Chris Losh

Comment - Wine - New Zealand: Walking the Walk

By | 5 October 2010

You may want to sit down for this. Chris Losh is in upbeat mood for the first time in quite a while. And, it's New Zealand that has him admiring a half-full glass.

There must have been times over the last 20 years when the Kiwis have eyed their powerful neighbours to the west, and thought enviously that it might be nice to be one of the wine world’s superpowers. Now, however, most of the country’s growers - and probably all of the wineries - are surely looking across the Tasman Sea and thinking that they’ve dodged a bullet.

Australia, of course, is in a state. But while it’s true that many of the problems that afflict them are also an issue for New Zealand, the latter seem to be responding with both alacrity and - crucially - unity to address them. 

Go back to the mid-noughties and many Kiwis I spoke to were already eyeing the future with some concern. Vast amounts of vineyard had been planted and were about to come on stream, while, simultaneously, there were signs that various key markets seemed to be reaching a natural ceiling.

You really don’t want to be looking at a slowing of demand when your vineyard area has tripled in ten years. Yields, meanwhile, had also gone northwards.

This double whammy produced the hyper-inflated vintages of 2008 and 2009 – and changed New Zealand from a country that could afford to be cocky about prices into just another New World offloader of unwanted bulk wine.

Something needed to be done, and something, it seems, is.

I was hugely impressed by the attitude of Stuart Smith, the Chairman of NZ Wine Growers in his introductory letter at the start of the big year-end report to the country’s 1000+ growers and 670 wineries. Usually these summings-up are utterly bland, but this time Smith pulled no punches. The industry, he said, could forget massive profits for the next two years, the focus was now on "rebalancing and recovery". Growth, too, was out. It was all about getting value back into the industry.

He had harsh words, too, about the increase in bulk sales that has been an ugly (if inevitable) feature of the NZ wine scene over the last couple of years.

"Bulk wine sales may be a vital safety valve for cash-strapped wineries," he said. "However, sale of unbranded, below cost bulk wines threaten to undermine the reputation that the industry has worked so hard and so long to create. Reputation is the industry’s greatest asset. Reputation is what the industry is selling. Every bottle that bears the words 'New Zealand wine' should add to that reputation, not free-ride on it."

Amen to that... 

That New Zealand needs to get its supply and demand in better balance is obvious. But the same could be said of pretty much every wine producing country on the planet. What’s impressive about the Kiwis is that they are actually doing something about it.

The NZ Winegrowers might not be able to set legally enforceable production levels, but over the last couple of years they have been engaged in a comprehensive educational programme designed to deliver to growers the unpalatable message that yields will have to come down.

This must have been a tough sell at a time when grape prices were at a ten-year low, but it seems to have worked. Some vineyards have been mothballed, fruit has been left on the vine and, while there are plenty of critics who feel that the country’s wines still lack some of the concentration of a few years ago, a yield of 8 tonnes per hectare is a lot better than the frankly ridiculous cropping levels of 2008.

The record crush of that year - and the one that followed - unleashed a gooseberry-scented tsunami of Sauvignon Blanc on the world and caused prices to plummet. As Stewart Smith pointed out, exclusivity is the country’s USP – lose that and it becomes just another volume-chaser – and a puny one at that.

Already, there have been fears expressed in the trade - particularly in the UK, which has been most affected by the cut-price bulk phenomenon – over the effect that seeing the country’s Sauvignons piled high at GBP4.99 (US$7.92) - or less - in the supermarkets will have on the more established brands.

"I have a fear that it’s going to drag the consumer down," said one importer. "And, it reinforces the view that New Zealand is only about Sauvignon Blanc because that’s all that’s being offered [on the bulk market]."

But, if the Kiwis are clear-eyed about the challenges ahead in the short-term, they’re also surprisingly confident over how quickly things will improve. Vineyard area is now stable, and with a tight handle on yields, they expect supply and demand to be back in balance as early as 2012.

"Bulk has been as high as 35% of exports, but it’s falling now and I believe it will get back below 20%," says David Cox, director for Europe at New Zealand Winegrowers. "There isn’t the reservoir any more, and the prices [we’ve been seeing] are totally unsustainable."

Given the emphasis on driving value back into the category, I suspect we’ll see a sustained push into currently underperforming markets such as Northern Europe and the Far East, and a lessening of emphasis on Australia and, particularly, the UK, where volumes might be big, but prices per litre are not. 

It’s rare in this column for me to be positive about events in the wine industry, but it’s hard not to approve of the honesty and decisiveness that the Kiwis have shown in attempting to head off a crisis before it becomes a disaster.

But, there are two key questions: Can they develop new business fast enough to make a real impact? And, can the New Zealand Winegrowers carry their members with them through the inevitable pain and bankruptcies of the next 12 months?

If the answers are yes, New Zealand could provide a model for the rest of the wine world; if not, their good intentions will count for nought.

Sectors: Wine

There is currently 1 comment on this article

Great article Chris, I think you summed up a number of important points here. Rectifying oversupply doesn't have to be a knee jerk, image damaging action ...

 

F said at 11:00 pm, October 5, 2010

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