Kiwi wine lake tsunami will flatten prices

A more dramatic headline than what the Americans have given it.NY Times report into the NZ wine situation:The NY Times isn't controlled by Rupert Murdoch... yet... so I've quoted most of the article here:

This fall, the chief winemaker behind Cloudy Bay’s success began releasing his first vintage under his own label. Greywacke, named after a hard, gray sandstone common in New Zealand, is the fruit of Kevin Judd’s ambition to broaden the country’s reputation beyond the now-ubiquitous Marlborough sauvignon blanc.

The introduction of the label comes at a time of reckoning for New Zealand’s wineries, which are fighting to preserve their reputation as premium wine producers, even as bumper harvests and thrifty drinkers pull them in the opposite direction.

For many years after Mr. Judd made Marlborough famous, the world literally could not get enough New Zealand sauvignon blanc. In its popularity, everyone from garlic farmers to French luxury brands saw opportunity. The amount of New Zealand land given over to vineyards swelled from 7,410 hectares, or 18,310 acres, in 1997 to an estimated 31,057 hectares as of June.

In 1990, Veuve Clicquot, part of Louis Vuitton Moët Hennessy, bought a controlling stake in Cloudy Bay in the Marlborough area at the north end of New Zealand’s South Island. Pernod Ricard, owner of Kahlua coffee liqueur and Malibu rum, acquired Montana, another large New Zealand winemaker. Kirin, the Japanese beverage company, controls Wither Hills, a well-known winery. Constellation, an American wine, beer and spirits group, owns Monkey Bay.

Export markets, led by Australia, Britain and the United States, quaffed 55 percent of the country’s 205 million-liter vintage in the year that ended in June 2009. About 81 percent of the exports were sauvignon blanc.

But last year, just as the global economy went into a tailspin, nature played a cruel joke on New Zealand vintners. While frosts had limited the country’s crop in previous years, last year brought a record harvest — 39 percent larger than that of the year before. The harvest this year was another bumper crop, equivalent in size to that of 2008.

New Zealand winemakers bottled the best of the vintage under their own labels, poured some into new labels, and sold some to bulk wine brokers. Bulk wine exports, which accounted for less than 5 percent of export volume in the past, made up 20 percent of New Zealand’s wine exports in the year that ended in June.

Predictably, prices have plummeted: Wine that three years ago sold in bulk for 6 New Zealand dollars, or $4.36, a liter now goes for 2 dollars and 50 cents and occasionally even less, according to industry executives. New Zealand’s wine regions are littered with “for sale” signs.

Nor have the wine critics been kind. “We’ve seen a lot of ‘me-too’ wine,” said Michael Cooper, a prominent New Zealand wine writer. “You could probably take half of Marlborough sauvignon blancs, and if they disappeared, they wouldn’t leave a trace because they were identical to the wine next to them.” In this environment, retailers began to question Cloudy Bay’s substantial price premium, he said.

New Zealand is desperate to avoid the fate of neighboring Australia. A surge in investment drove that country’s wine exports up from 151 million liters in 1996-97 to 786 million liters in 2006-07, but bulk sales to supermarkets have lowered both prices and cachet. Exports slipped to 750 million liters in 2008-09.

“We can’t compete and remain viable if we are producing bulk wine,” said Marcus Pickens, marketing manager for industry association Wine Marlborough. New Zealand’s smaller size, high labor costs, and cool climate make it harder for the country to sustain the big yields that volume production requires, he added...

The wine industry seems cognisant that volume is no substitute for quality. But when will other industries realise this? All those logs - unprocessed logs - being shipped overseas are the equivalent of a wine industry shipping over bunches of grapes. Are our processing costs really so high that we cannot add value to the tree apart from cutting its limbs off?

After the big harvest last year, New Zealand Winegrowers, the industry association, advised growers to leave more fruit on the ground — a strategy they insist has worked well. Despite an increase in the number of wineries and continued expansion of the amount of land devoted to wine production, the average yield fell from 9.7 tons per hectare to 9.2 tons.

Without this approach, the association believes that the country might have produced 400,000 tons of grapes, instead of the 285,000 tons it produced the year before. Wine drinkers’ thriftiness in the global economic slowdown is helping drain the surplus 2008 sauvignon blanc: In the year that ended in June, New Zealand’s wine exports rose 27 percent by volume to 112.6 million liters, but only 24 percent by value to 992 million New Zealand dollars.