New Zealand is exporting more bulk wine to be bottled overseas, putting the industry's reputation at risk, writes Owen Hembry.

The big city bustle fades with the corporate skyline as the ferry nears Waiheke Island.

A short drive later a dirt track opens out to an amphitheatre of vines ready for the next grape harvest at Destiny Bay Vineyards.

The 5.5ha vineyard epitomises tranquillity, but co-founder Mike Spratt says anger and frustration about the direction and policies affecting the billion-dollar export industry are making rebellion a possibility.

The artisan winery at the vineyard makes about 2500 cases in a good year and bottles sell for between $100 and $300 to customers as far afield as Malaysia and Britain.


"Most medium to large wineries spill as much as we make in a year," Spratt says.

Bulk of the problem

Spratt's concerns, including the commoditisation of wine, are strong enough for him to have co-written a book due out next month - Grape-a-hol: How Big Business is Subverting Artisan Winemaking and the Future of Fine Wine.

Bulk exports - in which wine is shipped in large plastic bladders holding about 24,000 litres for bottling overseas - have soared from less than 5 per cent of export volume in 2007 to about 40 per cent last year.

"Growing bulk wine exports is the lowest common denominator of this product," Spratt says.

"It is the least expensive way to ship the wine and it is aimed at the low-end of the price pyramid."

The amount of bulk wine that has left New Zealand's shores has re-positioned the brand in a different part of the market, Spratt says.

"As the price position erodes, that creates pressure to reduce cost because you can't get as much for it so the only way you're going to make profit is to save some money," he says.


"That means you have to cut back on manufacturing, shipping costs and other costs which means more goes out in bulk, so in other words it becomes a bit of a vicious cycle."

There is nothing wrong with bulk wine as a product, Spratt says.

"The problem is whether New Zealand is capable of being successful in that market and if you look at our cost structure, our distance from our export markets, if you look at the orientation and the structure of our industry you can't make a logical argument that says we can be a successful bulk wine producer."

On the label

Spratt also takes aim at what he calls a "catastrophic" New Zealand Winegrowers decision in December to allow wine bottled overseas to carry the Sustainable Winegrowing New Zealand logo - previously only allowed on products bottled here.

Spratt is a New Zealand Winegrowers director and voted against the decision.

"If you had a SWNZ logo on your bottle of wine, the one thing you knew was that it was 100 per cent from New Zealand, that it had passed export certification and that it had been grown according to Sustainable Winegrowing New Zealand's standards for grape growing."

A lot can happen between tanks and bottling "especially if the distance and time between when I have it in its finished form in a tank and when I bottle it is measured in weeks, thousands of miles, across the equator through a number of handlers".

It does not take more than one or two scandals to destroy a national brand, Spratt says.

"I consider that move to be perhaps one of the most catastrophic decisions we could make as a wine industry to protect our national brand into the future."

Last defence

The Geographical Indications Registration Act 2006 could be the last line of defence, Spratt believes.

Under the act, wine labelled as Marlborough must have 85 per cent of its grapes from that region and some growers would like to see a geographic indication used for product bottled in New Zealand, he says.

"Whether it can be enforced or whether it can be done is an important question, but it may be the last defence against the erosion of brand New Zealand and the quality reputation of our regions.

"It's likely to be a highly contested and difficult battle, because the interests of very large producers would be not to want to have anything that restricts their ability to use marketing brand logo regional names to promote their product in foreign markets."

What happens next, Spratt says, depends on whether small producers, artisans and regions become so fed up with the direction and economic ravage of policies that they rise up and rebel against outdated tax and regulatory policies and industry association priorities.

"I think that's a real possibility because it's fuelled by a certain amount of anger and frustration about it.

"That's what needs to be rebelled against - these things that favour the mass production side and disadvantage small artisans."

Safety valve

New Zealand Winegrowers chairman Stuart Smith says the bulk wine market has become a safety valve and at least a third of those exports could be wineries bottling brands overseas.

New Zealand was not a low-cost producer, and could not operate profitably at the same level of price points as some other countries, such as Australia which had a much lower cost structure because of its climate.

However, there was no evidence that cheaper bulk wine was damaging higher priced branded products.

A review by PricewaterhouseCoopers commissioned by New Zealand Winegrowers last year found that the average free on-board per-litre price for packaged exports fell from $9.30 to $8.70 between 2007 and last year, although it would have held steady when adjusting for the strengthening of the dollar.

In-market pricing in Australia and the United Kingdom, where most bulk exports are shipped, shows that in the premium wine sector above A$15 ($19) and £6 ($11.70), New Zealand has gained market share in percentage terms and volume, Smith said.

"So the evidence that it's impacting premium products ... we've looked for it and we can't find any."

Harvest down

Exports are going extremely well and there will be a reduced harvest this season, Smith says.

The forecast for this season's harvest is 300,000 tonnes, down from a record 328,000 tonnes last year.

"We have some real supply pressures coming into the market and I think most likely we'll see price pressures coming in and that'll be upward pressures, not downward.

"What producers will do is move their limited supply to the highest margin, the highest return and that's not bulk wine."

Use of the Sustainable Winegrowing logo on wine bottled overseas was subject to same provisions as wine bottled at home.

"That's what we decided that there is no reason why it couldn't apply to facilities onshore and offshore as long as they met the same criteria."

However, wine that was not seeking to be part of the Sustainable Winegrowing programme could also be bottled overseas.

"For quite some time [we have] been putting pressure on the New Zealand Food Safety Authority to tighten up the rules because it's a risk to us and the rest of New Zealand," Smith said.

"It is now listening and it is doing some work on it but these things in bureaucracies tend to move a lot slower than we would like."

Deloitte partner Paul Munro says the bulk wine market has been co-existing with premium-branded products.

"I don't think it's fair to attribute the financial challenges that the industry's been facing over the last few years to the fact that there's been bulk wine being produced and sold - that's really just growers being smart, doing what they can to maximise the return from what they've produced.

"I think the reality is that the cause of the problem is ... [that] because of the conditions of global markets we've struggled to distribute more of the value-added premium bottle product, and by default we've therefore had to look at other outlets to get rid of the wine that the growers have produced."

Quality control

Joe Stanton chief executive of producer and exporter Constellation New Zealand, whose brands include Nobilo and Monkey Bay, says the company makes bulk wine exports for some of its brands and has overseas bottling facilities.

He says there is an economical rationale for shipping in bulk of the lower costs.

As well, a sustainability argument could be made in terms of the reduced carbon footprint.

The majority of Constellation's bulk exports were for branded product and the company had no quality control concerns.

"I'm of the view that bulk wine will continue to be a proportion of New Zealand's exports into the longer term."

Stanton has seen no evidence of lower priced bulk exports presenting a risk to branded products.

"If anything, bulk exports have been a very important lever for the New Zealand wine industry in the past three or four years, because if we didn't have that lever to pull we'd still be continuing to struggle with an oversupply position."

Glass half-full

Forecasts for exports and demand locally suggest that over the next two or three years demand will outstrip supply, Stanton says.

"So we're going to be back into a cycle where we're going to see more plantings starting in the next two or three years."

At Destiny Bay, Mike Spratt says the wine industry can be frustrating and challenging but also generates great excitement and pride.

It is not, he says, for the weak of heart or thin of wallet.

"People say 'why do you?' - it's because I'm stark raving mad, that's my only explanation."