Embargoed Until Delivery

An Address by

Hon Lockwood Smith PhD
Minister for International Trade

Launch of APEC Wine Study Report

Kumeu River Wines
Kumeu

12.00 (Midday)
Friday 11 June 1999

The New Zealand wine industry is often cited as one of New Zealand's greatest success stories.

Ross Spence's presentation shows us why.

It's perhaps the ultimate value added industry.

It takes a relatively inexpensive raw material and turns it into a highly prized final product.

And there seems to be almost no limit on what a good bottle of wine, properly aged, can be worth.

Back in the 1980s, New Zealand removed almost all our protection of our wine industry.

Some suggested it would be the end of the world.

I've got a clipping with me today from 1983 quoting Tom McDonald, who was in those days known as 'Mr Wine'.

Faced with over-production, he suggested that more regulation was the only long-term solution for the industry.

He said that exporting should be handled by a single seller organisation in order to prevent chaos caused by "every Tom, Dick and Harry" being involved in the business of exporting.

He went on to say that "there are too many brands available" and that "consumers are so confused they don't know what they're buying".

I don't mean to single Tom out - what he said in the early 1980s reflected the feeling at the time amongst the wine industry and unfortunately, many sectors of the state controlled economy.

But it's useful to reflect on what Tom said, and how things have moved on since then.

In the last ten years alone, the value of our wine exports has increased from $26 million to over $117 million.

Total production has risen by around fifty percent, and exports have risen from 2.7 percent of production to 29.1 percent today.

Wine now constitutes 0.52 of New Zealand's exports by value, up from 0.14 percent in 1990.

A lot of people may wonder how that could be.
It seems almost counter-intuitive to reduce protectionism and end up with increased exports, and an industry offering vastly improved product.

But the reason it happened is clear.

Tariffs and so forth meant there was no cheap foreign wine.

So the money for New Zealand wine makers was to be made in that bottom end of the market, where there was no competition.

And, in the short term, this may have made good business sense.

Why compete at the top end of the market with the French and Australians if you have the bottom end of the domestic market tied up?

And, of course, with no disrespect to anyone here today, the wine was awful.

When we opened up the market, many of our smaller vineyards couldn't match the economies of scale of the large foreign producers at the bottom end of the market.

They faced a horrible choice.

Try to compete at the top end of the market or go out of business.

Well, they didn't want to go out of business.

They competed and they won.

We now produce some of the best wines in the world - the best for some varieties.

I've already referred to the wine industry's fantastic export statistics for 1998. Even more amazingly, they're forecast to reach $275 million in just the next five years.

The most encouraging thing to me is that much of that increase is forecast to come from increasing value, not just increasing volumes.

We're expecting to double our volumes but treble our value.

That is the really impressive statistic.

There are lessons here for other industries.

Our clothing and footwear manufacturers are going through the same stresses faced by our wine industry faced as we eliminate their protection between now and 2006.

We shouldn't be hard-hearted about it. It's going to be difficult for them. And we do hear some complaints in the media.

What's more, should some of them try to compete with very low wage economies in producing standard, cheap t-shirts, they are going to go out of business - just as a winemaker sticking with low value plonk would have gone out of business in the mid-1980s.

But those that respond to the challenge - and go the way of our wine industry as a whole - have a much better future ahead of them.

There will be a future in the fashion industry.

They'll create better fashion items, worth far more. They'll earn more from exports. They'll create more jobs.

In fact we're already seeing this transition, with New Zealand's recent success in the prestigious London and Australian Fashion Weeks.

I have every confidence in them.

Ladies and gentlemen, the wine industry has set an example for other New Zealand exporters.

You've demonstrated the benefits of moving to free trade.

I have every confidence in the industry for the future, and look forward to working with you as you move the industry from strength to strength.

END

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