The CEO of New Zealand Winegrowers has said he is confident that winemakers have begun to drain a surplus that threatened to devalue the country's wine industry.

A smaller grape harvest in 2010 has helped New Zealand to regain some balance between supply and demand, Philip Gregan told just-drinks at the London International Wine Fair today (19 May).

"We are seeing some light at the end of the tunnel," he said.

New Zealand's 2008 grape harvest leapt by 20% in volume, fuelling a supply of cheap bulk wine that has threatened to degrade New Zealand's premium price positioning in key export markets. The 2009 harvest equalled 2008 in size, exacerbating the problem.

"It was a huge shock for us after 20 years of grape shortages" said Gregan. Increased supplies of bulk wine have been used to produce what Gregan described as "opportunistic brands". 

Earlier this year, New Zealand Wine Company warned that the "financial sustainability of the New Zealand wine industry is being severely tested by the high level of bulk wine sales".

According to Rabobank figures released last month, New Zealand wine exports grew by 34% in volume and by just 13% in value in 2009, reflecting a surplus of cheaper bulk wine.

However, New Zealand as a country has also performed better than its rivals on the export markets during the global economic downturn. "We are still getting double digit growth in bottled wine exports," said Gregan.

He said that a lower 2010 grape harvest has combined with fewer vine plantings - there will be no new plantings in 2010 - to ease the supply situation. Annual grape harvest yields in New Zealand are expected to average 300,000 tonnes between 2008 and 2012.

In the UK, New Zealand's largest market by volume, average price per bottle for New Zealand wines has fallen to GBP6, compared to around GBP6.5 a year ago. Yet, this remains more than GBP1 higher than all of the other main producing countries.