Wine sector shooting itself in the foot - MAF

Some wine companies are exporting the nation's premier Marlborough sauvignon blanc in bulk to clear large wine stocks, the Ministry of Agriculture and Forestry says.

"Continuing down this path may affect the longterm future of the industry," said MAF economists.

Vines may have to be mothballed or pulled in the next couple of years, they predicted.

The success of the flagship "brand" of Marlborough sauvignon blanc has triggered a dramatic rise in vineyard development.

The marked increase in the proportion of wine exported in bulk is lowering overall demand for New Zealand's bottled wine, they warned in the annual Situation and Outlook for New Zealand Agriculture and Forestry (Sonzaf).

The report released in Wellington showed some agricultural sectors -- meat and forestry -- will see steady increases in returns over the coming few years to 2013, but that dairy earnings will level out for a while then improve without returning to the record levels of 2008.

MAF warned that while a relatively weak NZ dollar exchange rate had helped prop up export prices -- an average of $9/litre in 2009 and the previous couple of years -- it will slump to $7.90 in 2010, creeping up to $8/litre (2011) $8.20 (2012) and $8.50 (2013) according to the ministry's projections.

MAF said Marlborough sauvignon blanc continued to dominate, with the recent growth in plantings of new sauvignon blanc vines described as "the most sustained and significant horticultural land development in New Zealand history".

But the volume of wine exported in bulk, rather than bottled locally, was a "concerning feature" of the 2008 vintage, jumping from 4 percent in recent years to a record 30 percent in May this year.

"This risks damaging the value of the premium Marlborough sauvignon blanc brand," said MAF director-general Murray Sherwin. It was lowering overall demand for New Zealand bottled wine as consumers chose the cheaper wine option.

New Zealand exported a total 105 million litres worth $845m in the year to March 31, and this was projected to rise to 120m litres for $948m in 2010, and 125m litres worth $1 billion in 2012, rising to 140m litres worth $1.19b in 2013.

"Although export value is trending upwards to $1 billion, free on board returns per litre on a month-by-month basis are declining," said the MAF analysts.

The present productive vineyard area of 30,000 hectares would theoretically rise to 35,000ha by 2012 -- based on vines already in the ground -- but "given recent deterioration in market conditions, a mothballing or removal of some plantings is likely over the next two to three years".

Most of the recent growth in plantings and production was due mainly to Marlborough sauvignon blanc -- the cultivar makes up more than 80 percent of wine exported, and total exports of the variety are up 35 percent on last year.

"Remarkable" growth meant the Australian market now accounts for 35 percent of total NZ wine exports, compared with just 14 percent of exports 10 years ago.


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Its kiwi fruit again

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Surely someone in their Department knows that as supply goes up, there is resulting pressure on prices.
Thus, exporting in a more cost effective way becomes essential, or you do get into vine pulling mode. Bulk wine is far far lower in freight cost than bottled. At best you get 10,000 litres bottled into a 20 ft container, you get 24,000 litres in bulk.
The bottles in UK are less expensive than here, and you are not paying to ship a lot of air and cardboard, which does not generate any profit for the grower anyway.

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Jeepers Hugh you know everything

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Hugh's analysis is essentially correct. Moving glass and cardboard around is a waste of money and resources.

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Once a region is known for lower Bulk prices, the pressure is on to maintain thosse lower prices.
$9.95 Savvy bottles was an impossible price in Australia 4 years ago, but now sub 10.00 bottle MSB is a standard price.
Offers as high as 6.40 litre for bulk were on our books in o5, but as low as 2.00 litre in 2008/9. The SB price will have to settle in the mid range
and projections of over 5.00/l will be difficult in coming years.
Exchange rates aside, Marlborough is now pary of a global bulk supply market. Good news is the world still likes MarlboroughS.B.

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One of the less attractive characteristics of kiwis is their willingness to destroy their own business, rather than spend 10 cents to invest.
This trait is coming out in sharp profile during this recession.

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Why not send the surpluses to markets where the existing goodwill is not destroyed?

Once people taste the product - the market demand will increase - - and the supply X demand = prices will improve.

No point in destroying value in mature markets.

Use the suplus as a business development tool.

== Wine Institue will need to lead this.

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There are a couple of fundamental things wrong with the MAF analysis. The value of "Brand Marlborough" is a lot less than you might want to think. Outside of the wine press, which is also a lot less important than one might suppose, there is no such thing as "Brand Marlborough". Most consumers think Marlborough is a brand of American cigarettes, not a wine region. At best, foreign consumers view "New Zealand" wine as a good value _for the price_. They will remain extremely price sensitive and flee to other wines if a manufactured shortage (ripping out vines) is used to jack up the price. That isn't going to change any time soon.
In addition, nothing's intrinsically wrong with shipping in bulk and bottling in closer to the point of sale. Glass = weight = money.
Looks like the MAF needs someone who actually knows something about the international wine industry. Kiwis would be well advised to take their "advice" with a grain of, nay a salt-lick's worth of, salt.

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All great wine producing countries from France to California have both successfull bulk and boutique wine industries. They are totally different sets of consumers and one does not negatively impact the other.

The New Zealand wine industry needs to move on to the next chapter and celebrate its diversity of regions, people, wines and everything else they craft a story from. And, say thank you to the scavengers who are making the excess disappear.

Time for a new playbook.

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