Wine industry hits sour note

By Anna Rushworth

Photo / Sarah Ivey
Photo / Sarah Ivey

The perfect storm is rattling New Zealand's wine industry, once regarded as an agricultural cash cow.

Latest figures from Realestate.co.nz reveal 96 vineyards are currently for sale, with the average selling time being nine months.

But real estate agents estimate the figure could be closer to 150.

Consecutive years of frosts in early 2000 led to lower harvests but with higher demand and top prices for sauvignon blanc grapes.

But the bubble burst in 2008 when the huge proliferation of vineyards and great weather meant a huge glut of wine, and prices tumbled.

The recession hit at the same time, wreaking havoc on growers who had borrowed heavily from banks to set up.

Hardest hit has been the Marlborough region, famous for the popular sauvignon blanc grapes and the original home of giant producer Montana.

Several vineyards went into receivership before being put on the market at mortgagee auction.

Awatere Vineyard estates, bought by Auckland businessman Barry Sutton in 2003 for $3million, has debts of $24m.

Another to fall is Gravitas Vineyard, owned by former merchant banker and Treasury staffer Martyn Nicholls.

Set up costs for a vineyard are about $45,000/ha.

The collapse of Gravitas is ironic. In the mid-80s, when working for Treasury, Nicholls was involved in planning the vine cull subsidies that knocked out a fifth of New Zealand's vineyards. He later predicted that by 2006 there would be a glut of sauvignon blanc on the market.

Marlborough-based Bayleys real estate agent John Hoare said the wine industry was paying the price for the record harvest of 2008 that resulted in a market glut.

"In hindsight it was a mistake that the New Zealand wine companies made." He said 21,000ha of vines were planted in Marlborough, not all on the most suitable land.

As wine prices fell, so did the price of land, Hoare said. Once a hectare of vineyard was worth about $250,000; now it is $150,000.

Bayleys has about 50 vineyards on their books to sell but not a lot of buyers.

NZ Wines chief executive Philip Gregan described the industry slump as the "perfect storm".

Gregan said a series of frosts between 2003 and 2007 forced the price of grapes up to around $2400 a tonne due to the reduced harvest.

"That then raised an expectation and some people based their business models around a certain price for grapes."

By 2008 there was a glut of grapes on the market and a record 285,000 tonnes were crushed. The glut gave large wineries the power to reduce their tonnage price.

However, the recession kicked in, leading to banks putting pressure on vineyards who had borrowed millions in set-up costs.

Bayleys agent Trevor MacKay is trying to sell four vineyards in the Otago pinot noir region; two of them have been on his books for the past four years.

Unlike the more recent troubles in Marlborough, MacKay said the Otago region had started struggling six or seven years ago.

"They're just hurting too much with too much debt and just not making enough."

MacKay said the price of a vineyard by the hectare used to be around $200-250,000 in Otago. Now he has vineyards that could sell for as little as $40-60,000 a hectare.

- Herald on Sunday

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