Wine industry mulls supply cut

BY PETER WATSON AND AGENCIES

Economics, rather than industry edicts, will eventually cure oversupply problems savaging the wine industry, says Neudorf Vineyards co-owner Tim Finn.

Mr Finn, part of a five-man leaders panel who spoke at the Romeo Bragato wine conference in Blenheim last week, said winegrowers could not be forced to restrict or cut production, even if it was in the best interests of the industry.

Dog Point owner Ivan Sutherland had earlier told the forum that 15 per cent of vines should be pulled out, especially those outside optimal growing areas.

He urged wineries to stop focusing on increased production and return to an artisan approach.

Mr Sutherland said vineyards had to stick to varieties that worked well and not try to be everything for everyone. "We have to face the fact that when times were good, there were a lot of speculative plantings, and some of them were out of sheer romance."

The milestone of $1 billion of wine exports surpassed by Kiwi wineries this year was tainted by 20 to 30 per cent bulk wine of questionable profitability, he said.

"Isn't it better to be in an undersupply situation? It would help get better price points, pay growers better and make companies more profitable," Mr Sutherland said.

However, Constellation New Zealand chief executive Joe Stanton said talk was easy. "Who's going to pull the first vines? Me or the other bloke? That's the question everyone is asking. A 10 per cent reduction in vineyard area would most definitely help, but it probably won't happen unless we get government support."

He could not see that happening, he said. Wine companies and growers had to come to an agreement, so that both operations were sustainable.

Growers had told Constellation they needed between $17,000 and $20,000 a hectare to operate comfortably, he said.

"That's a long way from being achieved.

"We have to find some way to bridge that gap."

New Zealand Winegrowers Association deputy chairman Steven Green, who owns Carrick Wines, of Central Otago, said oversupply was a problem all over New Zealand and was not limited to Marlborough sauvignon blanc.

Carrick had been pressured to lower its prices by distributors, but had refused because the brand was too valuable "to be trashed overnight".

There seemed to be an expectation things would come right by themselves, Mr Green said, but they wouldn't. "We can't just sit back and wait for two years, three years or four years. We've got to change and adapt now."

Mr Finn told the Nelson Mail the industry could pressure and recommend to growers to pull out hundreds of hectares of vines, "but will anyone listen".

"If vines come out, it will be because it's no longer viable to have them in or they are producing poor fruit, and that's no bad thing from time to time to have the broom sweeping clean."

There was no other way for the industry to rebalance than for it to occur naturally, he said. "You see it at the moment in Nelson, with some vines coming out and some grapes not being picked. Some people haven't had markets for their grapes for a couple of years and they're not going to keep on putting money into it."

The industry included people in it for a mix of motives, ranging from those who concentrated on quality above all else to those in it just to make money, he said.

Those companies making a profit by supplying the bulk market with low-cost, ordinary wine could not be stopped from planting more vines, even though it might have a "deleterious effect on the Marlborough sauvignon blanc and New Zealand brands".

British supermarket chains now had their own low-price sauvignon blanc brands, which were competing with Kiwi wineries, "and they are not going to go away".

"The bastardisation of the New Zealand sauvignon brand" was here to say.

Creating new brands, such as for the recently agreed one on sustainable production, where growers had to reach certain quality standards might help, but market supply and demand would have the final say, Mr Finn said.

Neudorf's strategy for staying afloat when one of its major markets, high-end restaurants in Britain, was ravaged by the recession was to find new markets, replace any non-performing distributors and use more top-quality grapes in its entry-level wines to reduce its stock.

While it had required more travelling, the plan was working and Neudorf was now selling wine in rejuvenated and new markets in the United States, Spain, Australia, Hong Kong, Singapore and China, he said.

New Zealand Winegrowers chairman Stuart Smith told the conference the Government's excise tax was the single biggest threat to profitability, with the Government collecting the equivalent of $15,700 a hectare in excise, while the annual income of a grapegrower in 2010 was estimated at only $10,400 a hectare.

Mr Smith called on the Government to review the excise tax, but Minister of Agriculture David Carter said producers should not get their hopes up.

Mr Smith has told the industry the only way it could cope with falling profitability was by constraining its supply.

New Zealand Winegrowers recently released figures which showed that although wine exports grew by more than a quarter in volume during the year to June, earnings rose only 5 per cent on the same period.

The average price of bottled export wine fell 11 per cent to $8.70 a litre, with the average grape price falling to $1200 a tonne, compared with $1600 a tonne the year before, and nearly $2200 in 2008. Bulk wine now made up a quarter of wine exports and its price had fallen 17 per cent to $7.33 a litre.

- © Fairfax NZ News