The price of your favorite tipple may be falling but not as much as initially expected because of a likely smaller than expected grape harvest this year.
Specialist rural lender Rabobank has warned that a growing wine inventory, combined with a potential record grape harvest and the global recession, could force some producers to cut costs in an effort to survive.
The bank speculated this year's harvest could be 300,000 tonnes or more, but New Zealand Winegrowers has forecast the harvest to be 275,000 tonnes, despite an extra 3000ha of vineyards, as growers focus on grape quality, not quantity.
Rabobank analyst Adam Morris said in the current economic climate a 300,000-tonne harvest would exceed global demand and put downward pressure on grape and wine prices in the coming year.
Last year production rose 39% to 285,000 tonnes, but this year's likely lower production would reflect growers focusing on quality rather than quantity, New Zealand Winegrowers chief executive, Philip Gregan, said.
"In that environment, the industry is focusing more than ever on the key driver of our global success: producing world-class wines.
"Lower vineyard yields and a reduced crop, despite the increased production area, are the inevitable result of that focus."
Writing in the Rabobank global focus publication, Mr Morris said the bullish outlook a year ago had vanished with the global financial crisis.
"Make no mistake, with an economic recovery unlikely this year, 2009 is a year where cost-cutting and survival should be the primary objectives."
Prices and sales last year did not reflect the difficult trading conditions facing New Zealand wine, with prices for bulk and bottled wine higher in New Zealand-dollar terms than they were in 2007.
Sales to the United States were helped by a 35% decline in the value of the New Zealand dollar since March 2008, but Mr Morris warned that volatile financial markets could undermine that competitiveness.
Should this year's crop top 300,000 tonnes, Mr Morris said that would equate to a 46% increase on the 2007 harvest and be met with a market that was weakening "by the day".
Mr Gregan said his calculation of a 275,000-tonne crop was based on data from 60 wineries, which accounted for 91% of the 2008 harvest.
Mr Morris said a 310,000-tonne harvest would produce 223 million litres, resulting in inventories of close to 70 million litres in 2009, increasing in the next three to five years as an estimated 8000ha of new vines came in to production.
"Stringent yield management throughout the growing season and at harvest time will produce a better long-term outcome for the New Zealand wine industry than retail shelves full of heavily discounted wine with no market," Mr Morris said.
