NZ wine surplus spells king-size hangover for Australia

There is now a 70 million-litre gap between New Zealand's production and total sales, according to data from New Zealand Winegrowers.

New Zealand's wine surplus, swelled by consecutive record vintages, may threaten Australian makers by driving down prices and gaining market share.

As Australian producers deal with their own glut after more than a decade of "irrational investment", cheaper New Zealand wine will put further pressure on companies such as Melbourne's Foster's, says Citigroup.

There is now a 70 million-litre gap between New Zealand's production and total sales, according to data from New Zealand Winegrowers, an industry association representing 1200 winemakers and grape growers.

"New Zealand's wine lake is yet another hangover for Australian producers," Citigroup analysts led by Andy Bowley, of Wellington, reported. "New Zealand wine is gaining share in key export markets including Australia at the expense of domestic Australian producers."

Australian prices have fallen 7.8 per cent since 2003 after three record crops, according to government data.

Citigroup says New Zealand's record output contributed to lower global prices. New Zealand wine exports rose an annual average of 27 per cent in the same period, triple the pace of its other exports, according to the Institute of Economic Research.

"Oversupply combined with a weaker New Zealand dollar and growing consumer demand for sauvignon blanc have driven a surge," Bowley wrote.

"Pricing will likely remain under pressure until excess industry inventories are cleared."

- BLOOMBERG