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Romeo Bragato New Zealand Wine Industry Speech

21 August 2008
Embargoed till 9:35am Speech

Romeo Bragato New Zealand Wine Industry

Government perspective and involvement on issues affecting the industry

Thank you, Stuart, for the warm welcome and thank you for the opportunity to address the opening session of the 2008 Bragato Conference.

Let me begin by congratulating you all on the bumper 2008 harvest. I guess we can thank settled weather for the largest grape crop recorded in New Zealand’s history.

This presents a range of challenges and opportunities for you.

Perhaps the main one is increasing the level of New Zealand wine exports. Our wine exports are performing exceptionally well. However, the 2008 harvest represents a 40 percent increase in supply, which will place pressure on existing export markets and price points.

If 2009 is another record vintage, market development will be an ongoing challenge.

New Zealand Trade and Enterprise offers Enterprise Development Grants to assist winemakers with new market development, which have had strong uptake from the wine industry. To date around $5 million.

But stimulating demand for New Zealand wine in export markets is only one half of the coin. Having easy trade access to these markets is also vital.

The government is committed to maintaining and improving access for New Zealand wine in export markets.

Officials have been engaging closely with the European Commission on market access issues. Work is also continuing on re-starting discussions about a bilateral wine agreement with the European Union.

A close government/industry partnership on the World Wine Trade Group has resulted in a great success story of improved market access for New Zealand wine.

This work is significant, given the markets of the Group - Australia, Argentina, Canada, Chile, South Africa, and USA - represent 55 percent of our exports.

Two agreements exist which mean members will accept each others wine for sale despite differences in winemaking practices, and wine exporters will be able to sell wine into World Wine Trade Group markets without having to redesign their labels for each individual market.

Continued work in this area will help turn the challenge of exporting record levels of production into a realised opportunity for growth.

Sustainability is a key focus of the industry and impressive progress has been made. Your Sustainable Winegrowing programme now covers over 70 percent of the industry, with a 50 percent membership increase seen in the last year alone.

This is an astonishing commitment to sustainability. Congratulations on being well on the way to having all wine produced in New Zealand under a registered sustainability programme by 2012.

The government is committed to supporting initiatives like Sustainable Winegrowing. Assistance for the programme was provided through the Ministry for the Environment, enhanced with funding from MAF.

MAF is also working with New Zealand Winegrowers and Landcare Research to develop greenhouse gas accounting guidelines that will enable the measurement, management and mitigation of greenhouse gas emissions for wine.

The project is a response to significant and increasing pressure in some key export markets for information on the greenhouse gas intensity of products throughout their life-cycle.

The “Greening Waipara” programme, just north of here, is another fantastic example of the industry’s commitment to environmental sustainability, again attracting government support.

More than 5000 native plants have been planted to improve vineyard eco-systems. This will result in better soil fertility and will encourage populations of beneficial insects as a source of natural pest control.

It is part of the Wine Industry Eco-System Services project, which was funded $3.2 million by the Foundation for Research, Science and Technology.

The “Greening Waipara” programme now has 25 wine companies involved and I’d like to commend them.

I understand Hawkes Bay grape growers have also begun to enhance biodiversity in their vineyards, so it seems the original idea is now on the move.

Research and development is producing some exciting results.

You will know well the history and the capability of Hort Research in your industry and you will have seen last week’s announcement about a possible merger between that company and Crop & Food. We will know the outcome in a month or so. But in addition to that research effort, the Marlborough Wine Research Centre has been carrying out a major research programme on Sauvignon Blanc funded by the Foundation for Research, Science and Technology.

Chemical and sensory analysis has been undertaken of over 100 Sauvignon Blanc wines, sourced both from New Zealand and internationally. This approach has allowed researchers to identify the key aroma compounds that distinguish “New Zealand Sauvignon Blanc” from that produced by off-shore competitors.

The research provides growers and winemakers with information about individual aromas, and technical resources for producing Sauvignon Blanc wines with new aroma profiles that are suitable for international export markets.

The research has continued to make excellent progress over the past year. Like the wine itself, the “Sauvignon Blanc programme” is now being recognised both nationally and internationally as one of the best examples of its type in the world.

I had a chance to read Stuart’s speech last week. As you would expect he is full of admiration for this remarkable industry. Actually he nearly gloats. But he is also generous in his description of the relationship between the government and the industry and I should acknowledge that generosity. It would be rude not to.

There are limits however and part of Stuart’s speech seemed to me to be designed to test where they are. I think the answer might turn out to be the ongoing debate around excise tax. Stuart’s speech reminded us that as far as he is aware there has been no prosecution or complaint regarding wine sold at the wine cellar door. That is great news. But alcohol, including alcohol in wine, creates adverse health effects and is a contributor to crime, all of which economists lovingly call externalities and therein lies the original logic for an excise duty, now over 10 years old.

Stuart’s speech also asserted that the cost of the excise cannot be passed on to consumers, which is kind of interesting because the duty applies to all alcohol products, except of course it is fully rebated on all exports.

Stuart then said that Canada, the US and Australia did things differently. That sent me scurrying to find out and in the time available all I discovered was a degree of confusion. Canada looks like it applies a lower excise, though their tax may be designed more as industry support rather than as a public health measure. Australia as first glance includes examples where excise is apparently higher, because it seems to be a tax on the price, not on the alcohol content as it is in New Zealand. For lower priced wines one assumes that the Australian tax is lower than ours. Whatever the truth of the matter the government is always open to industry submissions. That said the policy of a duty on alcohol has been the policy of successive New Zealand governments.

On Stuart’s other challenge however, that of compliance costs, I’m greatly taken by his analysis that governments keep coming up with admirable programmes to reduce costs when it is governments that create them in the first place. It is a line I use myself, often. And it is an endless debate.

Most compliance costs are, of course, created not because some hapless official wishes to create another rule before knocking off work just as the whistle blows, but because someone else wants to.

In other words, governments face demands to reduce, and demands to create, compliance costs. Often those demands come from industry. I once remember as Fisheries Minister embarking on a quite modest deregulation process before the industry united against it. Their reasoning was that they had invested with a regulatory regime in mind and deregulating would have left them with stranded assets. Life is complex.

That said, Stuart is right to argue that small businesses are often ambushed by poorly designed regulation and there are endless examples of it. Some of the hazardous substances regulations of about 8 or 10 years ago, are just one case in point. They took years to improve.

About 10 years ago I was in opposition, writing New Zealand’s first small business policy and then 9 years ago became New Zealand’s first Minister of Small Business. We put together a group of small business people to advise us. It still exists, though the membership keeps changing because membership puts many demands on busy people’s time. SBAG, as it is known, has been responsible for a determined focus on higher quality regulation. We already rank well in the world for regulation quality. But Stuart says we must do better. I agree with him. What is more we can, and we are.

Here is an example of where government has initiated some simplicity. Here it is.

The Ministry of Economic Development has nearly finished a Standard Business Reporting initiative which will reduce the costs for businesses when providing information to government agencies.

The initiative will allow businesses to file information for government agencies at one time, in one place. The material will then be distributed to the relevant agencies at the discretion of the business providing the information. It is conservatively estimated that the Standard Business Reporting initiative will save New Zealand businesses $55 to $75 million every year.

The relationships with government are both numerous and, as Stuart acknowledged, in generally good heart. I interface with the industry through economic development, science and tertiary education. Those are my portfolios, but so does the Minister of Agriculture, or Labour, or Environment, or Trade, or Food Safety, or Tourism – the list goes on.

The Cabinet as a whole engages with the industry, most recently with a review of the regional seasonal employment scheme – and the reason we all engage is that we have to. This industry is pumping. It has growth, it has export growth, astonishing expertise, attention to sustainability, marketing prowess, and it has transformed many regions, most recently mine of Otago.

A little over 20 years ago the pioneers got underway in places like Gibbston. Today there is wine grown even in Dunedin – the vines are grafted in a tunnel house right across the creek from our house in Sawyers Bay. Whether or not that is the southern most vineyard in the world I don’t know. But I do know that the industry has grown beyond belief since I was a child growing up in Whangarei and getting paid for mowing small vineyards owned by a clutch of wonderful Dalmation neighbours.

But the world keeps changing and wine is subject to the same pressures as other advanced primary production. Further, we need to have more New Zealand wine companies who are better embedded in the global value chain. So progress might be remarkable, or even spectacular. But why might that do?

We need to establish more points of difference. Screw tops or integrated pest management or smaller carbon footprints are all wondrous gains. But where does the next batch come from? Genomics? Organics? Leveraging the country brand? Selling integrity? Ramping up the skills base? I don’t know the answer, of course. Nor do governments.

But governments can help find out, and help fund. This is where Fast Forward New Zealand comes into play and your industry should explore it, soon.

In March, we capitalised $700 million dollars and put it on the table for co-investment. Most primary industries have since responded. Yours hasn’t yet. You might want to.

Fast Forward New Zealand is designed to increase industry investment in skills developments, R, D, the growth of globally competitive firms and to co-fund that industry investment.

It is an endowment to take advanced primary production to the next level.

Most primary industries have now laid down their commitment and your industry, arguably the fastest moving primary industry of them all, needs to decide whether to engage and what level of commitment you wish to make over the next 10 – 15 years.

It is an important decision and it is a strategic one as well. The decision has to be made on the basis of your strategic planning. It is not an opportunity that we will see the likes of very often.

Thank you for having me. It is a delight to take part in this conference and get a look at your remarkable industry.

I wish you all well and I happily undertake to play my part in maintaining an effective partnership between your place and the one I inhabit. Good luck with the next vintage.


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