New Zealand: Wine about to get more expensive as glut runs out

By Owen Hembry December 13, 2011
NZ Herald
The price of wine is set to rise as the balance between supply and demand tightens, according to a strategic review of the billion-dollar export industry.

The national grape harvest soared to 285,000 tonnes in 2008, creating an oversupply which helped erode grape and land prices, before decreasing to 266,000 tonnes in 2010 and rising again to 328,000 tonnes this year.

New Zealand Winegrowers this year said it was comfortable with the size of the last vintage, with strong sales and a larger harvest needed to rebuild inventory.

A report by PricewaterhouseCoopers said analysis of prices and shares showed the industry's premium offer had largely survived intact from the period of oversupply, even while lower-priced segments grew strongly.

The national export value of wine was $1.1 billion in the year ended June.

The volume of packaged exports increased by 53 per cent between 2007-2011, with the average price per litre falling from $9.30 to $8.70 - although it would have been unchanged when adjusting for a stronger currency, the report said.

The outlook was for the balance between supply and demand of wine to tighten, which should lead to higher prices, it said.

The sales potential for wine by 2021 could grow by 170 million litres to reach nearly 400 million litres if unconstrained by supply.

Negligible recent vine planting meant supply could soon reach 260 million litres, while winery capacity had a workable ceiling of about 250 million litres, it said.
New Zealand Winegrowers chief executive Philip Gregan said the report provided a positive view of market opportunities.

If the numbers in the report were accepted there would be some need for new vineyards coming on stream around the middle of the decade but they needed to be carefully thought through, Gregan said. "I think that when you look at the numbers in the report the days are starting to be numbered for those cut price deals, as it were, on New Zealand wine. We've seen great deals on New Zealand wine and that was consequent on the supply-demand imbalance out of 2008/2009."

There was still wine being sold at a marginal return, he said. "That comes through from a lack of profitability in the industry at the moment so those pressures are still there ... the difference between now and 2008 [when] the industry produced far more than it sold [is] that is not the case this year and on the numbers from [PricewaterhouseCoopers] they do not see that as the case going forward."

The outlook for higher wine prices was likely to be slow to boost growers' returns due to both their weaker negotiating position and the impact of unviable growers leaving the industry, the report said.

Ten new or extended activities were recommended to protect the competitive advantage of the industry or support profitable growth, including the development of a vineyard registry, increased resourcing for social responsibility initiatives and reprioritising marketing expenditure.

New Zealand Winegrowers chairman Stuart Smith said members would see big changes as a result of the review.