Vineyards are springing up like ripe fruit on a summer vine, but the massive development of the New Zealand wine industry is giving some people cause to ponder: are we heading for a glut of cheap wine, and what will that mean for growers? HAMISH CARNACHAN talks to the industry


The concrete skyline of downtown Auckland disappears rapidly as the Fullers ferry gathers momentum on its course for Waiheke Island. It’s just a short trip across the Hauraki Gulf but the destination could be a world away from the stifling hustle and bustle of the country’s largest city.

Here, only 35 minutes from the centre of town, is an idyllic retreat, exquisite in scenic beauty. Row upon row of immaculately groomed grapevines march down gentle slopes towards the shore where the expanse of the Pacific Ocean laps at golden beaches. Scattered amongst the rolling greenery are a handful of small settlements and the tiny township of Oneroa, home to an array of eateries as eclectic as the locals.

It isn’t too hard to understand why Waiheke is a popular tourist spot, and why many an Auckland artist retreats to these surrounds to capture that creative urge seemingly elusive in the confines of the city.

But over the last few decades another burgeoning industry has flourished on Waiheke - the island has cemented its claim as one of New Zealand’s top wine regions. And while it is still the tourist hotspot it has always been, certainly the annual Waiheke Wine Festival is an event that gets the crowds island-bound.

Early each year some of the island’s (arguably the country’s) top wine producers band together and organise a festival of fine wine, food and music, to promote their wares to the widest possible audience. It’s wine-time, and for one weekend in February while the weather is settled and as inviting as a chilled glass of Chardonnay, Waiheke becomes awash with partygoers arriving in the thousands.

Far removed from the stereotyped snobbery often associated with the wine-tasting fraternity, the greater gamut of society is represented - from connoisseurs who come to test their palates, to others purely there to party the weekend away.

Regardless of whatever reasons people attend these wine festivals, the popularity of such events, wherever they are held in the country, is huge. So, what could be a better time to launch a new winemaking company? Cable Bay Vineyards, the latest steed to enter the Waiheke wine stable, decided to do just that and by all accounts they pulled it off in spectacular fashion.

With vistas of the cityscape to the west and Coromandel to the east, the location was exquisite. And in Waiheke’s natural environs, Cable Bay’s gigantic (and lavishly furbished) white marquee created a stunning contrast standing stark on a hilltop, rows of grapevines flanking the lazy slopes.




But then, a launch of a major winery would be a very audacious step in its own right if you believe what recent headlines have warned: ‘Wine industry told glut will hit it hard’; ‘Wine boom raises spectre of glut’. Indeed, such a move would go directly against the gradient of the global wine landscape that, some people believe, has an ominous cloud hanging over it.

Industry representatives cautioning growers about a possible oversupply in the future have largely prompted these forecasts of "doom and gloom".




In an annual report published late last year by New Zealand Winegrowers, the industry’s marketing collective released figures showing a record grape harvest of 118,700 tonnes for the 2002 vintage – more than 50 percent up on the previous year.

An increase in production was reported for all varieties, including significant rises in the premium wine types such as Sauvignon Blanc, Chardonnay, Pinot Noir, Merlot and Cabernet Sauvignon.

On the back of two consecutively poor growing seasons in 2000 and 2001, in which certain regions lost half their crops to poor weather, to some it may seem that a jubilant cry would be expected. Not so, apparently. Other industry surveys suggest there is cause for concern.

New Zealand Winegrowers’ statistics show that the number of wineries now operating in the country has doubled since 1995 to more than 380. But forecasts for the increase in the area of land planted under grapes makes dramatic reading. At present the figure stands at 14,000 hectares but the industry expects that to rise to more than 20,000 hectares in four years time.

In his annual report, the chairman of New Zealand Winegrowers, Peter Hubscher, says such predictions suggest that the "record" 2002 yield will be short lived, effectively changing the supply landscape for the industry.

"It now seems reasonable to assume the producing vineyard area will reach 20,000 hectares by 2006, making vintages of 200,000 tonnes or more a real possibility within five years. A 200,000 tonnes vintage is two thirds larger again than this year’s record harvest and represents nearly three times the current total level of industry sales," says Hubscher.

And this is precisely where the spectre of a glut arises.




The wine industry has clearly flourished with successive increases in overseas revenue accrued in recent years. With a record take of $246.4 million posted in 2002 and forecast exponential growth, today it is arguably the ‘darling’ of the export sectors. Also, international acclaim is increasingly being bestowed upon those New Zealand companies that excel and there is great demand for certain wine varieties produced here.

Combine this success with the historically high grape prices (around $1,400 per tonne in 2001) and it is not too hard to see why many people continue to plant grapes. Hubscher suggests the trend has been to capitalise on the "current industry hype".

According to industry surveys though, the problem lies in the fact that there is already enough land under grapes today to meet export demands in 2006. When recently planted vines come into production in two to three years time there are concerns about a major oversupply.

It is at about this point that the issue of oversupply starts to compound – nourishing the woes sprouted by some spokespeople in the industry.

Statistics show that the New Zealand market for our own wine is not only small, but it is also static. Over the last decade, annual consumption per capita has, more or less, hovered around the 10 litre mark. Even Hubscher acknowledges that the domestic growth of sales is limited.

Essentially what is happening is there are more grapes being grown, and more wineries producing greater volumes, but the same amount of wine is being consumed. As Hubscher says, "the principle growth opportunities for our wines are in the international marketplace," suggesting the only option is to export the surplus.

Although the 2002 vintage produced a bumper harvest of grapes, some large areas of fruit were destroyed by irregular weather patterns in Marlborough and Hawkes Bay last spring, suggesting the 2003 crop is likely to be down.


Despite this, Jon Harrey of Te Mania Wines in Nelson says New Zealand already had large stocks of wine, some of which would be used to make up any shortage, and yet the industry is still warning of a potential oversupply in the future.

"We know what New Zealand wines sell in the local market – what varieties, what volumes. That’s simple stuff - if the grape-supply doubles, the local market [for wine made from those grapes] stays pretty much the same," says Harrey. "All the rest of the wine has to go to export and really, that’s the biggest challenge – figuring out how to get those exports sales up."

Does it pose the big challenge he suggests? It certainly seems to be the case if you buy into the widely accepted view that the international wine market is not only intensely competitive at the moment but also appears to be in a permanent state of turmoil.

Indeed, there is a global oversupply of wine. That ‘glut’, as the media and some industry figureheads have taken to calling it, is around 5 billion litres (roughly 20 percent of global sales).

So with too much wine in the world, does it leave little old New Zealand with any chance of trying to offload the hangover of own its excesses into offshore markets?

According to independent wine writer and correspondent for FMCG magazine Paul Tudor, the answer is, "yes". He queries rumours of a ‘wine glut’ saying they have been circulating for many years, at least since the 1970s.

"[In the 1970s] improvements in productivity and a bullish world economy encouraged rapid growth amongst branded table wines. The glut dipped slightly around 1991, possibly as a result of a tough Northern Hemisphere vintage that year, but is now back at the levels we saw in the mid-eighties.

"Professor Kym Anderson’s [an economist at Adelaide University] predictions for world prices are dire, but then he is more concerned with large volume, beverage wines which Australia specialises in.

"Prices will suffer, but as most of our wine is in the premium and super premium categories anyway – over 5 over 7 a bottle in London – I suspect that New Zealand may be more fortunate than the likes of Bulgaria or, dare I say it, Argentina which does not command such prestige."

In a global market of nearly 22 billion litres, New Zealand’s 23 million litres of wine exported last year barely registers as a drop in the glass. But unlike countries that supply the market with bulk volumes of mediocre wine, it is New Zealand’s low volume, high quality production that many see as the industry’s saviour.

"We’re far too small to compete on any other basis," says Harrey. "Every other wine producing country would love to have our position. Internationally we’re seen as a producer of quality wine and we have to hold on to that image."

Neill Culley, managing director and winemaker of Cable Bay Vineyards, reiterates the necessity of competing at the top end of the market because, he says, below about $US10 or 6 per bottle, New Zealand is not generally cost competitive due to our climate, small scale and distance to the overseas markets.

"Look at some of the big vineyards in Australia where low quality, mass produced wines are made – no one goes into those vineyards, the whole crop is worked by machine. That’s not feasible here. They have other distinct advantages over us like that too. What this means is that they can produce crops at a quarter or a third of what it would cost us. We just cannot compete with that," says Culley.

"Not that I know a lot about cars but here’s an analogy: take Toyota and Mercedes. Toyota easily sells the largest number of vehicles because they’re cheaper, but there’s still a market for Mercedes, it’s just smaller because they’re more expensive. So we’re a luxury good like Mercedes – no one needs it but if we do it right then everyone wants it.

"Because we are not a low quality producer, that’s one of our biggest assets."

In terms of wine styles, to date, Sauvignon Blanc has been the major success for New Zealand and the country is now regarded as the global leader with this variety, a reputation that has created strong brand recognition. In recent years supply has not been able to meet demand but Sauvignon Blanc, according to New Zealand Winegrowers, now constitutes 55 percent of total export sales.

Like Tudor, Culley also suspects the inference to a ‘wine glut’ has been over-played. He says that with certain varieties, like Sauvignon Blanc, "we’ve actually suffered from not being able to meet demand to some extent".

"To grow the market you have to have the wine. I do believe some companies will find difficulties in the future – they’ll arise from not having the right variety or having the right variety in the wrong place.

"There’s a lot of Chardonnay planted in New Zealand but that’s grown all over the world and in some places very, very well. It’s a question of whether we should be competing in that variety or another for which we alone are highly regarded."

Most industry commentators deem that if anyone is going to suffer it is bulk suppliers that will be hit the hardest. However, competition in the upper price range is also intense, and growing, and it is a niche that only makes up a minor portion of the whole market – about 10 percent.

Tudor believes that is why those working in the wine business are going to have to be smart to survive in the future. He says careful business planning and intelligent analysis of the markets is the key to sustaining New Zealand’s high quality image in the face of increasing supply.

"I for one am quite optimistic about the long-term future of New Zealand wine – and I am often critical about New Zealand wineries lacking proper planning and focus. There will be casualties and I can see already some companies who do not know how to move volumes or have been lazy on the brand management side. But actually, established and smart winegrowers here should not be too scared.

"Our cropping levels are too high. Our Chardonnays and our sparkling wines lack international brand presence and Merlot, which contributes to our very finest reds, is being overlooked as everyone scrambles to the Pinot Noir gold rush.

"Lower yields, strong brands, sensitive handling in the winery are the keys. We need to push the quality angle most of all. Also we have tremendous opportunities, taking advantage of our isolation, to promote our wines as eco-friendly, GE free, organic, you name it. Not enough is being done on this score."

Another aspect the majority of pundits accept is that the industry is right to put out prudent statements, though not one of the industry-insiders Investigate spoke to agree with an inference to ‘doom and gloom’.

Over cropping and a possible future oversupply of grapes does seem to warrant some concern but Harrey says it won’t be the wine that suffers – it will be those speculative growers who don’t have a contract with a winery. Although the number of wineries has increased dramatically, he suspects there isn’t going to be adequate infrastructure to process the increasing volumes of grapes that the industry has predicted.

"Also it will be interesting to see if the industry can significantly increase its exports. Is there going to be a home found for these wines? You need the wineries, tanks and a lot of capital to put into stockholding facilities. Everything has got to balance and unless we’re not careful that could get out of balance. These will be the industry’s biggest challenges."

Cable Bay Vineyards is the most recent to take on the challenge of the wine trade but Culley says it isn’t something he has taken lightly.

"I know we’ve got a job to do but I’ve been in the industry for more than 20 years and I’ve never heard of a good time to go in.

"We look at the figures and statistics and we’ve deliberately built a business plan to get us successfully into the market with what will sell and be competitive. If we produce the right product at the right price and market it properly we’ll be fine."

Currently there are predictions for export volumes to grow from $250 million to $750 million over the next five years. In his statement, Hubscher says that as New Zealand looks to expand export sales, it is a possible that the high quality price position the industry has strived for could become increasingly difficult to uphold. He also warns that the current lift in production is already affecting industry supply dynamics with prices for bulk wine now below 2001 levels.

As managing director of Montana wines, New Zealand’s largest wine producer, some in the boutique industry reckon Hubscher’s warning is just sour grapes. They acknowledge the possibility of a fall in price but say bulk wine is going to suffer the most, like it has in Australia. Then again, Hubscher could be right.

Across the Tasman though, it is the conglomerates that have been hit hard and Southcorp (makers of Penfolds, Rosemount and Lindermann wines) recently announced its profit was expected to be almost 30 percent down on last year.

Only the future will reveal whether or not a wintry world wine market stems the prolific growth of our industry. But what emerges from the argument about a ‘wine glut’ is that some healthy balance, clearly absent at present, needs to be struck between supply and demand for grapes in the local market. If it isn’t, those landowners gate-crashing the party by planting more vines may end up with a bitter taste in their mouths when they find no winery needs their crop. As Harry says, "Wine grapes are only good for one thing…"

And just like Waiheke Island is no longer the sleepy little tourist spot it was 10 years ago, the romance of living and working on a vineyard is also part of a bygone era. The wine industry isn’t for the foolhardy – they will be left with throbbing headaches like, no doubt, many of the wine festival revellers. The imprudent, it would seem, are best left to the business end of supporting those who do have a nose for success. Cheers!


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