Toughest year in 20 cuts price of wine

Wine exports are up 5 per cent in the June year, topping $1 billion for the first time, but exporters are getting much less for each litre of wine in what New Zealand Winegrowers calls the toughest year in more than two decades.

The biggest challenge for growers and wineries was falling profitability, Winegrowers chairman Stuart Smith says in the Winegrowers annual report.

The average sale price of bottle wine exports fell more than 10 per cent, back to levels last seen four years ago, and financial pressures on growers and wineries have never been more intense.

Ultra-competitive markets, overstocked inventories, exchange rate moves, excise tax increases and rising costs had combined to drain profitability from the sector. Growers had been deeply affected by the fall in grape prices and in some cases prices had reached unsustainable lows.

Oversupply and the global financial crisis had "tipped the scales" against the sector in recent years, Mr Smith said.

New Zealand wine industry and insolvency experts believe dozens of small to medium-sized wineries could soon fall into receivership after the boom on the back of the country's popular sauvignon blanc variety begins to splutter.

Awatere Vineyard Holdings and Awatere Vineyard Estates, a contract grower in the Marlborough region, recently failed, owing creditors more than $24 million.

Andrew Grenfell, partner at administrator McGrathNicol, said the New Zealand industry was going through difficult times, with many wineries heavily in debt against a backdrop of oversupply of bulk wine and plunging prices.

"I think that the industry has a fair bit of suffering to go through in the near future to get to an equilibrium," he said.

"A lot of the vineyards were developed from 2005 to 2007 when grape prices were going north and to some extent that's how they were geared, and going from a price of $2300 a tonne for sauvignon blanc two years ago to back down to $1300 a tonne has had a serious impact on the business," Mr Grenfell said.

A recent Deloitte's report showed small wineries with sales of $1m to $5m averaged a loss of nearly 7 per cent before tax this year. Bigger wineries had a better year, with profits of 7 per cent to 17.5 per cent. Deloitte noted the debt-to-equity ratio at wineries with yearly revenue of between $m and $5m increased to 133 per cent last year from 84 per cent in 2008.

But Mr Smith says the well-managed high quality vintage this year was a step in bringing production into line with demand.

New Zealand wine exports jumped 26 per cent in volume to 142 million litres, with bottle sales up 13 per cent.

But the value of sales grew only 5 per cent because of the high New Zealand dollar, the global recession, and lower prices in foreign markets.

Including bulk wine, the average value slumped 17 per cent to $7.33 a litre, the annual report shows.

- © Fairfax NZ News