By the end of 2016, New Zealand wine stocks are estimated to be a healthy 208m liters. For 2017, total supply and total demand are forecast to be almost equal. Wine stocks for 2017 are forecast to be only marginally less than 2016 at 207m liters. This estimate is predicated on the forecast that wine exports in 2017 will reach 250m liters, 8% greater than the 231.1m liters shipped in 2016. All industry indications point to overseas demand continuing to be robust and wine exporters continuing to be in a growth mode. The top three export destinations continue to perform strongly taking 82% of the total volume exported in 2016, in line with the last three years.
Wine imports at 40.1m liters in 2016 were stronger than the expected 37m liters. However, imports are expected to level off very near the long run average of 38.5m liters in 2017.
The Geographical Indications (Wine and Spirits) Registration Amendment Act was passed by the Government in December 2016 and will come into force on April 1, 2017. The legislation will give protection to products that are tied to distinct geographical regions, such as “Marlborough Savignon Blanc”, once the wines are registered.
Vineyard & Winery Production
2017
Post forecasts the 2017 grape harvest at 418,000 metric tons (MT). This would be 18,000MT less than the harvest in 2016, representing a 4% reduction. The production area estimated at 37,000 hectares (ha) is 2.2% up from 2016. The additional area in 2017 consists of immature vines, which are not at full production yet.
The main driver behind the reduction in grape production for 2017 has been the less than ideal climatic conditions for most of the growing season throughout the main vineyard region of Marlborough (over 66% of the total area). Marlborough did not experience any single weather event to impact yield (i.e. storms, hail, or frost), but temperatures were cooler than normal with more wind and cloud cover than average. At present, Marlborough will need more sunshine from February to April for the final development and maturation of the grapes in order to achieve a high quality vintage. In contrast, the Hawkes Bay (13% of total area) has had a very good growing season with growers looking forward to a bigger harvest and high quality.
Reportedly there is very little thinning of the grape clusters going on in Marlborough, which is a sign that the harvest will not be a record breaker.
The significant earthquake (7.8 on seismic scale) that occurred in November 2016 was centered only approximately 100 kilometers to the south of the Marlborough region. It did not cause damage to the vineyards. However, many wineries in Marlborough experienced significant damage. Not only were stainless steel vats and tanks damaged, but also shelving, barrels and packaging goods were damaged or cosmetically ruined. Reportedly, approximately 4m liters of wine were lost from the 2016 vintage.
The damaged wineries are racing to get repair work completed before the 2017 harvest (March to May), but it is feared some repair work will not be finished in time. This will put a lot of pressure on the wineries at harvest time as they try to cope with the grape intake. There is speculation that some grape juice will be transported out of the region quickly after harvest and sent to wineries in Auckland and/or the Hawkes Bay if there is spare capacity. In addition, some vats may be provided by the dairy industry. Other innovative solutions may well emerge such as temporary plastic tanks or bladders to hold grape juice.
The 2017 grape harvest should produce 301m liters of wine, which will be just under 3% less than 2016.
2016
The total grape harvest for 2016 was 436,000MT, harvested from 36,192 ha. This was 34% greater than the 2015 harvest due to generally benign weather from spring (September 2015) to harvest (March to April 2016). The ripening period from February to April was dry in the main growing regions with warm sunny days being close to ideal. Nationally, this harvest was the second highest ever after the 2014 harvest of 445,000MT. The 2016 wine production is now estimated at 310m liters, accounting for losses of approximately 4 million liters as a result of the November 2016 earthquake. This vintage would still be the second highest New Zealand vintage ever and 32% ahead of the 2015 vintage.
Total supply (wine production plus imports) for 2016 is now expected to exceed demand (wine exports plus domestic consumption) by 30.2 million liters, which would put ending stocks (December 31, 2016) at 208m liters. This is only marginally higher than the previous forecast of 207.2m liters and is due to the slightly slower rate of export shipments currently estimated at 231m liters versus the previous forecast of 235m liters.
The other changes that affect the overall supply and demand picture for 2016 are that wine production was reduced by 4m liters to account for earthquake losses; and domestic consumption was increased by 2.7m liters, which was amply covered by increased imports.
These changes do not alter the strong picture for the New Zealand wine sector going into 2017. The opening stocks estimated at 208m liters are healthy but not extreme at an estimated 61% of the forecast 2017 export volume. There is a sense at the moment that the wineries need as much wine as they can get to satisfy demand from their overseas customers. Post’s current projections for 2017 total supply will fall just short of total demand, and year end stocks will be slightly reduced compared to 2016.
Future Planting Intentions –Industry Growth Projections
Anecdotal reports suggest that around 1000ha are currently being planted annually. Official New Zealand Winegrower Inc. area projections for grape production suggest area will increase by two percent per annum from 2015 through 2018, which equates to 700 to 800ha annually. It appears that actual planting is running ahead of forecasts, which coincides with reports out of Marlborough (the main growing region with over 66% of total grape area) that 6,800ha would be planted by 2021. This would be approximately 3,000ha more than official estimates would have for the whole country by 2021.
It is now estimated there is somewhere between 5,000 to 10,000ha of suitable land in the Marlborough region that could still be planted. It is quite conceivable that within the next five to ten years the Marlborough region will be fully planted.
Virtually all the new plantings now are being carried out by multi-national beverage companies such as Constellation, Pernod Ricard and the large domestic wine businesses such as Indevin, Marisco, and Delegates.
Exports, Trade, and Marketing
Exports
Wine exports from New Zealand during 2016 were 231m liters, which was not quite as brisk as was previously anticipated when a total of 235m liters looked realistic. However with stocks presently built up and the 2017 vintage volume likely to be similar to 2016, the export pace should step up significantly. Post is forecasting that 2017 wine exports from New Zealand will be 250m liters, which is an 8% increase over 2016.
Export Destinations and Marketing
Even though New Zealand wine exporters are currently growing overseas consumer demand at quality and price points which encourages sector growth while also achieving profit, there is an air of uncertainty for the future. For example, the effect of Brexit and possible political change in the EU means there is a possible downside risk due to new trade policies or market access changes.
From 2013 to 2015, the top three destinations (US, UK, Australia) have consumed 81% to 83% of New
Zealand’s total wine exports and returned on average 77% of the total export receipts. For 2016 there has been no change to this formula.
Shipments of New Zealand wine to the United States have continued to be the most valuable wine export market based on export receipts for 2016. Between 2012 and 2015, the volume of wine shipped to the United States increased by 42%, and the value of New Zealand’s wine exports increased by a mighty 97%. For 2016, there has been a further 9.4% increase in volume and 13% increase in value. Even though New Zealand wine exporters have had considerable success in the US market they believe there is considerable further potential. They cite the low overall New Zealand wine consumption per capita in the US compared with that of the UK and Australia. In addition, New Zealand’s generic wine promotions in the United States will continue at current levels. One message which seemed to resonate well with US wine drinkers was the sustainability story. The following excerpt from the NZ Winegrowers Inc. 2016 Annual report explains one nationwide US promotion:
“A promotion in the U.S. with mail-order wine giant Wine.com saw New Zealand Wine sustainability brochures inserted into 20,000 boxes of wine sent to customers. New Zealand Winegrowers also ran a three month user-pays promotion with Wine.com. Email and banner advertising from Wine.com linked customers to a page of sustainable New Zealand wine, with a discount code to use when purchasing. Wine.com indicated that the campaign increased the volume of sales by 113% and the value by 114% (year-on-year). The number of unique customers who purchased New Zealand wines during that period grew by 97%. The New Zealand Winegrowers ‘Sustainable Because’ video link was added to Wine.com.”
Sustainable Winegrowing New Zealand is a voluntary set of standards that cover: soil, water, air, energy use, pests and diseases, bio-diversity, by-products, human resources, and business. Over 98% of New
Zealand’s vineyard area is certified under the standards, and it is virtually mandatory to be certified if a vineyard/winery wants to export. The standards have been based on adherence to the International Organisation of Vine and Wine standards and guidelines and involve continuous improvement. For further information on Sustainable Winegrowing New Zealand go to: http://www.nzwine.com/sustainability/sustainable-winegrowing-new-zealand/.
In the United Kingdom, sales are still growing for New Zealand wine, and the industry is confident they can continue to achieve increased levels of penetration into this market. In addition, the current level of generic promotion by NZ Winegrowers Inc. is set to continue. Often this done by bringing wine experts and writers to New Zealand to get the full New Zealand wine, food, and scenic experience.
Exports to Australia are now at a mature volume equivalent to nearly 2 liters per capita. NZ Winegrowers does not target Australia specifically with generic promotions anymore. Now advertising and marketing is left up to the individual wine exporters.
With regard the second tier export markets, NZ Winegrowers Inc. is concentrating its efforts to develop the New Zealand brand in: Canada; some specific EU destinations; the Nordic countries, the Netherlands, and China. Specific Chinese cities will be targeted as well.
One of the strengths of the wine sector in New Zealand is its unified approach to promoting the “New Zealand brand” first and individual winery brands second to that. For example, the International
Sauvignon Blanc Celebration in February 2016 hosted 300 delegates from 18 countries and involved 70 wine producers from throughout New Zealand. Likewise the Pinot Noir 2017 three day conference held in Wellington during February 2017 was attended by 600 delegates from 20 countries. These events are supported by the whole industry. There are important roles in the sector for both the big multi-national beverage companies and the small boutique wine producers
The Role of Bulk Wine Exports
In 2016, 33.7% of New Zealand wine exported was shipped in bulk, up from 32.5% in 2015. This amounted to 78 million liters, which was 11% above the previous year’s 70 million liters. Back in 2009 to 2011, discounted wine was exported in bulk to clear excess stocks. However that practice has diminished and been replaced by the large wineries exporting a proportion of their wine in bulk and then bottling it in destination countries under their premium brands/labels to take advantage of cheaper bottling costs
