By Keith Stewart

New Zealand Winegrowers' annual report for 2010 has highlighted the cost of survival in its current market position. For the past 12 months exports have risen 5% in total to NZ$1.04 billion, but at a significant cost in producers' profits, with the per litre value of bottled wine exports falling to NZ$8.70, a drop of 11%.

The problem for wine producers is not just that this price renders most of them unprofitable if they are dependent on exports at those prices, it is pitching New Zealand wine in a declining area of their most important market, Australia. NZ$8.70 per litre equates to a retail price of NZ$9.80 per bottle, and that is the average.

Recent data from Australia show the $8 to $14 a bottle wine market in that country actually shrank in volume by 2% last year. In comparison the mid range sector, between $14 and $19 was static while the upper price category of $19 to $35 actually grew by 0.4%. On the basis of NZ Winegrowers' latest figures they are operating in the least profitable and fastest declining sector of the wine trade in that country.

Evidence is that the same situation applies in other important markets such as the United Kingdom and the United States. The Australian situation is also compounded by the fact that NZ Winegrowers' data is based on exports of bottled wine and does not include the much lower average price of bulk wine shipments. Australia has been a significant destination for bulk wine shipments in the past year, especially of Sauvignon Blanc.

Commenting on the situation, New Zealand Winegrowers' chairman, Stuart Smith said, “As long as every step along the path continues to be guided by an unswerving commitment to quality, the industry can look to the future with confidence.”

John Buck of Te Mata Estate, one time Chairman of the Wine Institute and experienced exporter on high quality New Zealand wine agreed about the commitment to quality, but noted, "So why don't they. The problem is, they don't know what quality is."

When FoodNews asked if there is a future for New Zealand wine at less than ten dollars a bottle, Escarpment winemaker/patron, Larry McKenna said, "To be perfectly honest I would say no."

"Escarpment's cheapest wines sell at just under twenty dollars, and we can't get enough of them. But people recognise our quality reputation and for them that is a fair price. The problem is for those producers who don't have a similar reputation," he adds.

Perhaps that is the New Zealand wine industry's problem in a nutshell.

As far as the wines each of these quality producers make at the highest end of the market, there is no problem making sales.

"I don't know what we are doing, but our wines are all selling out, and we are making a profit," Te Mata Estate's Peter Cowley told FoodNews.

"We sold out of all our top stuff within 2 months," says McKenna. "Our ultra premium end is largely unaffected by the present economic situation."