Aussies drowning in NZ wine

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New Zealand's "wine lake" is hammering Australia's wine industry, driving down prices and grabbing more of the market as Australians swallow more Kiwi sauvignon blanc, according to a broker's report.

Citi Investments Research analyst Andy Bowler says Kiwi wine volumes landing on Australia's shores are pushing down prices for Aussie wine producers.

New Zealand's wines, particularly sauvignon blanc, were "rapidly gaining share of mouth" in key Australian markets, Mr Bowler said.

The low Kiwi dollar, just under A80c, had also stoked continuing demand for Kiwi wines, and Australian domestic producers could lose even more market share as a result.

The price of a New Zealand-branded bottle of wine had fallen by an average A$2 following the 2008 harvest but had partly recovered, he said.

There has also been a boom in bulk wine exports to Australia, which Mr Bowler said was a sign of New Zealand producers trying to get rid of an oversupply a "wine lake".

Australian consumption of New Zealand wine increased from just under 4 per cent in 2007 to 5.3 per cent last year. On the other hand, New Zealanders are drinking much less from across the ditch, down from 40 per cent in 2007 market share to 26 per cent last year.

Mr Bowley said New Zealand's oversupply of wine had created a new set of challenges for major Australian wine industry participants, including Foster's Group and Lion Nathan. Both big players have brands on both sides of the Tasman.

But he estimated the two companies' wine production accounted for less than 0.5 per cent of company profits respectively, which he considered immaterial amounts.

New Zealand's wine industry had enjoyed rapid expansion in the past decade, he said. Like Australia's boom during the 1990s, strong export demand had driven an aggressive supply response. But supply growth had now outpaced demand as high crop yields coincided with the global consumer downturn, Mr Bowley said.

He predicted yields would revert soon to historical averages and the supply and demand equation would improve. During the interim, however, Australian wine producers "face headwinds from surging New Zealand bulk wine exports and pricing pressure".

"Bulk wine had been the key driver of New Zealand's export growth in the past year, accounting for more than 20 per cent share of total export volumes, up from 6 per cent a year ago but still tiny when compared to bulk exports out of Australia," he said.

Unlike New Zealand, Australia's wine glut had been driven by irrational investment on the back of generous government tax and other incentives.