Wine sector must 'rebalance and recover'

The wine industry has been told that output must be cut. Photo / Kenny Rodger

Falling profitability is the most significant challenge facing grape-growers and wineries, says New Zealand Winegrowers chairman Stuart Smith.

"Times are tough in the industry," he said yesterday in the organisation's annual report.

For the next two years the industry's focus must remain on "rebalancing and recovery", he continued.

"From there, future growth must target enhanced value ahead of production capacity."

Smith said the path forward was clear "and is very much in the hands of growers and wineries".

Wine exports grew 5 per cent over the past year to a value of $1.04 billion.

Smith said a critically important step in rebalancing the sector was a cut of 7 per cent in the volume of the latest grape vintage to 266,000 tonnes, though at the same time the average value of wine exported in a bottle dropped 11 per cent to $8.70 a litre.

"The smaller 2010 vintage was a vital step forward in addressing this issue as it will lead to an improved supply demand balance for the sector, a vital pre-condition for profitability to begin to flow into individual grape and wine businesses," Mr Smith said.

Other positives from the past year included pinot noir exports reaching $100 million for the first time, strong export growth into Asian markets, and packaged wine exports lifted 14 per cent.

Mr Smith said while the progress of the past year was very pleasing, it was not enough to guarantee the future: "We must be very focused if we are to continue the progress of the past year," he said.

"As long as every step along the path continues to be guided by an unswerving commitment to quality, the industry can look to the future with confidence."

Growers and wineries would welcome the smaller vintage because it would help in the rebalancing and recovery of the sector over the next year or so, he said. The vintage represented a step forward in the response to market challenges. A bumper 2009 harvest of 285,000 tonnes and a similar crop in 2008 left the industry with an oversupply of wine as the international economic crisis hit.

The Commerce Commission this year wrote to Winegrowers offering an amnesty for growers who admitted to colluding over grape prices and harvest yields, after it received complaints about the way the group advised members to restrict harvests to meet 2010 production targets.

The commission told Winegrowers that it went beyond reasonable bounds by telling its members to limit the amount of grapes they harvested.

The commission said advice to growers had become progressively more prescriptive in recent years and that recently eight tonnes a hectare was proposed as an overall target, with growers asked to reduce their output to previous levels.

At the time, Mr Smith said the organisation only advised growers of ways to help the industry: it was allowed to recommend prices and volume because it was a professional association with more than 50 members.

- NZPA