Central recovering after early pain

Land values may have halved and some businesses have been placed in receivership but the Central Otago wine industry appears to be over the worst.

•  Wine industry facing difficult few years

Alistair King, a principal in the Wanaka office of accountants and business adviser WHK, said the industry was not out of the woods yet, but while it was the first to feel the cold economic winds of restructuring, it was also further through the process than other wine-growing areas such as Marlborough and Hawkes Bay.

Mr King, who has extensive dealings with wine companies and vineyard owners, said a rebalancing of supply with demand was needed, especially for wine retailing for $50 a bottle or more.

"Central Otago still has a very positive future, but it is a matter of industry producing a very high-quality product, a new focus on reducing costs, and working co-operatively to push Central Otago as a premier pinot noir region."

Few sales of vineyards have occurred recently.

Mr King said prices were low for the two recent sales and it was difficult to separate out the value of the vineyards from the value of houses and buildings.

Lesser-known properties are listing at between $80,000 and $100,000 per hectare, whereas two or three years ago they would have listed for $120,000 to $160,000 a hectare.

Mr King said a purchase price of $80,000 to $100,000 a hectare was crucial to create an economic unit.

An economic correction would have occurred regardless of the global financial crisis, he said, as there was a limited market for $50-plus bottles of wine.

While that market would remain, he believed the future for Central Otago winegrowers was producing more wine retailing for between $25 and $35 a bottle.

In hand with that was a need to gear up marketing so Central Otago pinot noir branding was in front of consumers.

The 2009-10 Central Otago grape harvest was only half the size of the exceptionally large 2008-09 harvest, and Mr King said the 2010-11 harvest needed to be the same size as last year's to continue rebalancing supply with demand.

Profits would remain lean for another 12 months before growers started enjoying the rewards of the past two years of tough decisions, he predicted.

Otago wine industry pioneer Allan Brady said the region's future was as a small producer of quality wine, a position that had given Central Otago wines an international reputation.

Winemakers with established export markets seemed to have weathered the correction well, as Central Otago pinot noir was a niche product and buyers knew what they wanted.

Mr Brady agreed there would be some casualties, but growth would be restricted by the lack of large areas of suitable land, meaning the amount of development would level off.

He was a member of a steering committee formed by the Otago wine industry to come up with a strategic plan for the industry for the next 10 years.