Trouble in paradise - NZ faces oversupply crisis

Trouble in paradise - NZ faces oversupply crisis

Charges related to an oversupply of wine in New Zealand have dragged New Zealand Wine Co into the red for its fiscal half-year.

New Zealand's wine industry is being "severely tested" by an oversupply of wine, New Zealand Wine Company warned yesterday (25 February).

The firm reported net losses of NZD646,000 (US$447,000) for the six months to the end of December, compared to profits of NZD1.28m in the same period of 2008.

Lower grape prices, as a result of oversupply, forced the group to lower the value of vineyard assets and take a NZD1bn charge in the half-year. It wrote down a further NZD375m to reflect a fall in the value of financial assets and lower grape prices directly.

"The financial sustainability of the New Zealand wine industry is being severely tested by the high level of bulk wine sales, which rose from 20% of total New Zealand export sales in the June 2009 financial year to 25% in the 2009 calendar year," said the firm.

It warned that New Zealand's reputation, and particularly that of the Marlborough region, is being damaged by the trend.

Foreign competitors are buying up bulk wine from New Zealand at less than cost of production and are using it to undercut New Zealand's branded wine in key markets, the firm said.

"The only sustainable solution is to balance the supply of grapes harvested from Vintage 2010 and beyond with demand for New Zealand branded wine, to ensure that the large bulk wine surpluses are not produced on an ongoing basis," it added.

The firm aims to harvest 10% fewer grapes from the upcoming 2010 harvest, compared to last year.

Despite the losses, the firm still declared a NZD0.2 per share dividend for the half-year, based on underlying earnings.

Net sales for the half-year rose by 6% to NZD6.7m.