New Zealand. Wine Annual. Mar 2014 March 12, 2014
A forecast record grape crop at 355,000 MT for 2014 (up three percent) should produce 256 million liters of wine which should result in a record 195 million liters being exported in 2014.
There is a good chance the grape harvest in 2014 will surpass the record 345,000 metric tons (MT) picked in 2013. A forecast grape crop at 355,000 MT for 2014 (up three percent) is primarily the result of favorable growing conditions over the last eighteen months, and to a lesser degree a small increase in growing area (approximately 200ha).
The 2014 harvest should produce 256 million liters of wine which will be three percent above the 2013 vintage. Sauvignon Blanc grapes remain the mainstay of the NZ acreage. They comprised 58% of the 35,733 hectares (ha) of production area and 68% of grape production in 2013.
Bulk wine sales have been contentious in the past but don’t appear to be as harmful to the sector’s overall revenue as some have conjectured. In 2013 28% of total exports were shipped in bulk, down from 33% in 2011. The proportion may edge up again in 2014 with the bigger vintage.
Total demand for wine in New Zealand is estimated at 287 million liters in 2014, with 195 million liters being exported and 92 million liters being consumed domestically. Imports are forecast to supply 40 million liters to the domestic market total. Imports and domestic production are forecast to supply a total of 295.6 million liters, which balances the total demand number nicely. Stocks are hovering around 50% of the succeeding years’ demand and export prices have been slowly rising for three years. The suggestion is export demand is solid and stocks are at a comfortable level.
Exports in 2013 were 175.8 million liters, down just 0.35% from 2012, but up by four percent in value terms. Australia is still the number one market for New Zealand wine exports and has shown steady rates of growth over the last two years. However, exports to the US are now number two by value. Following a concerted marketing effort by the sector in North America there has been significant growth both in terms of volume and value.
It is expected imports will stabilize at 40 million liters in 2014. There has been some substitution of higher priced domestically produced wine for cheaper imports over the last three years. Post is expecting this trend to slow down in 2014 as the domestic economy picks up and consumers are feeling more prosperous.
There have been no significant changes to Government policies with regard to wine import regulations during 2013. The Customs and Excise Act is up for review this year. Excise tax effects all wine sales so there may be changes to the costs for sellers of wine in the future.
Note: when a year i.e. “2013” is referred to, it is the calendar year and the growing season which spans two calendar years, September through to April, is shown as “2013/2014”
Vineyard & Winery production
The total grape crop for 2014 is now estimated at 355,000 metric tons (MT), a forecast three percent increase. Not only has this crop benefited from generally favorable growing conditions in most regions but the potential for a large crop load was created by the good weather back in late 2012. So high was the crop load in some Marlborough vineyards that fifty percent or more of the grape bunches had to be thinned off, during January 2014, to maintain quality.
No official producing area for 2014 is available yet, but it is thought that there is enough additional planting of a productive age to reach 36,000 hectares (ha). As the fortunes of the sector have picked up over the last two years significant new planting has occurred but most of this will not be contributing meaningfully to the national grape crop this year. Continued new planting is likely while the wineries are looking for additional supplies and the grape price holds up.
Total wine production for 2014 is forecast at 256 million liters which would be three percent above the total for 2013.
The 2013 vintage surpassed all estimates to reach 345,000 MT, a 9.5% increase on mid-season 2012/2013 estimates, and a full 28% above 2012. This was the result of an additional 400 ha producing area but more significantly the optimal growing conditions experienced in all growing regions.
This harvest produced 248.4 million liters of wine, which put it 28% ahead of the 2012 vintage and nine percent above the last GAIN report forecast.
The Role of Bulk Wine Sales
In 2013 bulk wine exports amounted to 28% of total exports in 2013. This is down from a peak in 2011 at 33%.
It is expected that bulk wine sales may edge up again in 2014, as some wineries/vineyards may have to contend with slightly higher volumes than they expected and in order to hasten cash flow. However it is worth noting that approximately half of these exports are shipped in bulk so the winery can take advantage of cheaper bottling costs in the destination country. This wine is not sold as discount home/in-store brand wine but is bottled in the wineries own branded bottles.
Wine Stocks and Supply/ Demand Balance
Based on the supply estimates discussed above and the forecast demand it is envisaged total supply and demand will very nearly be in balance at around 290 million liters.
Domestic demand is forecast to grow slightly on the back of an improving domestic economy and a slight upward trend noticeable over the last three years data. Export demand is due for a significant lift. Trend increases are fourteen million liters per annum. In 2013, owing to the reduced harvest in 2012, there was no export volume growth. Industry participants describe export demand as solid. This coupled with a buildup of inventory following the big 2013 harvest should produce a 20 million liter jump in exports in 2014. It is very unlikely that will cause an oversupply and consequent drop in pricing.
Estimated stocks at December 31 are now running at approximately fifty percent of the next year’s total demand. This is a comfortable situation where there are enough stocks for export volume development but not in such quantities that would cause oversupply or cash flow difficulties for the wineries.
Vineyard owners, not part of any of the large integrated grower-winery-exporter businesses, may not like the new normal of grape prices of $NZ1600 to $NZ1700 per MT. But the days of over $NZ2000 per MT for the main Sauvignon Blanc harvest are probably long gone and growers are bound to adjust to the new operating model.
Exports and Trade
As discussed in the preceding section it is expected wine exports will be up significantly in 2014. At 195 million liters this would represent an eleven percent lift over 2013. Demand is reportedly strong and with a good harvest in 2013 and another on the way in 2014 the stocks of wine are available to satisfy the increased demand.
There has been good growth in volume and revenue from exports to the US over the last three years. From 2011 there has been a 32% growth in volume and a 34% increase in revenue. One of the marketing strategies for NZ Winegrowers, the national organization for grape growers and wineries, has been to increase sales to the US and it would appear to be succeeding. The marketing and promotional push will continue and it is expected that volume and sales of NZ wines will increase further in 2014.
This trend will likely be helped by a recent treaty level protocol for wine labeling agreed to by the World Wine Trade Group. Members of the group include the US, NZ, Argentina, Australia, Canada, Chile, Georgia, and South Africa with Brazil, China, Mexico, and Uruguay included as observers. NZ labelling regulations already comply with the Treaty protocol. With the US signing up to the protocol, it should reduce costs and time delays for NZ exporters shipping to the US.
Canada is included in the NZ Winegrowers North American strategy and percentage volume and revenue growth has been similar to the US over the last two years.
In the medium to longer term China and Hong Kong are definitely on the radar to develop as major markets. NZ Winegrowers recognizes that it will take time and patience to develop the right marketing networks and distribution channels.
Australia still ranks as the number one market for NZ wine. But with NZ Sauvignon Blanc taking approximately 75% of the Sauvignon Blanc market there, Pinot Noir 38%, and Pinot Gris 37% of their respective segments it is thought that NZ probably can’t increase volumes significantly without toppling from the profitable price point achieved over the last three years. In addition the NZ Dollar rise against the Australian Dollar will put some exporters off much expansion in the Australian market.
Overall 2013 turned out to be a good year for wine exports. Even though volume was just down 0.35%, overall export receipts were up four percent. At 175.8 million liters the actual result was four percent ahead of the projection in the last GAIN report. As projected, the exports for the second half of the year were very strong at a record 104 million liters. Average pricing was up 5% for 2013 which corroborates industry participants' comments that export demand is solid.
It is expected domestic demand will be stable and imports will total forty million liters. Domestically produced wine prices may be firmer in 2014 which would mean the total consumer spends goes up but quantities consumed will be relatively static.
At 39.9 million liters for 2014, imports were fifteen percent ahead of 2012 and nine percent ahead of last year’s GAIN report forecast. This would suggest that, as domestically produced wine prices are rising, in order to satisfy customer demand for low priced wine supermarkets and importers are sourcing more wine off-shore at cheaper prices.
The new “Sale and Supply of Liquor Act” came into being during 2013. For most wine sellers and winery cellar door operations there will be no change and the fees payable to operate will remain the same.
The Government of New Zealand has indicated it is starting a review of the “Customs and Excise Act” however there are no definite timelines as to when this will happen. Excise tax is applied to all wine produced and sold in NZ so any changes may affect wine sellers costs sometime in the future.
Composition and Labeling Requirements
All wine sold in New Zealand, including imported wine, must meet the labeling and composition requirements set out in the Australia New Zealand Food Standards Code, commonly referred to as “the Code”.
In addition to the regulations in the Code, New Zealand has rules for grape wine label statements about variety, vintage, or country or area of origin. These rules are collectively known as ‘the 85% rule’. If a label states the wine is from a particular grape variety, vintage, or area, then at least 85% of that wine must be from that variety, vintage or area. The 85% rule applies to wine labeled for retail sale. It does not apply to wine sold in bulk. As statements about grape variety, vintage or area of origin are not mandatory on a wine label in New Zealand, any label that does not have this information is not subject to the 85% rule.
While there are no specific requirements for information that goes on front or back wine labels in New Zealand, front labels tend to be fairly simple. They typically contain the name of the winery, the region, the varietal, and the vintage year. This universal approach affords New Zealand’s export-oriented wine sector with the flexibility and cost-advantage of printing up back labels with the specific information required by the competent authority in New Zealand’s many export markets.
New Zealand and the United States have an agreement in place that recognizes the respective wine making practices of the two countries. However, there are some differences in labeling requirements. For instance, New Zealand regulations require specific information on the label regarding how many “standard drinks” are contained in the wine bottle. There is also a requirement for allergen labeling, which does not exist in the United States. (For instance, if the wine was fined with egg whites, that must be printed on the label.) New Zealand also requires the “supplier” to be printed on the label, which could be the manufacturer, importer or distributor. (Most exporting companies tend to put the name of the importer on the back label.) Unlike the United States, New Zealand does not require a government health warning on the label.
Excise Equivalent: The excise equivalent is charged to the importer or wholesaler when the product is sold to the retailer. Imported product that is moved to a licensed manufacturing area for further manufacture is not assessed the excise tax until after the manufacturing process is completed and it is sold to the retailer in a consumer packaged form.
Goods and Services Tax (GST): With few exceptions, goods imported and sold in New Zealand are liable for a Goods and Services Tax (GST) of 15%. GST is payable on the sum of the Customs value of the goods, the import duty, the ALAC levy, and freight and insurance costs.
Indicative Fees and Charges: An import transaction fee of NZ$25.30 is payable on every import entry and import declaration for goods. A biosecurity risk screening levy of $12.77 is also collected by Customs on behalf of MPI Biosecurity New Zealand. There would also usually be a multiple release permit (MRP) form to be completed, which has a fee of $210.45, in order to commence imports