Wine prices forced down by surplus

BY RACHEL YOUNG AND FAIRFAX
Last updated 12:00 19/08/2009

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Marlborough's sauvignon blanc surplus has driven down New Zealand wine prices, but it could have been a whole lot worse, according to New Zealand Winegrowers.

Wineries and growers worked together to keep wine production levels the same as 2008, which was a big achievement, given that 2000 hectares of vineyard land came into production last year, New Zealand Winegrowers chairman Stuart Smith said.

Production levels could have spiked at 400,000 tonnes, but the vintage came in at 285,000 tonnes, he said.

However, this achievement was not without pain, he said. Wineries and vineyards both faced lower profits this year. Some wineries have cancelled or changed growers' contracts, and some vineyards have been pulled out, he said.

"For many in the industry, the going was tough this past year, and it may well get tougher," Mr Smith said.

New Zealand Winegrowers' annual report released yesterday shows exports surged 24 per cent to $992 million and the industry is on track to reach the $1 billion mark this year, a year ahead of expectations.

This was largely driven by bulk exports, which Mr Smith said were a concern to the industry.

Historically, bulk wine exports have accounted for less than 5 per cent of total export volume; in the past year this quadrupled to nearly 20 per cent as producers looked to shift excess inventories.

Exports across the Tasman jumped 51 per cent to $323.3m.

Bulk exports might relieve pressure on wineries in the short term, but in the long term they could damage the market positioning and the reputation of New Zealand wine, Mr Smith warned.

"Without doubt, the situation was exacerbated by the global recession. As a result, lower profits are the reality for many in the industry this year."

He said managing the supply-demand balance was fundamental, and he was confident the New Zealand wine industry had a bright, secure long-term future.

Citi Investments research analyst Andy Bowley said bulk Kiwi wine exports were driving down prices for Australian wine producers, while the New Zealand dollar, hovering about A81 cents, continued to drive demand for New Zealand wine.

Exports to Britain were up 22 per cent to $267.9m and exports to the United States rose 18 per cent to $223.6m. Sauvignon blanc made up 81 per cent of the 113 million litres exported. Marlborough sauvignon blanc accounted for 57 per cent of the 2009 vintage. Demand for pinot gris was up 62 per cent.

Meanwhile, chardonnay exports fell 13 per cent and riesling was down 22 per cent. While pinot noir production fell 16 per cent, exports of the variety rose 8 per cent.

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Too much sauvignon?

A surplus of Marlborough sauvignon blanc is driving down wine prices, says a Nelson wine producer.

Brightwater Vineyards' owner, Gary Neale, says his company is up against an oversupply of discounted Marlborough sauvignon blanc exports.

Mr Neale sells his wine for 10.50 (NZ$25.80) in Britain, but British consumers are being offered three bottles of Marlborough sauvignon blanc for 10 , or 3.99 for one bottle.

An email from his Sydney agent tells of New Zealand wine being sold at A$4 a bottle, and Marlborough sauvignon blanc is selling there for as little as A$2.75 when buying six bottles.

"In the past, Australia has been a very easy and a profitable market, but Australia is absolutely flooded with cheap Marlborough sauvignon blanc," says Mr Neale.

Their Sydney agent was disappointed to hear that with the 2009 vintage, there would still be a surplus of Marlborough sauvignon blanc.

"He thought when 2008 was sold through, it would be the end of the problem. I had to tell him there is another surplus from 2009, but it is not as big," he says.

Their American agent also hopes that there will be less Marlborough sauvignon blanc.

"There are two ways of looking at it," Mr Neale said. "Marlborough sauvignon blanc has been expensive and hard to source in some countries. By the price being reduced, it opens the doors to more consumers to try the wine and hopefully if they like it, they will continue to buy it, and even when the price goes up they will become good customers for that wine.

"However, if you keep oversupplying the market, then the prices will not go up."

He believes Marlborough is the source and the cure of the problem, and expects some growers will be casualties of the oversupply.

 

- The Marlborough Express

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