Three bank economists see a risk of downside to farmgate prices from last week’s GDT auction where the overall price index dropped 2.4%.
This story featured in a Rabobank wine industry update and was also carried in various media across New Zealand, Australia and the USA – and was even carried on the BBC.
Shortly after this news came the latest export release from Statistics New Zealand showing that our wine exports to the USA have exceeded $500 million for the first time. The data shows wine exports to the USA have jumped 11% ($49 m) in the past year and now represent over 30% of the total value of our exports. The data shows growth in US exports in fact represents 70% of our total export value growth in the past 12 months, and by value US exports are now worth 30% more than our next most valuable market, the UK.
Of course, the success in the USA has not come overnight. Our wineries have been hard at work in the market for many years, while New Zealand Winegrowers has been supporting exporters in-market since the 1990s when David Strada first began working for us. New Zealand wines’ access into the market might not be tariff free but it has certainly been assisted by the WWTG Mutual Acceptance Agreement on Oenological Practices (MAAOP) which means that our wine shipped to the US can be produced in accordance with the New Zealand wine standard rather than the US one.
So the USA is now our most important export market by some margin. But what about the future – are the Stars and Stripes going to be so important to us in five or 10 years time?
For New Zealand the big picture on wine in the US seems to be looking good. The USA is now the world’s largest wine market, it has an appetite for imported wine, the trend is to higher quality/higher value wine of the style that we produce, and there is clearly a growing love affair with New Zealand wine, and Sauvignon Blanc in particular. Additionally tourism is booming between the US and New Zealand, and generally Americans seem to have a very positive view of New Zealand and New Zealanders. We should also take comfort from the fact our exports are no overnight success story – there has been a long hard effort to get where we are today. And even the $NZ seems to be behaving itself at the moment.
Clearly our wineries are responding to this positive environment. At the moment all the anecdotal data suggests that the current growth in vineyard area is being driven by the prospect of increasing exports to the USA, while a growing number of wineries also seem to have personnel permanently based in-market.
But, of course, nothing is ever perfect and there are challenges for us in the US market. For a start, as any exporter to the US knows, talking about the US market is something of a misnomer as it is really 50 different countries as far as wine is concerned. The federally-mandated three tier distribution system certainly makes distribution in the US complicated and expensive. On the flipside, while federal laws may increase the cost of distribution, taxes in general are low.
Our exports to the USA are dominated by Sauvignon Blanc like in no other export market we ship to. Currently Sauvignon Blanc represents 94% of total export volume to the USA compared with, for example, 87% to the UK and 82% to Australia. While the dominance of Sauvignon Blanc is a huge sign of the success, it does represent a risk for New Zealand wine. The old saying, of having all the eggs in one basket comes immediately to mind. So the industry, together with our promotional partners, needs to redouble efforts to diversify our offering in the USA.
Finally recent months have seen a new risk on the horizon – the election of President Trump. Historically the US has been a strong advocate for rules based, free and fair trade. It is on that basis that the US is a signatory of the aforementioned MAAOP which has eased our access into the US market. Since being elected, however, President Trump has stopped US involvement in the TPP which would have given New Zealand wines tariff free US access. That was a blow costing the industry some millions of dollars per year, but what we don’t know is what other steps will be taken by the new administration. US announcements on trade policy will be definitely worth keeping a close eye on in coming months!
Well done to all those wineries who have made the US market such a success story for New Zealand wine. I am firmly of the belief that success to date is only the beginning of the story so long as we continue producing and marketing high quality, distinctively New Zealand wines that resonate with our customers.