Competition cuts back on the cheers

Wine sales are hitting record highs, but winemakers' profits are shrinking because of the high dollar and tough domestic competition, New Zealand Winegrowers chief executive says.

Philip Gregan said the huge increase in the number of wineries had driven down wine prices domestically as 400 wineries started up in the past 15 years.

That brings the total of wineries to about 500.

"The domestic market is competitive, if not the most competitive it has ever been," said Gregan.

At the same time, Australian winemakers were aggressively targeting Kiwi drinkers.

Gregan said some wineries might not survive the price wars, but stopped short of saying the domestic market could not sustain more winemakers.

The dollar's rise to a 20-year high also meant winemakers were facing "slashed export profitability".

Meanwhile, international demand for New Zealand sauvignon blanc continues to exceed supply with many "leading exporters" starting to experience shortages.

The country's global wine sales, including the domestic market, exceeded a record 100 million litres for the year to September, up nearly 40 per cent on last year.

Export production, worth about $460 million, has more than doubled in the past two years to 56 million litres for the first nine months of 2005.