A proposed three-to-two merger of fresh produce wholesalers is a significant shift in market dynamics, but would have neutral impacts on the sector, an industry body has told the Commerce Commission.
NZX-listed T&G Global is in the middle of selling its fresh produce wholesale arm to the owner of rival firm Fresh Direct, and vegetable growers appear uncertain of what the acquisition will mean.
The peak body for vegetable growers isn’t opposing the deal, instead seeking greater oversight of the sector from the competition regulator regardless of whether it goes ahead.
In April, T&G announced negotiations to sell its New Zealand fresh food distribution business to J&P Turner, owned by the Turner family, who founded T&G.
It announced plans to sell its Pacific businesses to Bidfood at the same time.
The sale of these businesses is part of a strategy to focus more on apples and plant intellectual property.
The prices have not yet been disclosed.
Started as Turners and Growers in 1921, the Turner family was involved in the business until the 1990s, when the founder’s grandchildren resigned from the company and established fresh produce wholesaler Fresh Direct through J&P Turner Limited.
These days T&G Global is 73.99 percent controlled by German firm BayWa AG and 19.99 percent owned by Hong Kong-based Joy Ming Mau Group.
J&P Turner is wholly owned by the Turner brothers Jeffery and Peter.
A clearance application for the New Zealand transaction was filed with the Commerce Commission at the end of June, making the case that the newly formed entity wouldn’t have the market power to increase prices or reduce quality.
The sales were confirmed on Friday, with T&G Global confirming it was going ahead with the transactions, pending regulatory approvals.
This followed the publication of the first submissions on the New Zealand sale process being published by the Commerce Commission a day earlier, largely from anonymous growers, and largely opposed or agnostic to the deal.
In a submission, NZVeg (the New Zealand Vegetable Council), a pan-industry group formed earlier this year, says it is a significant change in market dynamics for the fresh produce sector, with the number of ‘open’ wholesalers dropping from three to two.
It expects this to impact smaller growers more than larger growers, as smaller operators lack the retailer relationships and channels of larger operators.
NZVeg operations manager James Kuperus’ submission says the organisation feels the acquisition is neutral in terms of outcomes for the sector, but acknowledges there are reasonable arguments on both sides.
“On one hand, there is one less wholesaler in the market for growers to choose to supply to, which narrows the options available to some growers, particularly smaller ones.
“On the other hand, there are other emerging wholesalers that growers can supply to, and some economies of scale arising from the acquisition which may help with improved efficiencies across the combined business.”
Kuperus’ submission says that on balance, it doesn’t consider that this transaction by itself materially changes the outcomes for growers, and other factors at play are likely to have more influence over profitability.
It neither supports nor opposes the deal.
“Turners and Growers’ search for a buyer is, in our view, a symptom of the broader financial health of the produce sector and the difficulty of achieving a satisfactory return on the assets deployed, which is reflective across the produce sector in New Zealand.”
As such, NZVeg told the commission it would like to see increased surveillance and supply chain reporting so the commission can determine if there is fair competition and power balance in the supply chain.
“This is about avoiding adverse outcomes in five to 10 years’ time from power imbalances, rather than a concern with this transaction in isolation.”
The organisation has broader concerns around practices within the wholesale sector, telling the commission it would like to see improved practices adopted across the board around market transparency and payment terms for growers’ produce.
This was a key issue for many growers who submitted on the deal, either in support or opposition.
Turners & Growers Fresh provides suppliers with daily sales and price reporting, widely considered to be transparent and up to date.
NZVeg says this system provides a level of sophistication and transparency for suppliers which will likely go with the transaction.
“This will likely significantly diminish the transparency for suppliers to understand market dynamics and growers will have to consider supplying with little market information over pricing expectations.”
Three to two mergers have led to poor competition outcomes for New Zealand in the past – namely the purchase of New Zealand supermarket operator Progressive Enterprises by Woolworths in 2005, creating today’s supermarket duopoly.
While the industry body is taking a neutral view, a few anonymous growers were strongly opposed, believing it would lead to a lessening of competition, with no other competition able to compete healthily with the merged entity.
The Commerce Commission has a current decision date of August 26.
