New Zealand fruit giant's kiwi battle in China

BEIJING (CAIXIN GLOBAL) - Kiwi, the small hairy fruit beloved for its sweet tropical taste and nutrition, has become a thorny issue for a New Zealand fruit giant in China, its largest export market.

Zespri Group Ltd. owns the rights to the SunGold kiwifruit, a yellow variety that the company began cultivating in the 2010s. There are more than 8,000 hectares of SunGold kiwifruit planted in New Zealand, generating billions of dollars in exports every year. Farmers pay Zespri around US$550,000 (S$745,630) for the license to plant one hectare, or about two and a half acres, of the fruit.

China is Zespri's largest market, buying more than 100,000 tons of kiwis from the company every year and accounting for more than 20 per cent of its global sales. But there are also more than 5,000 hectares of unauthorised SunGold plantations in China, undermining Zespri's business, the company said.

Since 2016, Zespri has made a variety of efforts to survey unauthorised SunGold plantings in China and resolve the problem, including negotiations with growers and authorities, as well as filing lawsuits. No settlement has yet been reached.

The kiwi giant's headache in China sheds light on the country's lagging legal framework for protecting biological genetic resources, analysts said.

Kiwi growers in China see kiwi as a native fruit that was exported to New Zealand in the early 1990s. But Zespri argues that the popular SunGold variety, also known as G3, was developed by the company with heavy investment and was smuggled into China.

China is the world's largest kiwi producer with annual production reaching 2.55 million tons in 2018, according to the most recent government data. The country accounts for 55 per cent of global kiwi production, which is 13.9 times that of New Zealand. China is also one of the biggest consumers of the fruit. In 2019, the country imported 123,000 tons, worth US$436 million.

To defend its rights, Zespri sued a Chinese grower who is believed to be the first to bring the G3 vine to China. Meanwhile, the company is also seeking to cooperate with other Chinese growers in hopes of turning their unauthorised plantations into partnerships. Daniel Mathieso, CEO of Zespri, said the company has been in talks with local governments around China regarding authorisation of G3 planting. "The discussions are underway," he said.

It all started with a man named Gao Haoyu, a Chinese living in New Zealand. Now 43, he moved to New Zealand with his wife in 2005 and became a kiwi grower. In 2013, Gao bought a kiwifruit orchard, planting the fruit for Zespri.

Zespri was founded in 1997 and entered China in 1999. Selling around 100 million 3.5 kilogram boxes of kiwifruit to more than 70 countries and regions every year, Zespri controls 30 per cent of the global kiwifruit market. As a grower, Gao participated in the regular training organised by Zespri and learned how to manage orchards.

"China's kiwifruit planting technology is at least 15 to 20 years behind New Zealand's," Gao said. "Many planting technologies are not available here in China." Gao has been travelling between China and New Zealand since 2012, teaching planting techniques and management models to Chinese kiwifruit growers. He returned to China to focus on the business in December 2018.

In 2019, Gao became planting technical director of Shaanxi Qifeng Fruit Industry, a leading company in China's kiwifruit industry. Gao shared his kiwifruit experience on TikTok and travelled to major kiwifruit planting areas across China to provide technical support and training. Sources in the industry said Gao made significant contributions to improving China's kiwifruit planting technology.

But Zespri sued Gao for infringing on the company's kiwifruit variety rights. In February 2020, the Auckland High Court of New Zealand ruled that Gao breached Zespri's plant variety rights and ordered him to stop the infringement and compensate Zespri NZ$15 million (S$13.77 million). Gao appealed, and the New Zealand Court of Appeal reduced the amount to NZ$12 million in September 2021.

"What I am facing now are bankruptcy and indemnity," Gao told Caixin over the phone. "I just want to help Chinese people by bringing the varieties to everyone. But I have never made any money from it." All of Gao's properties in New Zealand were frozen by the court.

According to the court, Zespri's SunGold yellow kiwi is a new variety in which Zespri invested heavily. As of mid-2010, Zespri studied more than 50,000 potential new varieties. Only 40 entered a planting trial, and three were tested for commercialisation. The SunGold variety (G3) and Charm variety (G9) passed the tests.

In 2010, Zespri started planting G3 on a large scale in New Zealand. Zespri owns the plant variety rights to G3 and G9 in many countries including New Zealand, China and the US.

In 2016, Zespri learned that someone was planting G3 and G9 in China without authorisation and sent executives to investigate. They met Shu Changqing, a kiwifruit grower in Wuhan, Hubei province. Shu admitted that he had grown G3 and G9 in four orchards. He said he had licenses to grow G3 and G9 but refused to tell Zespri where he got the vines.

Based on its investigation, Zespri said it believes that Gao exported G3 and G9 vines to China since 2012 and intended to license them throughout China. Zespri then filed suit. Gao told Caixin that he did bring G3 and G9 to China from New Zealand and gave them to Shu in 2012, but he argued that he never profited from it.

G3 is mainly grown in China's Sichuan and Shaanxi provinces. According to Zespri, the G3 planting area in China reached 5,400 hectares in 2021. Zespri estimates that in the production season beginning in September 2020, Chinese fruit growers produced 10 million boxes of unauthorised G3.

In the next five years, China's annual output of G3 may reach 30 million to 90 million boxes. In the current production season starting in April 2021, Zespri exported 27 million boxes of G3 to China.

Zespri said that some unauthorised G3 entered Zespri's distribution channels in China, but most of them were sold in second- and third-tier cities as unbranded products or under other brands.

The cultivation of G3 developed rapidly in Pujiang, Sichuan. A source in the Pujiang kiwifruit industry said growers introduced G3 three or four years ago. Without authorisation, many Chinese growers are afraid to plant it on a large scale. Compared with Chinese kiwifruit varieties, G3 is more resistant to disease, tastes better and has a higher yield and price.

Ivan Kinsella, Zespri China vice- president of public relations, told Caixin that when Gao and Shu first brought G3 to China, the price of the vines was very high. But after years of cultivation, the price has dropped significantly, allowing plantation of the variety to expand quickly.

Facing the impact of unauthorised G3 grown in China, Zespri has tried to cooperate with Chinese governments to purchase G3 from local kiwifruit growers and sell under the Zespri brand. Zespri hopes to cooperate with Chinese growers and make the country a major planter of the fruit, Kinsella said.

According to Huang Hongwen, director of the Lushan Botanical Garden of the Chinese Academy of Sciences, kiwifruit was long a wild plant in China. In 1904, New Zealand teacher Isabel Fraser brought a few kiwifruit seeds from Yichang, Central China's Hubei province, to New Zealand. The seeds were then cultivated by nurseryman Alexander Allison. New Zealand developed the first kiwifruit orchard in 1930 and began to export the fruit in the 1960s.

New Zealand fruit farmers previously called kiwifruit the Chinese gooseberry. In 1959, New Zealanders renamed it after the kiwi, a flightless bird about the size of a chicken that's unique to New Zealand, to open the US market.

According to Huang, commercial planting of kiwifruit in China started at 1 hectare in 1978 and increased sharply to 40,000 hectares by 1996. Some kiwifruits were introduced from New Zealand varieties, and some were cultivated from wild varieties in China.

Since the 1970s, New Zealand researchers have introduced more kiwifruit germplasm resources from China to cultivate better varieties. Kinsella said all kiwifruit germplasm resources can be traced back to China. However, it takes lots of time and resources to develop a new variety.

Xue Dayuan, a professor at Minzu University of China in Beijing, said G3 is a new variety cultivated by New Zealand researchers and protected by the Plant Variety Law.

Xue said that under the United Nations Convention on Biological Diversity of 1992, biological genetic resources are subject to the sovereignty of each country. In 2010, the parties to the convention adopted the Nagoya Protocol on Access and Benefit-Sharing.

China formally became a party to the Nagoya Protocol in 2016 and began to formulate relevant laws and regulations. In 2017, China issued draft rules on the access and benefit-sharing of biological genetics, but formal regulations have not yet been issued.

The draft rules stipulate that relevant entities must sign an agreement on access and benefit-sharing in advance, subject to state review. China has established a biological genetic resource protection and benefit-sharing fund to collect 0.5 per cent-10 per cent of annual profits from applicants. The Seed Law in 2015 also requires entities to share benefits when working with foreign companies. In September 2021, Guangxi promulgated China's first provincial-level regulation for the access and benefit-sharing of biological genetic resources.

Qin Tianbao, director of the Research Institute of Environmental Law at Wuhan University, said current Chinese law and regulations are still fragmented. Some fields have requirements, but some do not.

This story was originally published by Caixin Global.