand for ENZA varieties and other high quality pipfruit currently outweigh supply. This new relationship will enable Turners & Growers to meet the customer’s increasing demand for high quality pipfruit. The merger with Apollo aims to increase export volumes and optimise supply and demand for Asia and other key territories, increasing sales channels for all grades of apples through this extended supply base and provide further opportunity to improve returns for growers. “The acquisition demonstrates Turners & Growers commitment to further invest in the New Zealand apple industry, improve grower returns and increase New Zealand apple exports,” Turners & Growers chief executive Alastair Hulbert said. “Other benefits for our growers and Turners & Growers include a focus of growth of the New Zealand pipfruit industry rather than other southern hemisphere alternatives as well as enabling us to share the benefits of consolidating Turners & Growers pipfruit operations in New Zealand. The Apollo team is experienced and highly respected with valuable skills to complement and grow Turners & Grower’s pipfruit business. Founders Bruce Beaton, Director, and Ross Beaton, Managing Director, will remain with the business for the next four years and continue operating the business as usual from the Whakatu site. Apollo will also help us create a balanced supply model of third party growers, owned orchards and the addition of leasehold orchards. We have also bought a half-stake in Apollo Foods, a small processed apple foods business, with the Beatons keeping the other half. The deal is still subject to Overseas Investment Office approval as well as other material contracts and will likely be settled in the next four months. We look forward to what we believe is a very positive development for all of our growers, Turners & Growers and the broader New Zealand pipfruit industry.”

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