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Performance / July 17, 2018

Loyalty Payments

Context

The Zespri Loyalty Contract is a key document for Growers and is a mutual commitment between a Grower and Zespri about the long-term supply of fruit between the parties.  The contract is sometimes referred to as “Zespri Loyalty Contract”, “Zespri Loyalty Agreement”, or “Three Year Rolling Grower Contract”.  They are all the same document.

The Zespri Loyalty Contract was first introduced in 2004, enabling a mechanism whereby a portion of Zespri’s corporate profit could be shared with Growers who entered into long term supply agreements (typically a three-year rolling contract) with Zespri.  It also enables Zespri to negotiate longer-term agreements for logistics services and the payment structure helps to provide earlier cash flow for Growers by paying an earlier instalment in January after harvest.

 

Requirements

To be eligible for the Loyalty Payment, a Grower must supply to Zespri all of their Class 1 kiwifruit from all properties they own or control, and contract services for their Class 1 kiwifruit with post-harvest operators that are registered with Zespri as Zespri exclusive Suppliers.  Loyalty Payments are made to Growers who supply collaborative marketing programmes, with the exception of third party Plant Variety Rights (PVR) programmes where revenue flows directly back to the owner, not to the Zespri pool.

 

Enduring Funding mechanism

Late last year, NZKGI, Zespri Group Ltd and Suppliers reached agreement on an Enduring Funding mechanism which determines how Zespri is financed from the sale of New Zealand kiwifruit for future seasons.  The agreement amended how loyalty payments are calculated from the 2018 season.

Zespri receives a margin for buying, marketing and selling the kiwifruit. The gross percentage margin Zespri earns, by agreement with the industry, is being reduced over time to try and achieve a targeted New Zealand supply EBIT (Earnings Before Interest and Tax) of approximately one percent (1%) of net sales.  In addition, from the 2017/18 year there is a mechanism to equally share with growers any EBIT from NZ Supply over one percent of net NZ kiwifruit sales (if applicable).  Where the New Zealand kiwifruit EBIT is more than one percent of net sales, half the “excess” EBIT (the portion over 1% of net sales) is shared with growers across all trays supplied FOBS (Free On Board Stowed) as an additional loyalty payment.


How is this paid?

The Loyalty Premium is currently $0.25 per tray of Class 1 kiwifruit supplied FOBS:

  • The first instalment of $0.10 per tray is paid by the end of January of that season
  • The second instalment is paid within 30 days of 7 June of the following season and includes
    • the balance of $0.15 per tray ($0.25 minus $0.10)
    • plus the additional amount per tray equal to half the excess EBIT, divided by total trays supplied to Zespri at FOBS

In the May kiwiflier (Issue 391), Zespri announced:

The remaining loyalty payment of $0.18 will be paid by Zespri on 15 June 2018 (an earlier payment of $0.10 per Class 1 tray supplied was paid in January 2018). The loyalty premium now reflects additional loyalty payable under the Enduring Funding Agreement and has increased to $34.1million, bringing total fruit and service payments to $1,468.1million. This additional payment of $0.03 per tray represents the grower share of the 2017/18 New Zealand supply EBIT above one percent, taking the total premium to $0.28 per Class 1 tray supplied.

Put another way, the total loyalty premium last season increased by approximately 3 cents to 28 cents per Class 1 tray supplied, or an extra $3.7 million in total.

 

Further information

A copy of the 2018 three-year rolling contract with the full terms and conditions is available from the Zespri Canopy (www.zespri.com/canopy), by calling Zespri Grower Support Services on 0800155355 or emailing contactcanopy@zespri.com

NZKGI’s Independent Guide to the Loyalty Contract can be located here.