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Relief for New Zealand's ‘severely depleted’ cellars

Published:  01 September, 2022

New Zealand has reported a healthier harvest and a boost for the country’s inflation-hit supply chain after 2022 delivered in terms of size.

In its latest report, New Zealand Winegrowers (NZW) described severe supply-constraints over the past 18 months, due to a dramatically smaller harvest in the first half of 2021. As a result, total New Zealand wine sales fell 13% in volume during that time, with sales domestically down to the lowest level in nearly two decades.

The country has been suffering in other ways, too. In 2022, for the first time ever, wineries were forced to close for periods during the harvest due to labour shortages and the rampant spread of Covid. This was only exacerbated by border closures for much of the past year. In what is now a familiar line on historically low unemployment rates – and one which echoes the UK labour market – NZW said that securing a skilled and motivated workforce has been extremely challenging for wineries.

However, things have improved in terms of crop size, with favourable conditions securing healthier yields.

“Going into harvest 2022, our customers, alongside growers and wineries, were desperate for an improved vintage,” Clive Jones, chair of NZW, said in his opening statement.

“Fortunately, nature delivered – despite all the complications imposed by staff shortages and Covid. The harvest of 532,000 tonnes will enable severely depleted cellars and supply chains to be restocked.”

Strong export growth is now forecasted for the year ahead, driven by demand in North America. Domestically, sales are expected to rebound from their two-decade lows.

The industry is also expected to start benefiting from the successful conclusion of free trade agreements with the UK and EU. Together, these markets already purchase more than NZ$600m of New Zealand wine yearly.

The improved supply situation will no doubt be a relief to growers and wineries, which have also been feeling the brunt of rising inflation. Now at a 30-year high in the country, cost increases range from labour and energy to packaging and freight. The increases have also had an impact on the prices of wine. As export volume fell, value increased as wineries lifted prices. Total export value reached NZ$1.95bn, with the average value of packaged exports rising 6%.

“Ultimately, these increases threaten profitability and capital available to fund future growth,” said Jones. “These increases are a major concern for all growers and wineries.”

They sit on top of excise duty, a “long-standing issue” and one of the principal expenses faced by wineries selling in the domestic market. Excise costs per bottle are now more than the average price paid for grapes, the industry’s key raw material, NZW said.

Currently, around 400 million bottles of premium New Zealand wine are sold worldwide each year. Wineries and growers employ over 7,300 full-time members of staff, while another 14,600 are employed in businesses that support and service the sector.

The country is focused on growing its sustainability agenda, too. Known as one of the more sustainability-minded producers worldwide, over the last five years, New Zealand has expanded its producing vineyard area by nearly 5,000ha. As a result, the total vineyard area across the north and south islands now totals close to 42,000ha. Expansion is planned to continue over the next decade.