Bumper harvest gives wine industry hangover

A bumper year for the country's grape growers could be great news for wine buyers, but not vineyards. Good growing conditions mean that this year's harvest might exceed 300,000 tonnes, raising the possibility of another wine glut and a tough year for wineries.

Oversupply has threatened to damage the value of New Zealand wines in key export markets since a bumper harvest in 2008. Grape prices subsequently slumped and, with them, profits.

Now, Vintage 2010, a state-of-the industry report by Deloittes and New Zealand Winegrowers, warns that although last year's reduced vintage went some way to alleviating problems caused by previous bumper harvests, the 2011 harvest could exceed 300,000 tonnes, adding to the industry's woes.

That warning is backed up by the producers of Oyster Bay wines, Delegat's, who said the wine surplus would continue to cause headaches for the next two years.

Speaking at the company's annual meeting, managing director Jim Delegat warned that a recovery was still some way off, vineyards would continue to lose value and grape prices were unlikely to rise in the near future.

"The 2010 harvest was a lower yield of 266,000 tonnes, but the industry supply imbalance is likely to prevail for another two years."He said "low-price private label wines" now accounted for five of the top 10 best-selling New Zealand wines in the industry's largest export market, the UK.

Paul Munro, of Deloittes, said that unless supply was matched to demand, New Zealand wine prices would fall in key markets. "That might result in a rapid undermining of the industry's premium positioning, which has taken many years to build," he said.

The current ability to price wine at premium prices had a crucial flow-on for grape growers and domestic companies which serviced the industry. Munro said declining revenues had been matched by cost reductions, but profitability was down. The smallest wineries (revenue of under $1 million) were suffering the most, and in some instances losing $50 a case.

Dozens of small vineyards are for sale around the country as falling profitability forces some owners out of the industry. Close to 100 grape properties are listed on the www.nzfarms.co.nz website, including two Marlborough vineyards - the 9ha Stoney Range and the 13ha Sandy Creek - offered in mortgagee sales. Deloittes said it it had noted many insolvencies throughout the country.

"In Central Otago and Marlborough there are large numbers of operations on the market," the report said. "There is clear uncertainty on behalf of investors and bankers of the level of financial viability in the industry."