The numbers are clear: wine sector earnings in NZ have doubled over the past 10 years. Yearly growth has averaged 8.5 per cent. Total sales are now around $NZ2 billion per annum.
"There is scope for more growth from consumers looking for sophisticated foods and beverages."
Con Williams, Rural Economist, ANZ NZ
In order to meet this increasing demand vineyard area is set to expand significantly over the next five years, with the majority of that expansion expected to occur in the Marlborough region.
There is scope for more growth from consumers looking for sophisticated foods and beverages (particularly internationally), a new generation of younger consumers coming through and a trend towards premiumisation.
Health concerns around the amount of alcohol being consumed are having an impact too; however, many consumers appear to have opted for a ‘quality over quantity’ attitude. All of these trends suits New Zealand’s market positioning.
The viticulture sector has grown strongly overthe last decade. Production area is up nearly60 per cent to 36,192 hectares and total crush is up 136 per centto 436,000 tonnes.
Total sector earnings have soared nearly doubled to$NZ2 billion over the same period, led by strong salesgrowth to the major markets of Australia, the US andthe UK, but also further afield to other niche markets.
On a global basis New Zealand is but a small player, accounting for just 1 per cent of total global production and 3 per cent of the value of global wine trade. The larger proportion of value is in the premium New Zealand wine currently commands.
Distribution channels are changing. Tasting rooms, wine clubs, online marketing and other direct sales channels that reach consumers through the internet, mobile apps and social media are growing strongly.
Cash rates of return of 5.6 per cent for grape growers and development returns of 120 per cent to 125 per cent of cost (bare land, development costs and time) are currently sufficient to stimulate new investment.
However, there is limited suitable land in the likes of the Marlborough region for further development – anecdotally, the range is 7,000 to 10,000 hectares. This implies the possibility of some future scarcity if market demand continues to increase as expected.
The New Zealand wine story is driven mainly by Sauvignon Blanc. While other varieties have grown, it’s the unique flavour of the ‘savi’ that stands out.
Like many goods, fashion has a role to play and Sauvignon Blanc remains ‘in’ as a wine preference in established markets and is finding favour with new consumers in developed and developing markets.
It currently accounts for around 58 per cent of the planted area in New Zealand vineyards, 70 per cent of annual production and 86 per cent of annual exports.
Other varieties are also on the rise, with plantings of complementary white styles such as Chardonnay and Pinot Gris set to increase, as well as Pinot Noir and Merlot.
NZ wineries are getting larger.It appears to be a case of be big and get scale, or be very, very boutique. While there are no formal statistics on who is funding the new development, the majority is being undertaken by large wine companies that are both foreign and locally owned.
Wineries with annual sales in excess of four million litres now control an estimated 64 per cent of exports versus 49 per cent only five years ago.
While a larger proportion was controlled by these companies 15 years ago, this was just two players. Today there are 17 companies with annual sales in excess of four million litres.
The number of smaller wineries that are locally owned and largely service the domestic and Australian markets peaked in 2012 and is now on the decline (both by number and share of production).
It all adds up to a future toast for the NZ wine market.
By Paul G Edwards
Samuel Butler’s 1872 novel is about nowhere in particular. He called it Erehwon – nowhere spelt backwards. I first read it 30 years ago and for nowhere it had a very particular sense of place: it is set in New Zealand’s south Canterbury Plains.
A recent dinner I enjoyed was indeed all about nowhere in particular: the South Island or Te Waipounamu.
A glass of Central Otago riesling made by Japanese winemakers Yoshiaki and Kyoko Sato and later the sublime pinot noir made Mike and Claudia Weersing in Pyramid Valley near Waikari in North Canterbury.
Almost 150 years after Butler’s novel, New Zealand is very definitely somewhere for anyone interested in serious wine. For all the talk of bulk wines, of the ‘savalanche’, it is premium wines, crafted by dedicated wine makers, which have established the global reputation of New Zealand’s wine regions.
As I drove up Pyramid Valley Road to visit Mike and Claudia earlier this year – whose home vineyards are located close to another New Zealand wine icon Bell Hill – Erewhon came to mind again.
Could some of the world’s best pinot and chardonnay really be grown in such a rugged, remote area, originally a sprawling sheep farm?
Pyramid Valley Vineyards consists of just over two hectares under vine planted in four separate blocks all managed according to biodynamic principles.
Each block is named after the indigenous weed varieties found in the vineyard: Angel Flower and Earth Smoke pinot noir and the Lions Tooth and Field of Fire chardonnay, each a unique expression of the property’s differing soils and micro-climate.
It turns out that, like so much produced in New Zealand, the quality of the wine is no accident. Mike, a native of California, studied viticulture in Burgundy and worked for some of its most famous producers. He had looked around the world for clay limestone soils that most closely resembled the best terroir in Burgundy. He found them in the middle of nowhere.
Paul G Edwards is publisher at BlueNotes
Con Williams is a Rural Economist at ANZ NZ
You can read more in ANZ NZ’s Agri Focus HERE
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
16 Aug 2016
09 Aug 2016
08 Aug 2016