Following a successful trial in February, New Zealand’s Just Avocados sent the country’s first ever commercial avocado shipment to China on Sept. 18 and was shortly followed by leading exporter AVANZA with its first trial. Closer to market than its Latin American competitors but with higher labor costs and far less volume, the industry’s challenge will be to set itself apart with a high-end product, à la Zespri kiwifruit.
Even though China will likely only receive 5% of Just Avocados’ volume this year, Jacob Darling of parent company Darling Group believes it will evolve to become a significant market for both volume and value in the future.
“China’s been a market that Darling Group and Just Avocados have had our eyes on for a long time,” says Darling, the group’s general manager of sales and marketing.
“It’s a market that we believe is still going to be challenging. We’ve got a lot of work to do we think in terms of differentiating New Zealand avocado from other origins so we can extract a premium from the marketplace.
The company’s first commercial shipment to the country arrived on Sept. 18 and was received by Win-Chain Supply Chain Marketing Limited, the global sourcing center for e-commerce giant Alibaba.
“At this stage we’re just looking to do one air freight shipment a week until such time as we get into sea-freight shipments,” says Darling, who adds the first sea-freight may set sail this week.
Air-freight will continue thereafter, but to a lesser extent.
“Just Avocados is looking to run about 15,000 trays into the China market, and that will go from now until mid-to-late November,” he says.
“The reason for doing the air freight is making sure we get all of our process systems, channels, quality, everything in the supply chain sorted out before we commit to a greater volume and therefore bigger commercial value and therefore greater risk.
“It’s not even three weeks by container into Shanghai from New Zealand so that’s obviously advantageous, but we are going up against other countries that have lower costs of production than we do that have economies of scale.”
A good example of this is Mexico, which was the first mover in the Chinese market and is the world’s leading exporter of the fruit, although it’s number two in China behind Chile. In 2017, these two countries’ combined avocado shipments to China were greater than New Zealand’s entire export program worldwide.
As the Darling Group aims to have a 12-month supply deal for its partners, it has traded Mexican avocados in China before, as well as New Zealand and Australian citrus.
“We’ve had previous experience on other commodities into the China market so we we’re well aware of the value proposition for us and for our growers,” says Darling.
“I think at a high level the New Zealand avocado has significant nutritional benefits over other origins of other avocado,” he claims, although with some reluctance to make specific health claims as studies into the issue are ongoing.
“I think the taste profile for the New Zealand avocado due to high maturities and other internal factors give it an advantage, and cosmetically as well it’s a very good-looking avocado.”
NZ Avocado CEO Jen Scoular adds the industry is very excited about having access to China and the fact the first commercial shipments have arrived.
“Obviously that’s a huge opportunity and a huge challenge,” she says.
“It’s a market obviously that with the population has huge potential, and it’s also a huge challenge in ensuring the information and investment into the market is made.
“Although demand is increasing significantly, it’s from a very low base and it’s important that all avocados going into China are met with investment into the market in terms of marketing and the supply chain to make sure consumers are getting really good avocados.”
AVANZA to advance in China with large-sized fruit
A few days after Just Avocados’ product hit the market, AVANZA sent its first air-freight trial to Shanghai. The company’s marketing and communications manager Steve Trickett expects the first commercial sea-freight shipment to arrive within a few weeks.
AVANZA represents around 65% of New Zealand’s avocado exports, and is a tie-up between leading exporters Southern Produce and Primor.
“We’re not commercially selling it [the recent arrival]. We’re using it effectively as some commercial teaser fruit with some of the commercial chains and restaurants and cafés and chefs,” says Trickett, who incidentally used to be a shareholder at Just Avocados and was its marketing director.
“We’ll be doing commercial shipments by sea and our first arrivals will be around Oct. 20, and that’s when we’ll really kick into gear with in-store activity and strongly promoting the product, so the air-freight product is probably not sustainable.
Campaigns will also involve WeChat, China’s multi-purpose messaging, social media and mobile payment app.
“We’ll do about 2% of our pool into mainland China this year and just a little test run into Taiwan for the first time,” he says.
The company expects to send 50,000 trays of avocados to the Chinese mainland, and while that’s a small percentage it’s still greater than the 30,000 trays sent to India – a market Trickett says has doubled its intake of AVANZA’s fruit.
“As New Zealand does in a number of other products, we want to be in that high-end, higher-priced, there for a short time category. Whereas the Mexicans and the Chileans will be there for months and months, we’ll just be there for a bit of a cameo performance if you like and defend our price,” he says.
Trickett says New Zealand will benefit from its larger-sized fruit.
“So that’s quite large fruit, whereas the others will be 24s as mediums, but mostly 30s and even 35s. We’ve heard that there might be even smaller fruit than that from Chile going in.
“Peru has been going in this season quite aggressively with their volume, and fortunately for us they are largely counter-seasonal to New Zealand so they haven’t really knocked us around.”
However, he is curious to see whether Peru’s aggressive pricing could impact on the New Zealand fruit that follows it.
“It will be interesting to see whether that carries over and affects what we’re trying to achieve,” he says.
“We believe that with our New Zealand story, the AVANZA story and what sits behind the branding, and the in-market investment we’re going to have in terms of in-store tastings and demonstrations and some other activation activities, we’ll be able to defend our price premium.
“But to be honest it’s yet to be proven, so it’ll be an interesting season for us.”
Emulating Zespri through Goodfarmer partnership
He says the company has been very selective in seeking out its partner, and as volumes are relatively short the mainland China deal will be limited to the Shanghai area for the next two or three seasons.
“We’ve chosen a company called Goodfarmer which happens to be Zespri’s agent. So you’ve got that cross-pollination of that premium-branded New Zealand product, and the consumer in China has got a pretty favorable view of New Zealand as a point of origin for dairy products, kiwifruit, any number of things,” says Trickett.
“We’re very much levering off that, and of course it plays well back on New Zealand where 60 odd percent of our growers happen to be Zespri kiwifruit growers as well as avocado growers, so they will be quite comfortable in us choosing Goodfarmer.
“And Goodfarmer is probably Zespri’s single largest customer globally now. They’ve got a pretty good track record of being able to extract a premium out of market so that supported our rationale for going with them.”
He says that through its partner AVANZA will be supplying four offline retailers in China, while in a more limited way it will be selling fruit online .
“In that case we’re running with JD.com and looking at a small program with Fruitday,” he says.
From a fruit quality perspective, he adds Goodfarmer has constructed a purpose-built avocado ripening room. Trickett and AVANZA’s technical experts plan to spend a week with their partners in Shanghai to go through the details of optimal ripening.
“They have got some experience in it because they’ve handled South American fruit in the past, and they’re going to be focused more on the New Zealand piece in the immediate term and expand that program all over time,” he says.
“They’ve got these 40-pallet stores. One can take 40 pallets for example and it’s got this new technique where you can put a cover over and even just ripen one pallet if you want to, or you can do 20.
“It’s quite cool what they’ve got there. They’ve made quite an investment.”
A new brand for China: “Chao niu guo”
Trickett highlights AVANZA fruit will also carry a new Chinese market-focused brand in the Chinese market – “Chao niu guo”, which he says translates as “next-level cool” or “the super one” as a more literal interpretation.
The word is also very similar to the Mandarin word for avocado, which is “niu you guo”.
The brand was the idea of a New Zealand expat who lives in Shanghai, Jerry Clode of Resonance China.
Clode and his team did a lot of research before deciding on the brand, having paid particular attention understand consumer behaviours and attitudes toward avocados, particularly from a group known as “supermums”.
“These are mums who are very independent in their own right and who are very focused on their children and spend a lot of money on fresh produce, not really having any price sensitivity in that area,” says Clode.
The research found many mothers in this consumer group disliked the taste and consistency of avocado after trying it the first time, yet they still persevered and incorporated it into their families’ diets as they believed avocados had nutritional benefits.
“One thing we noticed was that avocado was a very important part of middle class status,” says Clode.
“When we went to people’s homes, they had avocado on display in their fruit bowls. It’s important in symbolising modern health, wealth and family.
“We were able to observe interesting cues which we could build into a brand story for AVANZA, with the objective of positioning it as the most recognised and trusted New Zealand avocado brand in China.”
Production outlook and other export markets
Scoular of New Zealand’s avocado growers’ association says the crop is medium-sized this year in terms of volume.
“We had a very high year two years ago and a low year last year, so we’ve got 40% more volume than the previous year but it’s still only a medium season for us,” she says.
“But the season is going very well. We started export in August.
“We are pretty much having to manage the supply we’ve got to meet our customers’ needs and in all markets we are seeing a real demand for avocados from New Zealand, so from that perspective it’s terrific.”
Australia has historically received the lion’s share of New Zealand’s avocado exports, and in the 2017 calendar year the neighbors across the Tasman took up more than 85% of the $87 million in shipments. But good progress has been made in emerging avocado markets in Asia in recent years.
“We always make sure we are increasing the visibility about avocados and information about avocados,” says Scoular.
“We’ve now got digital platforms in South Korea, Japan, Singapore, Thailand, as well as in Australia and New Zealand, and we are ensuring we are putting good investment into those markets.”
Trickett says his company and the industry are looking at 3.5 million trays of fruit this season.
“We’re mindful that we don’t want to be dependent on the Australian market, and that’s why we continue to dedicate 20% of what we do to developing markets,” says Trickett of AVANZA.
The industry’s second-largest market is South Korea, which imported $4 million worth of New Zealand avocados last year. While that may not sound like much, it is worth noting the market was almost non-existent a decade ago and has doubled since 2014.
“We will support strongly a good step-up in our volume into Korea which is now our single largest market in Asia and continues to rapidly grow – it’s still paying really good money even with that growth from all countries supplying that market.
“It’s showing exponential growth and strong value, so it’s one of our priorities within Asia this year.”
He also expects modest volumes into Singapore, Thailand, Malaysia and India, while the brakes have been put on some markets like Japan.
“Japan we’ll still support, but that’s a lower returning market compared to some of the Asian markets,” Trickett says.
The executive adds that around 1,000 hectares of new plantings have been put in the ground in the mid-to-far north of New Zealand, between Tapora and Whangarei.
“That’s going to have a positive contribution – that’s just starting to come into production now but the next three to five years those are going to be coming on-stream,” he says.
However, more supply will also be needed just to “feed the Australian machine” with demand growing by around 700,000 trays a year. But in terms of business across the Tasman in 2018-19, Trickett expects a normal year.
“We’re just very focused on meeting our retail program commitments which are pretty significant, and we do a certain amount with wholesale. But it’s business as usual in Australia, just ensuring we keep that volume and meet our volume requirements,” he says.
Trickett also notes developments in reducing the degree of alternate or biennial bearing in New Zealand, which because of its cooler climate tends to have more pronounced ups and downs from one season to the next.
“But what we are finding is that the further north you go, therefore where it’s a little warmer and more stable in terms of climate, you don’t get those wild fluctuations, and the soil conditions are a little different,” he mentions.
“One thing that I hear from the technical guys when I go to field days is they say we’re getting better at understanding canopy management and the need to prune more regularly than what we used to going back five, 10 or 15 years, and that seems to be flattening out the production.”
Headline photo: Shutterstock