Too much of a good thing threatens to skittle some in the wine industry.
The Kiwi wine industry is a big hitter, with nearly a billion dollars in exports, fast growth and a stellar reputation for making sauvignon blanc.
And yet alarm bells are ringing.
An industry outlook for 2010 by Bloomberg business news puts it bluntly: "New Zealand wineries will be in trouble."
So what is it that has the American-based analyst so spooked about our industry?
Wine exports have soared in value from $125.3 million in 1999 to $991.7 million for the year ending June 2009.
However, a 39 per cent leap in grape harvest to 285,000 tonnes in 2008 created an approximate 27-million-litre oversupply after years of shortage.
Bloomberg's John Mariani writes: "The country's recent prodigious harvests glutted the market for their overly fruity, punch-like style and many fans want to move up in quality."
The 2009 harvest also came in at 285,000 tonnes and the productive land area continues to grow - forecast to hit 34,739ha by 2011.
Wine critic, writer and author Michael Cooper says an unexpected recession coupled with an unexpected boost in wine production created the perfect storm.
"I think what the recession has done has encouraged around the world millions of people to explore cheaper wines than they were used to," Cooper says.
"And I think in many cases they find the wine is nearly as good anyway but, secondly, the moment we hear the economic scene is bouncing back a bit doesn't mean we all then rush out and go back to our old spending patterns."
The perception of New Zealand wine internationally is strong but there are some concerns, including the effect of exporting cheap bulk wine, he says.
New Zealand Winegrowers chief executive Philip Gregan says this year is going to be tough for growers.
"The inevitable consequence of the supply imbalance that we had out of the 2008 vintage was that there was going to be some erosion in wine prices and we've seen that, if wine prices fell, grape prices would fall and if grape prices fell land prices would fall," Gregan says.
"It's economics 101."
Paul Munro, partner in corporate finance at Deloitte, says the New Zealand industry sells a premium product for a premium price.
"But if you flood the market then it's going to compromise that."
This year's harvest is underway, with New Zealand Winegrowers forecasting between 265,000 and 285,000 tonnes. All eyes will be on the scales.
However, individual businesses are unlikely to make the right strategic decisions for the benefit of the greater industry, Munro says.
"Because they're all going to sit there and say, 'Well, it's in my best interest to harvest everything I can and produce as much volume as I can because that actually helps me sell more and cover my costs and ultimately try and make some money."'
Despite the glamorous image of owning a vineyard, making money is proving too hard for some people.
A colleague of Munro's saw about 30 wineries or vineyards for sale in Marlborough before Christmas - now it's about 150.
There is no doubt that some people will go bust, Munro says.
"Those that have basically got their entire livelihood invested in the business with a significant level of debt, unfortunately they'll struggle."
Consolidation in the sector will cause short-term pain but will be a positive move over the medium to longer term, he says.
John Hoare, rural manager for Bayleys Marlborough, said he would normally have about 10 to a dozen wine properties on his books - today he has 50 plus.
Those selling up were mainly vineyards but despite lots of properties for sale few were moving, although there were not many stress sales, Hoare said.
Prices had dropped over the past two seasons from about $250,000 to $150,000 per planted hectare.
"There's not a lot of people willing to take that price but if you want to move on, that's what you have to do."
A few corporate buyers are watching and waiting, he says.
"I wouldn't be surprised if in our industry the big got bigger and the small got out."
New Zealand Winegrowers' Gregan says he would like to see a harvest of 265,000 tonnes.
"It's about the demand for branded wine and our estimates of that would be 265," Gregan says. "Anything more than that will continue to feed the bulk wine side of things."
The 2008 vintage produced about 27 million litres more wine than was sold in 2009 but the sales for the year ending this June will be equivalent to production from last year's harvest, Gregan says.
"If we have two [or] three vintages in a row all much the same size despite an increase in the producing area, that's a pretty positive step forward in the industry, or the wine companies in particular, have responded to the market price signals," Gregan says.
There has been some erosion of price in Australia, which is New Zealand's biggest export market, worth $323.3 million in the year ending June 2009, he says.
"Particularly, we've seen the introduction of a whole lot of new, lower-priced, what you might call opportunistic brands ... but I think the position of our core brands is still relatively strong at this stage."
The average export price for the last calendar year was $7.89 a litre compared with $9.15 in 2008, although when excluding the cheaper bulk exports, the bottle average price showed a lesser drop, down to $9.28 from $9.64 a litre.
In Britain, New Zealand wine sells for more than £6 ($13) a bottle compared with an average price of about £4.30 a bottle.
"So we're still holding up reasonably well but it has been under pressure," Gregan says.
Some vineyards would be pulled out but Gregan is not expecting either major reduction or significant new plantings. The industry is facing the toughest trading conditions for 20 years because of the general economic environment and the supply imbalance from 2008.
"But when we look out to the medium to long-term future I think just about everybody in the industry remains positive ... we just have to get through the current challenges facing us," Gregan says.
Delegat's Group managing director Jim Delegat says there is downward pressure on prices because the bulk wine market has become established.
"This has become very obvious and it's simply a result of people disposing of surplus inventories, in doing so creating a rod for the industry's back," Delegat says.
However, New Zealand's super-premium price position in global markets is fine, he says.
"I think the positive that we can see in all of this is that package wine exports are still going to grow in excess of 10 per cent and over time that in itself is alleviating the imbalance."
The Marlborough grape industry is inefficient, Delegat says.
"It's got a lot of small producers who have entered at very high prices and the vineyards in the four, eight 10, 20 hectares in the longer term are an inefficient proposition for an industry that needs to get its cost base right."
Grape prices had been as high as $2200-$2400 a tonne but currently growers could get a low price of about $1200-$1300 a tonne.
Delegat says he expects to see consolidation over time and that the long-term sustainable grape price needs to be between $1500 and $1800 a tonne, but it is difficult to understand what will happen to small blocks.
"Because invariably they are proprietor-owned and those people have a high investment so it gets back to whether it's a lifestyle outcome or it's a business proposition and largely they're a lifestyle outcome."
Meanwhile, some substantial operations have been planted on inappropriate sites with the problem of not having a route to the market, he says.
Villa Maria founder Sir George Fistonich says the chardonnay harvest in Hawkes Bay looks like being down about 20-30 per cent, while in Gisborne it's probably down about 10 per cent.
In Marlborough the feeling was the harvest might be a little light.
"A combination of mother nature and quite a lot of control by responsible grape growers and winemakers," Fistonich says. "It's still going to take another year or so to get into balance."
Both Villa Maria and Delegat's - two of the biggest names in the industry - say they have got stocks in balance with demand.
The current low prices for grapes are a consequence of discounting and cheap wine but it is not sustainable, Fistonich says.
"You can't really sell good wine at these low prices," he says. "You can wear it for maybe a year or two but prices have got to move up otherwise nobody's going to be able to pay growers a reasonable price for their grapes - the next thing you'll get miles and miles of grapes being pulled out and you'll get back to a shortage."
Cheap bulk wine being shipped overseas was doing damage. "So the sooner it stops the better," he says. "There's still a lot of work to be done.
"I think we still have to keep our crops well controlled and well down, the industry's got to put a lot more money into promoting the New Zealand brand."
New Zealand Winegrowers does a good job on promotion but the sector has little funding compared with overseas competitors, with countries like Australia, Spain and Argentina benefiting from significant Government support, Fistonich says.
"It's probably a walking advertisement. Wine sits on a table and people talk about the country it comes from."
Shoppers may still be enjoying great prices but the good days might be coming to an end.
"Prices in the domestic marketare totally out of kilter with wherethey should be," Fistonich says.
The problems might be serious but wine writer Cooper says there are still millions of wine drinkers worldwide yet to taste New Zealand wine.
"We have the soil and the climate to make great wine, the vineyards are still young, the industry by and large does co-operate extremely well," Cooper says. "So to me, the big picture is positive."
