INTRODUCTION AND CONTEXT
Purpose of this paper
1. This paper sets out KNZ’s views as to the definition of market development to inform its approach to its monitoring and enforcement functions under regulation 33(1)(b) of the Kiwifruit Export Regulations 1999 (Regulations) in respect of Zespri’s market development activities for New Zealand-grown kiwifruit within the definition of ‘core business’ in Regulation 2(ab)(iii).
2. KNZ has had regard to Zespri’s views on the appropriate definition and principles of application for ‘market development for New Zealand-grown kiwifruit’ (Market Development Activities).
3. This paper is to be read in conjunction with the Discussion Paper relating to the Prior Notice and Non-Diversification Rules dated 17 November 2020 and the working definitions for Research and Development and Marketing (as amended from time to time)* and may be amended or updated at any time at KNZ’s discretion.
* Noting that an activity may fall within one or more of the working definitions under core business and may change in nature over time requiring ongoing assessments of whether such an activity remains within core business.
Interpretation
4. Zespri can conduct Market Development Activities under (ab)(ii) of the definition of core business under the Regulations. However, the Regulations do not define Market Development Activities and therefore the general principles of statutory interpretation will apply.
5. Regulations must be read as a whole and other factors, including the overall scheme and purpose of the Regulations should be taken into consideration as part of the interpretation.
6. Regulation 8 of Part 3 of the Regulations provides a purpose statement as follows:
The purpose of this Part is to mitigate the potential costs and risks arising from the monopsony, by –
- encouraging innovation in the kiwifruit industry while managing risks associated with the activities that are not core business; and
- promoting efficient pricing signals to shareholders and suppliers; and
- providing appropriate protections for producers and ZGL’s shareholders and suppliers; and
- promoting sustained downward pressure on ZGL’s costs.
7. KNZ has had regard to the overall scheme and purpose of the Regulations in formulating its working definition of Market Development Activities.
8. ‘Core business’ is a key concept in the mitigation measures in Part 3. A strong feature of the 2017 amendments was to expand the definition of core business to increase flexibility for Zespri to engage effectively in changing global markets, to maximise returns to producers. At the same time, the 2017 amendments were also intended to increase producer control over risks posed by Zespri’s monopsony position, and the scope of the meaning of ‘core business’ is a key factor in achieving that objective.
9. The identification of the specific activities listed in the definition of core business in (a) and (ab) reflect a careful delineation by the legislature of what activities can safely fall within that ‘uncontrolled’ framework**.
10. Given the existence of Regulation 10A and the concept of ‘supports core business’, KNZ considers that the activities listed in the definition of core business should be read as confined to what they actually say they are, with careful attention to the boundary where an activity changes in nature so as to become a different activity.
11. In considering a definition of market development for New Zealand-grown kiwifruit consideration needs to be given to the boundary where an activity changes in nature so as to become an activity that:
11.1 is no longer a Market Development Activity (and is not otherwise a core business activity);
11.2 is not core business but supports core business within the meaning of Regulation 10A (i.e. to support Market Development Activities).
** Noting that some specific activities were expressly excluded from this definition because it was assessed that the level of risk they posed to ‘captured kiwifruit growers’ meant that they should remain subject to oversight.
Defining market development activities for New Zealand-grown kiwifruit
12. In developing the definition of Market Development Activities, KNZ has considered a range of international and New Zealand definitions and principles used in identifying market development activities. In particular, KNZ has considered these definitions in light of the Regulations and market development for New Zealand-grown kiwifruit and applied concepts (where appropriate) from:
12.1 Inland Revenue Department 2006, Market development tax credits: an officials issues paper on matters arising from the Business Tax Review; and the inclusions for market development in the allocation of research and development tax deductions under the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006;
12.2 Cambridge University Press, Cambridge Business English Dictionary and Oxford University Press, A Dictionary of Business and Management;
12.3 The Economic Times, What is Market Development?; Market Business News, Market Development; and Study.Com, Market development: Examples, Definition & Process; and
13. KNZ has also consulted with Zespri as noted above.
14. Drawing from the literature, below is a proposed working definition of Market Development Activities for the purposes of applying the Regulations:
Market Development is the development of a business strategy with the material purpose of identifying potential consumers/customers or increasing consumers/customers, or consumer/customer groups, or increasing value in new or existing markets or market segments for New Zealand-grown kiwifruit.
General principles of application of the market development definition
15. In assessing any activity against the above working definition, the following principles should be applied.
15.1 KNZ will consider:
15.1.1 the boundary where an activity changes in nature to become a different activity outside core business;
15.1.2 whether an activity is being undertaken to support core business (i.e. to support Market Development Activities) in the context of Regulation 10A, but is not itself core business; and
15.1.3 whether the activity reflects the type of activities that an exporter of kiwifruit would be expected to undertake.
15.2 Market Development Activities:
15.2.1 should, in having regard to the overall scheme and purpose of the Regulations and the creation of the single export desk, aim to enhance Zespri’s primary core business, being the purchase of New Zealand-grown kiwifruit for export;
15.2.2 must be in relation to New Zealand-grown kiwifruit;
15.2.3 provided it meets the elements set out in the working definition and the above principles, may include (without limitation):
- market research and analysis (including consumer/targeted intermediary surveys, use of focus groups and trials); or
- segmentation analysis; or
- the development of promotional or other marketing strategies for an identified market or market segment (noting that the implementation of any promotional strategy would need to be considered against the working definition of Marketing under core business); or
- the development of a strategy with the purpose of attracting a particular or premium offering or price or reducing costs or impact to market or enabling market access (including for example, trade policy and negotiations, food safety and labelling requirements);
- research to identify new markets, or new uses for New Zealand-grown kiwifruit;
- research to assess market demand for product innovation; and
- engagement or building relationships with current and potential in-market customers/consumers, affiliates, officials, NGOs or external providers, and/or strategic alliances with other brands or products.
16. While the above principles provide guidance, the application of the principles will be fact specific and likely to require analysis on a case-by-case basis.
Kiwifruit New Zealand
3 August 2022