Rural delivery: Cheers to foreign wine investment

By PAUL TUDOR

Iam proud of the great strides the wine industry has taken over the 15 or so years I have been passionate about wine, but there are many reasons for attracting overseas investment to the industry.

Foreign investment in our economy may be at its lowest level in three years, but overseas interest in making wine here is soaring.

Despite the general downturn in mergers and takeovers, two of our biggest wine deals occurred last year: the purchase by Foster's of a half share of Matua Valley for $11.2 million (with an option to buy the rest) and Allied Domecq's $1.13 billion takeover of Montana Wines.

Without those deals, last year still set a record for overseas investment in vineyards and wineries, with the Overseas Investment Commission (OIC) approving 41 applications worth $64 million and covering 1541ha.

In 2000, 37 approvals covered 1375ha of vineyard and winery land, valued at $46 million. To this must be added BRL Hardy's acquisition of the 60 per cent of Nobilo Wines it did not already own (for around $30 million) and Lion Nathan's shareholding in Montana increasing to 28.2 per cent.

By contrast, 1999 was relatively quiet: 20 applications covering just 559ha, for $11.4 million.

Most supporters of foreign investment tend to focus on one resource: capital.

Since taking over Nobilo, BRL has purchased another 407ha - a large chunk of it in the form of established vineyards - and pumped an extra $25 million into the economy. Proving it is adaptable, Nobilo has even got into a joint venture with one Marlborough grape grower.

Allied Domecq has been more circumspect since gaining control of Montana. So far, the biggest beneficiaries are the Montana shareholders who bravely hung on until the bitter end of the battle to gain a bonus payout.

The takeover resulted in a net capital inflow of $680 million to New Zealand - how much of this will be reinvested in the local wine industry?

Overseas parents such as Allied Domecq may also have marketing clout, and internationally wine retailing is increasingly being dominated by larger retail groups. Being marketed under a global corporate brand like Foster's Beringer Blass will do no end of good for Matua's export sales.

But the most significant benefit of foreign investment, with the potential to trickle down to the rest of our industry, is human capital - the knowledge of how to make better and even more distinctive wine.

It is exciting when an established French company such as Domaine Henri Bourgeois purchases 90ha in Marlborough to produce high-quality sauvignon blanc and pinot noir. Bourgeois is not only the leading merchant in the Upper Loire, it also produces a great deal from its own vineyards.

Foreign wine conglomerates are attracted here by relatively low entry costs. Average grape prices in our top regions, such as Marlborough, are at least half, sometimes a third, of those in comparable quality regions overseas like Coonawarra.

One could argue that barriers to investing here are too low. However, foreign interest will have a positive impact on all vineyard values.

OIC approvals show that vineyard land went for an average of just over $20,400 a hectare in 1999 to $33,600 in 2000 and $44,400 last year.

But even this is small beans compared to the cost of similar blocks in California. No wonder one of Napa's experts in winery landscape architecture, Dick Berridge, has invested in 200ha in Central Otago.

And with strict European rules against increasing the vineyard area of classic regions, it is understandable that a French family might want to produce wine here.

But our biggest drawcard is far harder to calculate in dollar terms: the competitive edge that comes from our natural environment.

The French concept of "terroir" - that the taste of wine is a direct reflection of its physical origins - has a huge following overseas. This follows a global trend whereby consumers are prepared to pay more for goods with distinctive provenance.

Ultimately, we might not be able to compete with, say, Chile's climate, plentiful irrigation and cheap labour. But, if we build on our flavour intensity and regional distinctiveness, we can make our wines more desirable, more valuable.

* Paul Tudor is an independent wine critic and wine correspondent for FMCG magazine.