March 11, 2021

Apple exports surging, but under threat

Growth in exports could be ended by lack of labour

Receipts on apples are up and look to be on a strongly increasing trend as the result of both increased volumes of apples produced and exported, as well as a higher world price of apples. Upward trends are not automatic however, and continuing it assumes there will be sufficient labour to harvest the crop.

Source: Statistics New Zealand

Export data shows that the total export receipts for apples have grown from $330,885,899 in the year ended December 2010 to $907,342,120 in the year ended December 2020. This is an increase of 174 percent. Or an astonishing 10.6 percent per annum.

This growth looks tantalisingly close to surpassing $1 billion in the next few years.

As a conversation piece we’ve included a simple forecast for apple prices. This forecast was made using a simple econometric model and assuming that the market for apples changed structurally around the year 2012 and will continue in that structure for the two years we forecast. While we do have misgivings about the behaviour of one of the diagnostic measures, the model is acceptable for illustration. The statistical uncertainty around the forecast was within a comfortable range.

Our forecast indicates the price of apples might, under the assumption that the price continues the way it has since 2012, be somewhere between $2.37 and $2.62 per kilogram by the end of 2022.

Even if the volume of apples exported remains the same as 2020 our forecast price of apples will mean the total receipts surpass $1 billion in 2022.

Source: Statistics New Zealand, BERL forecast

Apples are often grown in the same areas as pears because both fruits enjoy the same conditions and growing both allows an orchardist to diversify somewhat. It’s a common sight in most of regional New Zealand to see one or two apple trees on someone’s property, and the top three Districts for apple growing in 2020 were Hastings, Tasman, and Central Hawke’s Bay.

Employment in the apple and pear growing industry hasn’t followed the trend of the price received and volume exported. In the top three regions, the industry accounted for the employment of 2,616; 1,883; and 702 full time equivalents (FTEs) in Hastings, Tasman, and Central Hawke’s Bay, respectively, in 2010. While in 2020 the same regions show FTEs employed of: 2,586: 1,635: and 623, respectively. For the whole country employment is basically flat, if decreasing slowly.

Source: BERL LA Database

This indicates capacity constraints in the labour supply of apple and pear growers. This will mostly be in pickers. It might also indicate increased use of automation, although automatic apple pickers did not appear in New Zealand until 2020. However, other tasks on an apple orchard can be automated or streamlined to reduce labour required.

As of 2020 the largest export markets for New Zealand apples were China, Vietnam, and Taiwan. We note that these countries have productive canning and processing industries. It is possible apples from New Zealand are sent to these countries to be canned, juiced, dried, or otherwise processed for re-export.

We also note that the top three export markets for apples from New Zealand changes quite dramatically year to year. In 2015 it was the United Kingdom, United States, and Thailand.

The desire to eat organic produce is important to consumers, and will probably grow in importance in the coming years. E-Belrose, a fruit marketing research company reported that between 2018 and 2020 the premium for organic apples decreased from 35.3 to 30.7 down to 26.4 percent. This was driven by an increase in the quantity of organic apples produced as a proportion of total apples.

The main export market for apples from New Zealand are not likely to be the final consumers of our apples, as noted above. However, organic, and even the New Zealand brand are important to consumers of some of the final products. We do not foresee a significant slowdown in consumer desire for apples grown in New Zealand in the near future.

Indeed the challenge for apple producers and exporters locally will likely continue to be capacity constraints in labour supply of pickers. At time of writing, TVNZ 1 News was reporting that the whole industry is struggling to find staff. One producer is reported to be leaving $100 million worth of apples unpicked this year due to the labour shortage.

There are no solutions to a labour shortage, only trade-offs.

The current proposed remedies are to entice and train workers who live in New Zealand, particularly those receiving benefits. New Zealand workers face their own unique constraints such as potentially losing income after the season ends and they go back on a benefit, as there is a stand-down period. Also of concern are childcare and even transport - employment is more than just receiving a wage. As well as a need for permanent work. Seasonal fruit picking does suit some workers, but not others. Recognised Seasonal Employer workers should be seen as a boon rather than as merely displacing employment of citizens.

Though growers are responding to border requirements by paying for staff to quarantine on arrival it’s pertinent to ask how sustainable this arrangement is. Crucial for this industry, and all of New Zealand is more certainty on when border controls might be lessened and certainty on the response to future pandemics.

A second crucial challenge is the global shipping market which, as noted by multiple industry experts, is exhibiting high container prices and odd container balances around the world. How much this affects New Zealand apples is not known but it’s something to watch.