Enza ruling on dispute points finger but lacks conclusion

Friday 20th July 2001

By Chris Hutching

An interim report by the regulatory Apple & Pear Marketing Board fails to resolve the bitter dispute between apple growers and Enza over foreign exchange losses.

Hawke's Bay apple grower Paul Carpenter said yesterday the report was a setback for Enza, which is trying to claw back $54 million in forex losses from growers and is debiting grower accounts up to $4.50 per carton.

"This interim ruling is a very significant development because the board has wide statutory powers and it could order Enza to modify its position," he said.

But the implications of the report are unclear.

It found some of the foreign exchange options entered into by the former Enza board in the runup to corporatisation early last year were in breach of regulations, because they involved non-core operations.

They reveal the former board could have capped foreign exchange losses at $28 million but took out further options in the belief the exchange rate would become more favourable but the New Zealand dollar fell further.

"We conclude that, on balance, the package had a very asymmetrical risk profile. That is, the ratio of potential benefit [mitigation of the $28 million loss to potential loss of $91 million] is simply too great to be regarded as hedging expected returns.

"The package contained sold call options that increased exposure rather than reduced risk and were therefore not a hedging instrument. They were therefore not necessary to the core business and, as they represented more than a minimal risk for suppliers, they represent a breach," the report said.

But it also said the contracts struck for the 2001 season are beyond its purview.

Enza now has an opportunity to make submissions to the board over the next fortnight and then it will make a final deliberation.

Enza has challenged the report, saying it only confuses the issue. Mr Gibbs' office yesterday referred all inquiries to his public relations officer.

But Mr Carpenter said his personal position highlighted the absurdity of Enza's heavy-handed actions in debiting grower accounts to recover the forex losses.

He bought his orchard business in December, 1999 and missed out on the allocation of Enza shares but his account has been debited like everyone else's.

Mr Carpenter said about 40% of growers were financially supporting Pipfruit Growers New Zealand's actions to force Enza to arbitration.

Others would have liked to join in the action but the $200 fee was too expensive for some, who were financially on their knees. He said he knew of some growers whose bank accounts were frozen by banks.

"How on earth does Enza think it can marginalise so many of its suppliers if it expects to stay in business?" Mr Carpenter asked.

Legislation may be required to force the issue but the government is unwilling to take the step except as a last resort.

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