New Zealand wine production having a Goldilocks year, says Rabobank report

Keeping stocks within a manageable range is a perennial challenge for wine producers worldwide and continues to be one of the greatest challenges confronting NZ's wine industry.

Production volumes of New Zealand wine grapes this year are expected to be significantly higher than in 2015, although within a manageable range, Rabobank's latest quarterly wine report says.

"It looks as if the volume of the 2016 vintage will be just right – it won't be too big, yet it also won't be too small for most companies entering the year with stocks erring on the tight side," report co-author and wine analyst Marc Soccio says.

Keeping stocks within a manageable range is a perennial challenge for wine producers worldwide and continues to be one of the greatest challenges confronting New Zealand's wine industry where the potential for large vintage variations – both in terms of quality and quantity – is considerable owing to the country's cool climate, he says.

The 2016 harvest is well under way in New Zealand and early expectations are for a larger harvest than the short 2015 crop but not as large as the record 2014 crop. A quality crop of this size will help fuel growing export markets while not placing undue pressure on pricing and profitability, he says. The 2015 vintage was 326,000 tonnes, down 27% on 2014.

On a global basis, the lower end of the market – generic and basic wines – continue to face over-supply while stocks of super-premium wines remain a bit tighter in many regions, the report says.

Mr Soccio says indications point to a lighter crop for the 2016 global vintage as Chile, Argentina, and South Africa face significant production falls.

On the demand side, the New Zealand industry has just posted another strong year of export growth in 2015 and Mr Soccio expects that demand to continue this year with the country's cool climate wine styles and premium positioning still in favour in most major export markets. New Zealand wine exports rose 7% to $1.42 billion in 2015.

"There is little evidence of this trend reversing any time soon. In fact, the growing role women and younger generations play when it comes to buying decisions only seems likely to support it further," he said.

While the industry's outlook is generally positive, it's concerning that the "apparent upside" is becoming increasingly concentrated in the hands of the country's largest producers as smaller wine companies struggle to keep pace, Mr Soccio says.

"One of the key factors favouring New Zealand's larger producers is their ability to source suitable distribution in key growth markets and channels," he said. "This is especially significant given the US, where distribution is so key to success, edged out the UK as New Zealand's largest export market in 2015."

Consolidation within the US market has left little room on distributors' lists for the multitude of brands that export there and even some of New Zealand's larger independent wine companies are struggling to find effective distribution to keep pace with those New Zealand brands owned and handled by the big US-based companies, he says.

"As New Zealand wines move further into the off-premise channel, scale becomes an increasingly important factor to attract distribution and drive the sort of cost efficiencies needed to invest behind your brands in the market."

As Marlborough sauvignon blanc grape prices look set to tighten again in the 2016 vintage, the structure of a brand owner's supply chain becomes a more important asset. Owning vineyards to contribute a greater proportion of a brand owner's own grape supply needs is delivering significant production cost savings, he says.