As New Zealand wineries continue battling steadily declining profitability and rising indebtedness, an expected bumper 2011 grape harvest could undermine the industry’s premium international positioning, Deloitte is warning.
Accounting firm Deloitte and New Zealand Winegrowers released Vintage 2010, the fifth annual financial benchmarking survey for the New Zealand wine industry, today. Deloitte partner Paul Munro said an increase in bulk wine sales at reduced margins was resulting in falling profits across the board. The report notes that it's fair to say the industry in New Zealand is experiencing "a major financial crisis."
New Zealand Winegrowers CEO Philip Gregan said turbulence stemming from big 2008 and 2009 harvests, combined with the global financial crisis, continued to "afflict" all sectors of the industry. Munro said although a reduced 2010 vintage had gone some way towards alleviating over supply problems, predictions the 2011 harvest may top 300,000 tonnes threatened to add to the industry’s woes.
The 2010 vintage was 266,000 tonnes, both 2008 and 2009 came in at 285,000 tonnes. The wine industry topped NZ$1 billion worth of exports for the first time in the year to July 2009, with exports reaching NZ$1.01 billion. Gregan said at the time NZ$1 billion annual wine exports was the equivalent of five bottles per second.
“Future supply must be matched to global demand, otherwise a cheapening of our wines in key international markets could occur,” Mr Munro warned.
“This may result in a rapid undermining of the industry’s premium positioning, which has taken many years to build.”
He said currently the ability to price New Zealand wine at premium levels had a crucial flow-on effect for grape growers and domestic companies servicing the industry.
"Any reversal would have a similarly negative impact," said Munro.
"Large scale wineries (with revenue over NZ$20 million) continue to be the most profitable with an average profit before tax of 7.8%, while the smallest wineries (revenue under NZ$1 million) are suffering the most with an average loss of 31.9%. For the smaller wineries, this translates to a loss of around NZ$50 per case."
