Cherry Levy Differential

Why do cherry growers get the same voting rights in the commodity levy renewal referendum when they pay levy at a lower rate?

The question was raised by a grower at one of our consultation meetings using the example of a cherry grower with $1,000,000 of sales who has paid $7,500 levy at the 0.0075 rate applied to cherries. 

A grower of the other summerfruit crops with $1,000,000 of sales value will pay $15,000 levy at the 0.015 levy rate applied to other summerfruits.  How is this fair?

 

1.  From a regulatory perspective:

  • The Commodity Levies Act directs us to use the levy calculation method to weight the referendum votes.  For summerfruit this is the total value of sales.
  • The Commodity Levies Act also directs that the sales value is based on the levy order commodity (in our case summerfruit) rather than the fruit type (apricots, cherries, nectarines, peaches and plums).
  • On the ballot paper we ask growers to declare total sales value for summerfruit for the previous 12 months.
  • Our levy order recognises that cherries have higher value and lower overall production per hectare than the other fruits covered by our levy.  That is why we have a maximum cherry levy rate of 1% of the selling price, while for other fruit this maximum figure is 1.75%. 
  • The actual rate for each season is set at the preceding AGM.  
    • The Board makes a levy rate recommendation to the AGM through a resolution.
    • Growers can submit their own resolution proposing different rates (within the levy order maximums), such as proposing the levy rates be the same for all summerfruit crops.
    • Growers then vote on the levy rate resolution.
    • The Board cannot change the levy rate without growers approval.

2.  From the Summerfruit NZ Board’s perspective:

  • Cherry crops are higher in value per kg, but lower in overall production per hectare compared to the other summerfruit crops.  The different levy rates are a fair and equitable reflection of sales and levies per hectare regardless of fruit type.

 

See below examples based on an estimated  three year average of volumes per hectare and selling prices per kg.  Naturally some years are better than others.

For example at current levy rates: 

  Cherries Other fruit types
Tonnes / ha 12 tonnes 30 tonnes
Per kg $ $15 $3
Total sales value $180,000 $90,000
Levy rate 0.0075 0.015
Total levy paid $1,350 $1,350

 

However, if the levy rates were the same (and set at the rate for apricots, nectarines, peaches and plums):

  Cherries Other fruit types
Tonnes / ha 12 tonnes 30 tonnes
Per kg $ $15 $3
Total sales value $180,000 $90,000
Levy rate 0.015 0.015
Total levy paid $2,700 $1,350

 

There are other financial considerations such as the investment/establishment costs and ongoing production costs for each fruit type which need to be considered.

 

Democratic Processes:

The Commodity Levies Act, the Commodity (Summerfruit) Levy Order and the rules of Summerfruit NZ each provide checks and balances for levy payers.               

  • The actual levy rate for each season is set at the preceding AGM.  
    • The Board makes a levy rate recommendation to the AGM through a resolution.
    • Growers can submit their own resolution proposing different rates (within the levy order maximums), such as proposing the levy rates be the same for all summerfruit crops.
    • Growers then vote on the levy rate resolution.
    • The Board cannot change the levy rate without growers approval.
  • If growers are unhappy with the performance of the Board they have the ability to change the Board via the annual Board elections, nominating and then voting for preferred candidates.
  • Growers are required to be consulted, and then vote, on the levy order every six years.
  • If growers have concerns which they feel are not being considered during the renewal process they can address their concerns in writing directly to MPI or the Minister.