Demand for exciting new wines sees Kiwi exports boom

18 December 2002

A desire for new wine taste experiences from "New World" producers (as opposed to the more traditional "Old World" European wineries) is boosting New Zealand wine exports.

The latest Ministry of Agriculture and Forestry Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) forecasting report projects export volumes of New Zealand wine will increase by 162 percent between now and 2006.

Export volumes for the year ending June 2002 were 19 percent higher than the previous year, despite a low harvest in 2001. And the average free-on-board (FOB) price per litre rose by four percent in the year.

The report says that on the basis of a simple supply and demand analysis, the price for New Zealand wine should have been falling over the past decade, as production has more than doubled. However, such an analysis does not account for the profound changes in world wine markets, and the influence of changing consumer tastes over the period.

The report's author, policy analyst Irene Parminter, says while general wine production and consumption has been falling slightly over the 1990s, wine production by New World producers (in the Southern Hemisphere and the US) has been increasing. Over the same period, research by the Australia-based Centre for International Economic Studies indicates that trade in wine has increased by five percent per year in volume terms, with the New World wine producers' share of it increasing by more than 500 percent (to 16 percent in value terms).

"New World producers have also been more successful in penetrating markets which have traditionally not consumed wine e.g. the UK," says Ms Parminter. "The increasing interest in these wines is considered to reflect a desire for new taste experiences, and the premium, single variety, full fruit tasting wines produced in New Zealand provide such an experience. New Zealand wines have the highest average price on the UK market."

Looking at the 2001/02 season, grape production in the year ending June 2002 was 119,000 tonnes - 67 percent more than in 2001 - due to an increase in bearing area and more favourable weather conditions than the previous season.

The average price for contract grown grapes in the 2002 season has not yet been published, but is expected to be over $1600/tonne - an increase from the previous year's price of $1,440.

In the Outlook for 2002/03 to 2005/06, the report notes that production for the year ending June 2003 will be affected by late frosts experienced this spring in Gisborne, Hawkes Bay and the Wairarapa.

Assuming more normal weather conditions prevail, production per hectare is expected to recover in the year ending June 2004.

Industry surveys indicate that the producing area (13,200 hectares in 2002) has increased by approximately 1,000 ha per year for the past five years. Based on vines already in the ground, the producing area is projected to increase to 18,000 ha in 2006. Wine production is therefore forecast to increase steadily in the longer term.

The report says considerable investment in processing capacity and market development will be required over the next four years to handle the projected increases in grape production.

Other trends noted in the outlook for the next four years include: · concerns about supply of wine for export exceeding demand; · a need for outstanding production, marketing and promotional strategies to maintain prices in the face of rapidly increasing production; · a rising exchange rate is a concern to the sector and will have an impact on FOB prices over the medium term; · a rising proportion of Pinot Noir in the varietal mix will tend to counter the effect of expected changes in supply of wine for export and forecast exchange and growth rates in key markets; and · local consumption of New Zealand wine is expected to return to around 40 million litres per year in the medium term after a slight fall in 2001/02 due to low production and an increase in export volumes.

Looking at the longer-term outlook, the SONZAF report says New Zealand wine prospects depend on the direction of shifts in consumer preferences and the rate of economic growth in overseas markets.

Some analysts consider the growth in output of premium wine will outstrip demand, forcing the real price of New Zealand wine down. The report concludes, however, that the size of any shift in consumer preferences is difficult to predict and is a critical factor in the price outcome.

"If New Zealand wine continues to capture the affection of relatively high income consumers in non-traditional markets, it's possible prices could hold, or even increase," Ms Parminter says. "To achieve this in the face of increasing competition will require a high level of investment, skill and innovation from grape growers, wine makers and marketers, in addition to the traditional advantages of climate and soil."

For further information, please contact:

Irene Parminter, Principal Advisor, MAF Policy, Email: irene.parminter@maf.govt.nz

Contact MPI

for general enquiries phone

0800 00 83 33