The days of quality Marlborough sauvignon blanc being available for less than $10 a bottle are ending as this year's disastrous grape harvest starts to push wine prices higher.

This year's sauvignon blanc harvest was down 19 per cent on last year's, and total production of all varieties in Marlborough, the country's main wine region, was down 23 per cent.

There are signs that this year's much smaller vintage is already starting to lift wine export prices from recent lows.

In April, the average export price of wine rose to $7.15 per litre (from $6.50 per litre in March) and in May it increased again to $7.29 per litre. Over the same period last year export prices were in steady decline, bottoming out at $4.95 per litre in September (refer graph, below).

The increase is most likely due to a decline in low margin bulk wine sales, which are often made to overseas retailers who sell the wine under their own house brands.

"A lot of wineries sold their excess [wine from previous high vintages] in bulk and that will be the first thing to go dry," said Richard Knight, the director of major online wine retailer Blackmarket.co.nz.

With less wine from the 2012 vintage to sell, wineries will put more emphasis on selling under their own labels, which usually provides a higher profit margin.

Knight is expecting that to start filtering through to higher retail prices in this country as the 2012 vintage starts hitting shelves over the next couple of months – and that is likely to mean an end to the sub-$10 bargains.

"My feeling is that we will see a price increase of about 10 per cent, but not immediately as there are still stocks of 2011 and even 2010 [wine] and there will still be some wineries with stock they haven't moved," he said.

He expected the price benchmark for a high quality savvy, which Blackmarket may previously have sold on special for $8.99, to move to $9.99.

Out in the vineyards and wineries, this year's miserly vintage had brought mixed blessings, according to Peter Yealands of Yealands Estate, one of the largest Marlborough wine producers.

Some growers who did not have supply contracts in place had been able to sell their grapes on the spot market at prices up to 60 per cent higher than the prevailing contract price, Yealands said.

However, they would probably be the exceptions. Most growers were locked into supply contracts at very low prices for up to three years.

Many growers were already under financial pressure at those prices, and because growing grapes was mainly a fixed-cost business, a 20 per cent drop in production would go straight to their bottom line.

That could prove disastrous for growers who were already in a marginal situation.

Fortunately the prospect of rising prices had revived the market for vineyards, meaning those growers who were being forced out of the industry were at least more likely to find a buyer.

"Six months ago there was no market for vineyards and no sales to speak of," Yealands said.

But rising grape prices meant investors were again showing interest, and the rise in prices was likely to be sustained.

Bud initiation on the vines suggested next year's vintage would probably be of similar size to this year's, Yealands said.

However, that assumed favourable weather. If the industry experienced similarly poor growing conditions to those which led to this year's poor harvest, next year's could be even worse, which would be harmful to the industry, he said.

Although consumers face higher prices, they can take solace from the fact the quality of this year's vintage is expected to be superb.

- © Fairfax NZ News