Wine focus on quality

As a high dollar and worldwide economic weakness batter both New Zealand's primary industries and manufacturing, it is worth noting positive signals.

One such bright light appears to be the long-suffering wine industry. It, according to New Zealand Winegrowers chief executive Philip Gregan, is seeing "signs of a new optimism emerging" after enduring hard times since 2008.

An annual financial benchmarking survey, released last week by Deloitte and New Zealand Winegrowers, shows all but the largest wineries improved profitability during the past financial year compared with the previous year.

Deloitte partner Paul Munro, while being pleased to see the survey results continue to support the signs of a turnaround in the industry, cautioned there was still some way to go before financial returns were appropriate to the capital invested. Nevertheless, helped by a smaller grape harvest and a better balance between supply and demand, exports are worth more than $1.2 billion, well over 50% of total sales.

And many vineyards made reasonable profits. Mr Munro made the point that the sector needed to focus on growth in value, rather than volume. This has long been the message. Little New Zealand can never compete on scale with Australia, California or Chile. Its relatively high costs, its distance from markets and its small operations mean this country must compete at the upper end of the market.

This fact of business is especially stark in Central Otago, where boutique vineyards abound.

Many, even with a quality product, lose money because of high fundamental costs, starting with the land itself. Many, even when they win awards, can fail at the distribution and marketing end.

Some are kept afloat because the owners have other incomes and are willing to subsidise what can be, in effect, an expensive hobby.

There is, however, scope for smart and classy enterprises to do reasonably well, especially because conditions in Central - and the Waitaki Valley - provide the potential for top-of-the-range wine. An example is a 2010 pinot noir from Central's Grasshopper Rock vineyard which has just won the Air New Zealand Champion of Show trophy, considered by many in the wine industry to be the top national award.

Growers, distributors and marketers, either in New Zealand or overseas, have to target the upper middle and upper classes, those with disposable income willing to spend far more than the under-$20-a-bottle clientele. Anything less and small vineyards will simply go under, the fate of some recently in Otago and more could easily follow.

Interestingly, more and more of those likely to buy quality will be across new wine frontiers. A Rabobank researcher, for example, has identified Mexico, Brazil, Poland and Nigeria as "hidden gems" where new markets can be found, especially as sales mature or decline in traditional markets.

Venturing into such places will clearly be beyond most small growers and wine makers. But the larger companies and combined operations can make progress. In every instance, building and maintaining a name for quality will be essential, as the Swiss have for watches or the Belgians for chocolate.

The wine industry has come a long way in past decades as growing and winemaking standards have improved and as grape varieties to meet both the market and local conditions are emphasised and as individual localities with individual characteristics have come to the fore.

In 1981, when areas like Marlborough and the East Coast of the North Island already harvested substantial grape quantities, only 2% was exported. This rose to 12% 10 years later, 35% in 2001 and 70% last year. At the same time, diversification has taken place, although Britain is still the No 1 export market.

New Zealand wine can both add to and feed off what must be this country's future in high-quality and niche markets. This is an approach and strategy also being recognised more and more by other primary producers.

Fine wool can be woven into prestigious and expensive garments and lamb can be the dish of the wealthy and for special occasions. A meal of New Zealand lamb accompanied by New Zealand pinot must resonate distinction and sophistication.