New Zealand Winegrowers and media outlets are reporting what industry has been anticipating for some months now; that unfavourable weather events during the past growing season have meant an overall harvest tonnage significantly down on previous years.
Philip Gregan, CEO of New Zealand Winegrowers said, “There will be some variability across different parts of the country, but the industry is anticipating a significantly smaller vintage across several New Zealand wine regions this year.”1
Morgane Solignac, reporting for Stuff wrote, “One estimate puts the take of sauvignon blanc grapes down 30 per cent against long-term averages, due to early frosts and cool weather during flowering season.”2
The good news is that overall quality of the vintage seems high, with Gregan going on to say, “All reports indicate the quality of the harvest so far is exceptional, and we are looking forward to some fantastic wines coming out of this year’s vintage.”
However, the low yields have resulted in the cost of grapes increasing. As Matthew Deller MW, Global Chief of Marketing for Villa Maria put it, “By definition, if you’re cropping less per hectare, your costs per hectare increase. The same is true for wineries, which operate on fixed costs.”3
NZ Winegrowers have stated that “Global demand for New Zealand wine remains strong in key international markets… Ongoing strong export performance reflects the appreciation that the world has for New Zealand wine, and reinforces the industry’s reputation for distinct, premium, and sustainable wines.” Combined with very low inventory levels remaining from vintage 2020, due to exceptional demand from key overseas markets including The United Kingdom, The United States and Australia, there is growing upward pressure on prices.
Some in the industry are welcoming the opportunity to raise prices, seeing New Zealand wines overall as having been undervalued, as exporters chased volume growth over past decades.
Others however are taking a more cautious approach, allocating wines from the 2021 vintage to established markets in favour of those newer or less established. Family-owned Marisco Vineyards are reported to have walked away from a deal in Germany to make sure it could supply its long-time customer base.2 Marisco Vineyards General Manager Sales and Marketing, Siobhan Wilson noted, “We are not just going to put the price up because it is in short supply, because next year what happens if we have a bumper vintage, and we’ve got plenty of wine, do you then discount it?”
The NZ bulk wine market remains very tight. Prices for bulk sauvignon blanc, which were already high due to strong demand through 2020 and the early part of 2021, have increased sharply as producers struggle to secure the wine volumes they need to service their markets. Even other white varieties are becoming increasingly difficult to buy in bulk, as these wines are scooped up for blending, to extend sauvignon blanc volumes.
Together, the pressures of strong demand, reduced yields and increasing costs threaten the profitability of those producers who may feel unable to increase their prices at this time. Clive Jones, General Manager and Winemaker at Nautilus thinks that the opportunity to pass on increased costs; “depends on your relationship with your distributor… Profits will be down. That has an impact on capital expenditure on vineyards and less opportunity to be buying new equipment and things like that.”3
In the end, it is a tight-rope walk. New Zealand wines are sold in 100 countries around the world. Wine is New Zealand’s sixth largest export, worth over two billion dollars in export revenues annually. But unless prices reflect the true cost of production, the current high demand and increased production costs could prove to be a mixed blessing for wine industry players.