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Record 2004 vintage but hard marketing lies ahead

Record 2004 vintage but hard marketing lies ahead

The Ministry of Agriculture and Forestry’s (MAF) latest forecasting report on wine production shows a record grape vintage for the year ended June 2004.

The Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report finds that the 2003/04 grape harvest produced a record 166,000 tonnes – 40 percent larger than any previous vintage and more than double the frost-affected vintage of 2002/03.

“However, while grape production is on the up and up, there are challenges ahead, and the wine industry will have to put serious investment into marketing and research to find markets for the increased product,” says the report’s author, Policy Analyst Rachel Monk.

SONZAF is an annual roundup of New Zealand’s main agriculture and forestry industries, covering the major issues and trends, the current situation and the medium-term outlook. Each article is written by an industry specialist, and incorporates both modelled price, production and export projections with industry intelligence. One particular feature of SONZAF is that it includes projections based on two alternative exchange rate tracks as well as the main projections. This enables readers to better understand the prices that could result should exchange rates differ from those used in the main projections.

Rachel Monk says export wine sales outperformed expectations in 2004, particularly considering the much reduced 2003 vintage due to frosts. Thirty-one million litres headed offshore. This latest record vintage should see 2005 export sales continue to perform with strength.

But Ms Monk cautions the future’s not all rosy. “Our figures project that by June 2005, the New Zealand FOB wine price is likely to fall by 11 percent.”

Ms Monk explains that this is largely because of the strength of the New Zealand dollar (NZD) against the currencies of our major trading partners. In the medium term the wine export price is expected to rise again on the back of a weaker NZD (assuming favourable exchange rate movements out to 2008).”

The SONZAF wine production report, which makes projections out to 2007/08, says with production expected to continue to expand as new plantings mature, the industry will be reliant on growth in export sales matching growth in production volumes.

“The increasing production volumes of wine for both the domestic and international markets could potentially affect New Zealand’s export returns. New Zealand is going to need to protect and enhance its position as a niche wine producer in order to maintain current export prices.”

Ms Monk says the global wine market is becoming increasingly competitive with industry commentators predicting a world glut. Competition is growing from new world wine producers such as Australia and South America, as well as from old world producers in Europe and the report says it will be vital that New Zealand wine continues to command the high prices in the premium and super-premium wine segments.

“Enhancing our niche status may mean further investing in wine varieties other than the popular Sauvignon Blanc which is under threat of being replicated by competitors from Chile and South Africa.”

The report says the wine industry will need to introduce customers to the new tastes of different varieties and attempt to work collectively to market the New Zealand brand as a point of difference.

Key Facts from the SONZAF 2004 Wine Production Report

The key varieties Sauvignon Blanc, Pinot Noir and Chardonnay made up 76 percent of production this past year, with the country’s key export variety Sauvignon Blanc forming 42 percent of total production. Sauvignon Blanc comprised 63 percent of total wine exports.

The area planted in grapes was up 14 percent over the previous season.

New Zealand wine is exported to nine major markets that take 95 percent of our exports. The three largest markets are the United Kingdom, United States and Australia.

The average price for all varieties of grapes in the year ended June 2004 was $1,876 per tonne – a decrease of two percent on the previous year. Many in the industry were aware the price fall was coming and some believe prices are still at high levels.

The combination of a record vintage this year and strong prices should see a considerable pick-up in growers’ incomes as they recover from the reduced 2003 vintage.

New Zealand’s domestic market is small and offers little opportunity for growth.

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