Harvest cut to preserve niche wine market

The New Zealand wine industry is working to preserve its premium positioning overseas by trimming back this year's harvest to promote better quality grapes.

For the same reason, it has also been vigorously clearing out leftover stock from last year's bumper harvest in the form of heavily discounted bulk wine. For some of the smaller wineries, it has been a cashflow issue at a time when credit can be hard to come by.

Goldman Sachs JB Were analyst Adrian Allbon estimates export volumes to Britain in January and February jumped 53.4 percent by volume as underlying pricing fell 30.7 percent. Even more dramatic, volumes to Australia jumped 77.9 percent, while underlying pricing fell 55.7 percent.

New Zealand Winegrowers chief executive Philip Gregan says current expectations are for the 2009 harvest to be about 275,000 tonnes, down from 285,000 last year.

The 2008 harvest was 39 percent up on the previous year, "considerably more than the industry had expected", he says.

Late last year, when it looked like this year would see another bumper harvest at a time when wine makers still had excess stock left over from last year, growers began trimming back their vines to decrease volumes and enhance quality.

Gregan says despite the smaller harvest the industry is expecting to hit the $1 billion annual exports figure by about mid-year, ahead of original projections of 2010.

Analysts say the industry is adopting the right strategy.

"It's all good news," says one, adding that reducing stock levels means less working capital investment.

"What they're doing is quite shrewd," says another analyst.

"It reflects an industry-wide effort to recognise we are a niche producer of high quality wines."