Australian Agribusiness Review - Vol. 4 - No. 2 - 1996
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Distribution of Mandarins in IndonesiaStuart Gray
Project Director, Agribusiness Research Unit, Monash University.
Note: The editorial advice of Margaret Cargill, The University of Adelaide, is acknowledged
Alan Ologoski moved slowly down the driveway, past mandarin trees on both sides. At the main road, he turned and headed back to the Sunshine Coast Fruit Marketing Cooperative Association Ltd office at Nambour, Queensland. It was another few minutes of driving before the citrus trees of Sunstate Orchards gave way to grazing land. That year, 1995, would see 10 000 cases of mandarins go into the Indonesian market. For the next year it should be around 30 000 to 40 000 cases. In a few years time, more than 400 000 cases of mandarins should be sold to Indonesia each year.
Alan started thinking about how lucky the directors of Sunstate Orchards had been, given that they had planted 62 000 citrus trees - 80 per cent of which were export varieties and not preferred on the domestic market - with no marketing strategy or plan to guide them at all. All the directors had had was general information from the Department of Primary Industries that there was good potential for exporting mandarins to Asia.
Sunstate Orchards was the largest member of the Sunshine Coast Fruit Marketing Cooperative Association Ltd, and when Alan joined the Coop as manager in 1993, one of his first jobs was to find a market for the potential citrus crop.
It took all his experience and contacts to achieve what so far had been a very good start to establishing a long-term relationship with an Indonesian distribution company. However, the company had only been operating for three years and it was extremely competitive in Indonesia at the moment, so the long-term relationship still depended on the distribution company surviving the shakeout, which would inevitably occur. The decision to operate through a distribution company was important. While supermarket chains continued to develop quite rapidly in Indonesia, there were still good reasons for not wanting to deal directly with them. This was a complete contrast to their preferred mode of operation in Australia.
Alan recalled the negative experience, which Sunstate Orchards had had with trying to export the small first year crop through an export agent. The delays they had suffered meant that they had ended up dumping the mandarins on the local market at a very low price. That experience had made them realise the importance of developing good, strong, long-term relationships with a customer country.
As Alan settled back for the drive home, he started thinking about the steps, which had led to exporting mandarins to Indonesia.
Sunstate Orchards was established in 1987 when four investors planted some mandarins and lemons on land they owned at Tairo. One of the group had worked in the Department of Primary Industries on citrus, and had heard of the good market potential for selling mandarins and lemons in Asia. On that basis, 80 per cent of the planting were varieties suitable for export to Asia.
They had their first crop in 1989, and joined the Sunshine Coast Fruit Marketing Cooperative in that year because they needed to use the packing capacity of the Coop. The early citrus crop was very small, and Sunstate did not have the capital it needed to develop a packing shed with the capacity it required for the long term. The long term capacity included the need to pack 500 000 to 600 000 cartons or up to 10 000 tonnes of citrus a year when current planting come on fill stream towards the end of the decade.
In 1990, Sunstate Orchards planted the balance of the 62 000 mandarin trees in the Bundaberg and Tairo areas. Of the planting, 40 per cent was a variety of mandarin called Murcott, which is a fruit more in demand in overseas markets than it is in Australia. Amongst the Murcott plantings there were other varieties of mandarins suited to the export market as well.
The first commercial production from these plantings was in 1994 when 10 000 cases of mandarins were packed. It was estimated that by 1996/97, the orchards should produce around 400 000 cases of mandarins and reach fill production by the end of the decade. The trees should last between 30 and 40 years.
Alan mused on the fact that these significant plantings were not made on the basis of considered market research into the potential of the mandarin market or of the varieties required by various markets. However, in retrospect, Sunstate Orchards had made the right decision even though as Alan remembered, they had made no effort to investigate specific export markets.
The Murcott mandarin is quite sweet; it has a bright skin but the skin is tight and not as easy to peel as other varieties, so the Australian market does not favour it. However, its sweetness makes it a preferred variety in many overseas markets, particularly in Asia.
When Alan Glogoski became manager of the Sunshine Coast Fruit Marketing Cooperative Association Ltd., Sunstate Orchards was the largest single member of the Coop. One of the first jobs Alan had to do was find a market for the mandarins that were going to come on stream during the next few years, and particularly for when the trees would be in full production by the end of the decade.
Alan thought back to the experience Sunstate Orchards had in 1993, when it had about three containers of mandarins to sell from its first pick. They tried to sell them through export agents and they did not enjoy the experience at all. They kept getting delayed, then the ship was delayed, and then they were told to hold the fruit for three weeks. It was a complete shambles. Finally, they ended up dumping the mandarins onto the Sydney market and received about $10 a carton. This was not a good price and very little return for the frustration experienced by the group.
At that point, directors of Sunstate Orchards were determined that they and the Coop were going to get into export. Sunstate had a large and long-term investment in trees, so it needed to build relationships to have long term clients to create some certainty about marketing the fruit on a year to year basis.
The Sunshine Coast Fruit Marketing Cooperative Association Ltd started in 1988 when a group of avocado growers who were disenchanted with the prices they were receiving banded together to get more strength, volume, and clout in the market place.
Initially, they were very idealistic and set extremely high standards. They were going to do the job right, and not compromise at all on quality.
However, the quality requirements were far too stringent and consequently the grading standards produced a pack out of only between 20 to 30 per cent. Having 70 to 80 per cent of fruit reduced to a lower grade was not necessary. It was also financially unsustainable.
Also, the Coop made a mistake in the way in which they charged growers for the services of the Coop. They charged growers on the number of trays at the end of the packing line, which effectively meant that the more efficient growers were subsidising the less efficient growers. The more efficient growers had more trays at the end of the line and therefore paid out more in charges, even though they may have delivered the same amount of fruit to the packing shed. A significant part of the costs was associated with handling the fruit which did not meet the first grade pack out standards.
This was changed to charging on a per bin arrival basis which meant all growers were effectively charged on the amount of fruit that needed to be sorted and not on the results of the grading process. This meant that the more efficient growers received higher returns compared to the less efficient growers.
Those two problems, along with a poor financial structure, spelt problems for the Coop from the start. The financial structure was such that the growers had one-quarter capital and three-quarters loan to develop the Coop and this was geared far too highly. A run of poor seasons meant that 18 months after its inception, the Coop was insolvent.
A new Board was appointed and eventually, a new financial agreement was put in place.
The Coop was up and running again quite quickly, but it was still not achieving the results it expected. One of the limiting factors was that the producers had still not developed a marketing orientation. Services were provided to growers at cost, reflecting a 'grower-owned grower-take-all' attitude. There was no thought of generating a profit to allow for the future development of the Coop through marketing initiatives and expansion. This was reflected in the profit the Coop made in 1992 just $9 000.
There was another more significant problem that the growers were facing. Even though they were growing top quality avocados, they were selling them to agents, which meant they were not getting the premiums which the fruit warranted, nor were they getting an advantage from the greater volume and reliability of supply of avocados which the Coop was providing. They were not gaining from the strength they had created in the market place from developing the Coop, nor were they able to develop direct contacts with the retailers while the agents were handling the fruit. This lesson helped in making crucial decisions for the mandarin crop in the next year.
The growers realised they had to do something, but the turnaround to developing a marketing orientation did not start until April 1993, when the Coop employed Alan Glogoski as manager. Alan had gained a strong background in international marketing of fresh produce when he was the New Zealand manager for a major Japanese based multinational firm with food interests.
Initially, managing of the Cooperative was no more than a 3-4-hour/day job. However, it soon evolved into a full time job as many new marketing opportunities were explored, by virtue of having a marketeer available.
By 1995, the growers attitudes had completely turned around to a marketing orientation. Most fruit was sold directly to the supermarkets with no agents. The avocados were sold under the 'Nature's Reserve' brand name which further enhanced the relationship between the Coop and the supermarkets (having a brand name increases the value of the fruit and effectively announces to customers that someone has taken care of the product and is prepared to stand by it), and the Coop was retaining profits for further developments.
At the 1995 Annual General Meeting in April, the chairman announced a substantial profit for the Coop, and the meeting voted to set aside some of the profits for capital improvements and future development initiatives. This was in stark contrast to the attitude of just a few years before when the growers only allowed the Coop a profit so small that it would not even cover administrative costs for the following year.
Part of the reason for the healthy profit was that the growers were getting better than 20 per cent above the general market price for their avocados. At the time of the AGM when avocados were quoted at $13 to $15 a tray in the general markets, the 'Nature's Reserve' avocados were consistently getting $18 a tray.
Alan was now quite happy with the commercial and marketing orientation of the Coop, but he had warned members that there were significant changes in the wind and that Coop members could not become complacent. They must be prepared for even more change, particularly in the area of streamlining distribution systems to reduce the cost, and to maintain fruit quality.
The Coop started with 80 growers, and as a consequence of the problems which occurred, the numbers had dropped to 50 members. By 1996, 268 growers were members of the Coop and there was constant inquiry from other growers to join. The Coop had a record of achievement and commanded a premium price in the market. Growers on the outside could see real value in creating volume of selling fruit under the one label, and of developing a marketing orientation.
When Alan set about finding markets for the mandarins, he had to draw deeply on his experience in Asian markets. The group assessed the most obvious choices of countries and looked at their potential for developing long term markets.
The most obvious starting points were Singapore and Hong Kong. Both these markets were open markets, there were no import duties, nor were there strict phytosanitary regulations. However, both had problems for Sunstate Orchards.
Singapore was a mature market with little prospect of growth during the time period being considered. Also, because Singapore was so open, the price of fruit was generally not much higher that the Australian domestic price and all the traders in Singapore knew on a daily basis the prices received at the major Australian fruit and vegetable markets. Singapore was not important for the long-term future strategy of Sunstate Orchards.
Hong Kong was similar to Singapore in that it was a mature market, but there was the added problem of what would happen when China took it over in 1997. If China imposed the same quarantine restrictions on food as it did currently, then the Hong Kong market would close down very quickly. Some 30 per cent of food, which was imported into Hong Kong, went directly into China, usually being smuggled.
Malaysia was another country considered. It was politically stable and it had a relatively high average income per person. But it had a relatively small population and relatively low population growth prospects. Further relations between Australia and Malaysia were variable during the 1990s, so the trade environment was uncertain.
Indonesia was the next country considered. Indonesia had a number of advantages:
it was politically very stable and it was freeing up its political systems but would retain strong central power;
In short, Indonesia was a strong possibility, so Alan decided to take some directors of Sunstate Orchards to Indonesia to investigate the market potential and possibility.
Alan's thoughts turned to the general business situation in Indonesia, and in particular, the distribution system that operated in the country. The question, which had to be resolved, was: 'whom do we use to distribute the mandarins, a distributor or a supermarket chain?' This question was critical, because in Indonesia, effective distribution was a key factor, determining the success or failure of market penetration.
The Indonesian distribution system was designed to distribute small quantities of non-refrigerated goods to street hawkers and wet (traditional) markets. It was not so designed to distribute perishable or frozen goods into the supermarkets.
At this stage, that may not be a problem as the supermarkets only accounted for 10 to 15 per cent of the food trade, but with urbanisation, growth in income levels, and the increased diversification of products in Indonesia, it was the supermarkets which would be the dominant market place in the long term. The wet markets would decline rapidly and the supermarkets would probably eventually distribute around 50 per cent of food. As supermarkets increased their volume of sales, their distribution systems would improve to reduce the transport cost of food.
The other thing about Indonesia was that the market was basically in the capital city Jakarta and at this stage the Coop was only looking at markets in that city and in Surabaya. There was an obviously increasing living standard in Jakarta, and as living standards increased, people become more aware of quality and health aspects of food. For the modern, middle class, Indonesian, the modern, clean, refrigerated supermarkets looked a lot safer than the traditional wet markets or the street hawker.
Greater Jakarta had a viable market of around 15 million people. Alan reflected that it was a trap for new players to see Indonesia as a market of 200 million people. The whole country may have had that population, but in terms of market potential for Australian food, the main market was really in Jakarta, and maybe a few other large cities, and Bali. The distribution system in Indonesia was not very effective, and the living standards were not so developed in rural areas, where the bulk of the population lived.
Alan thought that this was typical of most of SouthEast Asia; the wealth was concentrated in one or two major cities. Another example was in Thailand, where Bangkok had 10 per cent of the population of the country, yet it had 70 per cent of the wealth.
The typical situation in Indonesia was that most distributors had well developed distribution systems in Jakarta and a poorly developed distribution system outside of that city.
Then there was the question of dealing directly with supermarkets and not going through distributors. Alan had been asked many times: "Why didn't you deal directly with a supermarket chain such as Hero?"
Alan's thoughts turned to the latest he had read on the supermarket scene in Indonesia. Indonesian supermarkets were starting at the top. They were developing highly sophisticated industry practices quite comparable with Australia standards. They are not starting off where Australia was ten years ago so that they would go through a development phase. Rather, they were applying best practice from the very beginning.
However, while the retailing outlets were modern, the systems and supply chain management procedures supporting the outlets were still very unsophisticated. This was because management priorities had been to invest back into the development of the store network, rather than invest in store operations. For example, there were no common standards for things such as bar coding, which meant that point of sales technology was not so effective. Also, layout costs were low, so the benefits of technology were not so large. And the fragmented distribution channels created management problems.
The next stage of development would probably be improving the back of store management to bring it into line with the front of store operations. There was a wide range of goods, which required a more accurate supply chain management. This was particularly true as the stores broadened their range into fresh, chilled, and frozen foods. Also, the existing supermarkets were aware that foreign retailers, particularly from Europe and North America, were entering their markets with supermarket formats that had a high degree of consumer appeal. They also had Systems supporting the stores, which would make them highly competitive.
The food supply chain was driven by what suppliers could produce and distributors were able to supply, and by what arrangements retailers had reached with suppliers in terms of listing fees and promotional support. Essentially, the supply chain for food products in Indonesia was 'pushed' by product suppliers and distributors.
As retailers improved their management information Systems, the supply chain would increasingly become 'pulled' by the demands of the consumer, as it is in Australia.
Another feature of the Indonesian retail scene was that several of the major retailers were part of larger conglomerates, which had an interest in food right along the supply chain, from primary production through food processing and distribution. The retailers preferred to stock the products from their group.
Also, Indonesian supermarkets did not have their own distribution system in place because they didn't have enough market share to make their own distribution viable. Hero was the largest chain in Indonesia and, in 1995, it had fewer than 50 supermarkets.
So the answer Alan gave to the supermarket question surprised quite a few people. In Indonesia, the Coop did not want to deal with the supermarkets directly, but rather with a reputable distributor. This was the opposite to the ideal situation in Australia.
What would happen in the future and how quickly that would change was another question. At this stage, Alan could not guess at how the supermarkets would develop their distribution systems, but any developments would have to be watched and considered.
However, Alan believed that the supermarkets would continue to buy from PT Import Export (the firm with which Sunstate Orchards now dealt) for a long time, mainly for their own peace of mind. PT Import Export had proved that it could reliably deliver, so the supermarket did not have to worry. Also, even though 62 000 citrus trees in the orchard sounded a lot, it was very small compared to the potential market that existed in Indonesia. Alan felt the Coop would stay with PT Import Export for a long time, as PT Import Export would have a share of the development of markets in Indonesia and a big enough share of the market to satisfy the Coop.
Alan had a few contacts in Singapore and Hong Kong who gave him some names in Indonesia. He and three directors of Sunstate Orchards went to Indonesia in September 1993, only months before the first crop of mandarins was ready. This visit in itself was significant. If the Coop had decided to use Australian agents, they would not have personally assessed the potential markets, and they would not have been involved in establishing direct relationships with the Indonesia distributor. There were some critical lessons learnt by being there.
They firstly visited the Trade Commissioner at Austrade, who was able to provide them with a list of names of potential people to deal with (for a cost of $250). It did save some time and it was a point of contact in cases of need, but in the end that is all the contact, which the group had with Austrade.
Alan and the Sunstate Orchards directors developed a list of 20 possible companies to visit. But with the help of another company in Indonesia (which the Coop had dealt with in another area), they cut that list down to five possible companies to act as an agent for Sunstate Orchards.
It did not take long to find the company with which the Coop wanted to deal. The biggest problem in a market like Indonesia was the lack of distribution capacity and capability. This was particularly so for cold storage, where the ability to maintain the cold chain for the product through the distribution system is critical. The Coop could guarantee that the fruit arrived at the wharf in good condition.
What they had to be sure of was that the fruit got to the retailer or the end consumer in the right condition. That was the major consideration.
There was still an inadequate cool storage capacity in Indonesia, despite the fact that a lot of cold stores had been built in the previous 12 to 15 months. Alan had seen it where on any day of the week there was fresh produce sitting out in the hot sun in the distributor's yard. That really brought home just how inadequate the cool storage facilities were. In Alan's experience, this was like all frontier type markets. The facilities did not keep up with the growth in the business until the business started to reach maturity. Indonesia was still in a very strong growth stage.
The decision on who to use as an agent in Indonesia basically came down to who had the cold storage facilities and was capable of managing them correctly. What was their capacity and how well were they managed? PT Import Export had plans to build their own cold storage facilities and were leasing facilities in the meantime. As well, they were developing their own retail outlets. This, along with their other diversified interests, meant they fitted the bill as the people most likely to handle the Sunstate products.
Alan remembered that no other firms came anywhere near PT Import Export. The only other place they visited which had a cool room had started off small but had been extended in an ad hoc manner. There were pillars all over the place and it was not a very efficient operation. Also, there was rotten and half-rotten fruit everywhere, and there were fungal spores being distributed right throughout the cool store. The group took one look at that and were pleased that their fruit was not in there. Also, the payment arrangement was 14 days after the arrival of the product, paid on the basis of pack-out from the operator's cool store. No, thank you!' was the unanimous decision on that place.
None of the others actually had cool stores at the time of the visit. A couple of operators said that they would be renting cool stores in the future, but the group was a bit shy about that because of the lack of experience the people had.
There were a number of other lessons learned by the Sunstate Orchards directors. One was that most Australians still thought that all Indonesians were poor. In fact their middle class was larger than the population of Australia. So there was a relatively large market for high quality food items. Thinking that Indonesians were poor puts you in the wrong frame of mind in dealing with the market.
Another lesson was that the directors of Sunstate Orchards were planning to place the citrus cartons on pallets to load them into and out of the containers by forklift. However, after inspecting the wharf facilities and seeing that everything was unloaded by hand and not with forklifts, they were able to pack the cartons directly into the container without pallets, thus allowing more cartons to be loaded into each container.
Seeing the conditions under which the fruit was handled in Indonesia really impressed on the directors that any fruit they exported had to be absolutely top quality because it was going to get some rough treatment in Indonesia when it lan4ed.
This also applied to the type of cartons, which needed to be used. The group saw many examples of Australian citrus which had been purchased by agents at the Australia markets and packed into non-waxed boxes, which collapsed during transport and destroyed a lot of fruit. Many Australian citrus growers were getting very poor results from the Indonesian market for this reason alone. To avoid this happening to them, the Sunstate Orchards directors developed their own export label and used waxed boxes to clearly distinguish their product from that which was bought in the Australian markets.
The visit helped to clear up some myths as well. The directors had a perception that all sizes of mandarins were acceptable in Indonesia, but they found that the larger fruit size was preferred. This was information that the agents should have known and passed on to the growers, but it was not. It was also thought that Indonesia did not want Ellendale mandarins, but again, that was not totally true. They had also heard that Indonesia wanted 100 to 120 size lemons, but really they wanted 150s. So the visit was essential from the point of view of getting direct and accurate information about market requirements, apart from its purpose of establishing a proper supply chain to Indonesia.
Another thing the directors of Sunstate Orchards found was that Australia did not have a depth of experience in exporting to Asian countries. Exporting from Australia was a recent activity. The fact that Alan had 20 years experience in exporting was invaluable to the group.
PT was an offshoot of a large diversified company in Indonesia. It started business in 1992, concentrating its main business on fresh fruit imports along the following lines:
It used the north-south hemisphere seasonal production differences to maintain constant supply, and relied upon suppliers to keep schedules up-dated.
When they started, there were only 10 fresh fruit importers but, as the market grew, many more had opened or were due to open due to the freeing up of the fruit imports and the increased demand for fresh fruit.
At its peak, PT was bringing in 25 containers of fruit a month from Australia, but that had reduced and imports were now down to around 10 containers per month and sometimes as low as three per month. In contrast, PT had brought in 71 containers of fruit from the USA in April 1995.
The business was still in its development stage. It made money initially, but there had been a strong increase in competition, which had reduced the price of fruit. PT Import Export expected to outlast the competition and become profitable again soon. Many of the competitors only leased cool stores and did not have a long-term commitment to importing fruit. PT Import Export started its business by leasing cool stores but it always intended building its own facilities, and did so within two years. The lease was Rp. 4.5 million (A$2 800) per month. PT Import Export based the design of the cool store on the Hero supermarket chain experience to suit local conditions. The cost of a six room cool store was Rp. 500 million (A$3 15 000).
PT Import Export had wholesale distribution to Bali, Surabaya, Semarang, Bandung, and Palembang. It occasionally sold fruit to retailers such as the Hero and Gelael supermarket chains. However, PT Import Export had its own speciality fruit retailing chain. The shops were air conditioned and very clean and modern, fruit was stored at correct temperatures, and the overall 'feel' of the Emporiums was of an up-market Western food store. This type of store was not common in Jakarta.
Citrus from Sunstate Orchards was chosen for its quality and condition, but PT Import Export did import fruit from other Australian exporters. Labelling with country of origin such as 'Australian Valencia' was not important in itself but labels had to imply imported, regardless of the source of the fruit. Being imported added value to the product. Appearance was a key selection factor for citrus, along with price. For example, Pakistani oranges were low priced (US$6 per 10 kilograms) and they were quite sour, but they still sold well as imported oranges. One possible explanation was that they were bought as a display of wealth, not for eating. This was possible because the local oranges did not change colour on ripening, and remained green, so it was easy to distinguish imported fruit by colour alone.
The premium for imported fruit was also reflected in the mandarin prices. Imported Australian mandarins were selling for $9.00 a kilogram, while local varieties were available at $3.00 a kilogram in 1995.
Man remembered that there was a stark contrast between the abilities of other potential agents and PT Import Export.
Apart from owning cool stores and retail outlets, PT Import Export knew what temperature to hold the product at; they knew it was important to distribute quickly and effectively; they knew what they wanted for their own retail outlets and they knew what the supermarket chains such as Hero wanted. All this made a big impression on the group from Sunstate Orchards.
PT Import Export was also financially sound and of good repute. Their method of payment was 80 per cent of the value of the consignment on letter of credit and 20 per cent by cheque seven days after delivery. That was a very comforting way to do business with Indonesia, to have security of payment, Alan thought. Many people had lost a considerable amount of money trading citrus in Indonesia.
The critical factors for the Coop were:
That was the best long-term prospect for the Australian group. The Coop wanted to start with someone with whom they could build a long-term relationship. They also wanted to ensure that the product was presented in the best way and they wanted a company that could distribute to all the important sectors of the market in an efficient way.
If the requirements of the Sunstate Orchards group had been in any way different, they would not have chosen PT Import Export. If they had wanted to sell ten containers of mandarins the day they arrived, the group would have gone to someone else. However, agents operating in a 'frontier' sort of way would be the early casualties once the market matured. That would increase the risk of the relationship not lasting a long time.
The export trader merchants were looking for more immediate relationships and they were more flexible in their operations, but they were less stable financially.
Alan felt that the time taken to work out these issues was well worth it. If they were not worked out immediately, then at some time in the future a problem was sure to arise.
Another interesting aspect of the market visit was that the board members had previously conducted business overseas, and they had some difficulty and frustration adjusting to the culture of Indonesia. Even though they had been told about the differences, they had not fully absorbed the information that differences do exist. It was a lesson most people had to learn some way or other when they started trading in Asia, Alan thought.
All of the groundwork seemed to have paid off the shipments so far had not been large, but what was shipped, PT Import Export seemed happy about. And the Coop was certainly very satisfied by the way PT Import Export handled themselves.
But now that a relationship had been established, it had to be maintained. Alan and sometimes the chairman of the Coop would go up to Indonesia twice a year during the next couple of years, once before the season got under way and then again at the end of the season.
However, when exports reached 400 000 cases, the visits to service the market would increase to four times a year, and that would last for a few years. After that, Alan thought that any problems would be sorted out and it would only require two visits a year. Alan felt that it was more important to go back at the end of the season and accept responsibility for any problems, which had occurred rather than go up before the season and market the goods.
In addition to Alan going to Indonesia, the Coop had invited the person they dealt with directly in PT Import Export to come to Australia and visit the orchards and packing sheds. That person, while she spoke excellent English, had never been out of her country, so she would gain many benefits from the trip. This visit would be paid for by the Coop, and Alan thought it would be a strong 'relationship builder', and a very worthwhile investment in the business relationship.
And just how valuable the market is to the Coop and Sunstate Orchards was indicated by the relative prices for mandarins in Australia and Indonesia. In 1995, the Coop would sell quality mandarins into Indonesia for greater than $30 a carton. The same fruit on the Australian market would only get, maybe, $14 to $15, even for Australian preferred varieties. Given that this year 30 000 to 40 000 cartons of mandarins would be sold into Indonesia, next year more than 100 000 cartons, and by the end of the decade 400 000 cartons, it was a very valuable market.
However, it is unlikely that the price differential would remain so large. Alan believed that as more people got into the market, the price would come back. But Indonesia was still likely to be a more viable market than the Australian domestic market.
Another aspect of establishing the mandarin market in Indonesia was that it paved the way for the export of other fruits handled by the Coop. For example, the Coop had sold a small quantity of avocados to Indonesia, by virtue of the relationship established through the mandarins. If it had not been for the relationship established with the distributor, it would not have been worthwhile doing the groundwork needed to sell avocados into Indonesia.
Alan thought about how critical it was to build and maintain the relationship with PT Import Export. There was a small group of people involved in international trade and they knew all the significant players in the business. International trade was based on integrity and on confidence and trust in each other. That trust came about through sharing goals and knowing about each other's business. And that was such a contrast to the exporters, who chased the deal rather than the relationship.
Another thought Alan had as he approached Nambour was that in this business of exporting fruit and vegetables, Australia was not a major player, nor would it ever be. He had recently read some figures, which put Australia's position into perspective, not in relation to Indonesia but in relation to India. India produced about 100 million tonnes of fruit and vegetables annually, and it lost 30 million tonnes a year through wastage. Australia's total production of fruit and vegetables in 1994 was six million tonnes. Alan mused on the fact that a lot of Australians did not have a world perspective and did not realise how small a player we are.
As Alan neared the office in Nambour, he contemplated the future. There were two significant issues, which came to mind.
One was managing the crop in Australia. Most people assume that Australians know how to grow citrus crops. That is true, but the Coop was promising a first class product on a regular basis. This year at the orchard, a new spraying compound had been used, based on its usage in South Africa. However, it had caused a black spot on the skin of the mandarins, which effectively downgraded the fruit to second grade.
The other issue was maintaining the orderly supply of mandarins during the next few years. In 1995, Sunstate Orchards had a request from Indonesia to supply 26 containers of citrus, but they were only able to supply 10 containers. This left the Coop open to having the Indonesians go elsewhere to fill their orders. Would the relationship be strong enough to prevent this from happening and what damage would be incurred by not being able to supply the volumes required?