You would have had to be hiding under a rock for the past 12 months not to have heard about…
The survey which is co-funded by MPI and New Zealand Winegrowers, surveys a number of growers in each of the five main regions focusing on dominant varieties. In terms of Gisborne, that is Chardonnay, in Hawke’s Bay it is Chardonnay, Sauvignon Blanc and Merlot, Wairarapa - Pinot Noir, Marlborough - Sauvignon Blanc and Pinot Noir and Central Otago – Pinot Noir.
In terms of what the gross margin represents, it is an averaged revenue less direct expenses for growing, harvesting and marketing the crop.
In what has been described as a difficult season, margins are down in all regions, with the exception being Gisborne, which saw a healthy increase over 2016, but still falls well behind that of Marlborough growers.
The data coming from 19 hectares of Chardonnay, shows a gross margin of $11,675 per producing hectare – 14 percent up on last year, a direct correlation to the 14 percent increase in yields in 2017. The gross margin was $9,025 more than their counterparts in Hawke’s Bay, despite Gisborne’s price per tonne being close to $500 less.
Most growers were able to harvest their fruit prior to the weather events of March, although they did so at lower brix. That has not been seen as an issue for winemakers, who have described the fruit as having “excellent flavours”.
In terms of industry issues and development, there was concern expressed that Gisborne was overshadowed by other wine growing regions, due to demographics, location and the lack of corporate players.
There were also reports of vines being removed straight after vintage, due to them being old, unproductive, or the grower not being able to secure a contract.
With 14 vineyards, comprising 22 blocks, the Hawke’s Bay survey covers a total of 61 producing hectares. There was a mix between contract growers and wineries supplying information. The overriding message from the survey was, 2017 was not a year growers will remember kindly.
As noted in Figure 1, the gross margin for Chardonnay was well below that of the Gisborne model, and the other two major varieties of Sauvignon Blanc and Merlot also saw margins well down on 2016.
The report states; “Sauvignon Blanc and Merlot produced gross margins that were approximately half of what was achieved in 2016. This was a result of yield and price being negatively affected by a wet harvest.”
In terms of Sauvignon Blanc, the gross margin per hectare compared with Marlborough was less than half, at $7240. It equates to $555 per tonne. (Marlborough was $1055 per tonne).
Merlot was slightly lower, at $6820 p/h, while Chardonnay dropped to $2650, the equivalent of $395 per tonne.
“This was largely due to three blocks being only partially harvested, due to rain events, putting pressure on contractual brix requirements and disease.”
There were numerous comments within the survey, regarding the relationship issues arising between wineries and contract growers, particularly over disease thresholds and brix levels.
“Not surprisingly relationships between some wineries and contract growers are tense,” the survey report states.
With some varietal grape prices not increasing for a number of years, the lack of profitability within the industry is now starting to be seen, in terms of some growers removing their vines, or selling outright.
“It is thought this will generally lead to consolidation of the industry, and as the more ‘marginal’ blocks get removed, overall regional quality will improve.”
The smallest of the five regions surveyed, there were seven vineyards comprising 28 hectares of Pinot Noir. The majority of participants were winery growers, with 13 of the blocks being grown for premium or super premium grapes.
Wairarapa, like many others in the survey showed a gross margin that was less than 2016 – at $3,605 per hectare, or $880 per tonne. That is $785p/ha less than last year.
The reason Wairarapa had a higher gross margin than Central Otago was put down to the cost of labour in both regions, with Central being higher.
Given the premium or super premium market, the prices paid to growers per tonne was higher than 2016, at $3940.
Challenges expressed by participants include a lack of investment in the region, due to the low gross margin and the lack of growth in the local market. Sourcing skilled labour locally was another issue raised.
The country’s largest wine growing region saw declines in terms of yields in 2017, although gross margins per hectare were substantially higher than other regions surveyed. In terms of Sauvignon Blanc, the margin of $15,215 per hectare ($1055 per tonne) was 110 percent higher than Hawke’s Bay Sauvignon Blanc.
Interestingly, that is despite the cost of growing Sauvignon Blanc being substantially higher in Marlborough, because of labour expenses related to spraying and crop moderation.
Pinot Noir’s gross margin per hectare was $11,615 ($1690 per tonne), way above Wairarapa and Central Otago. Given there was a poorer than average fruit set for Pinot Noir this last season, crop management costs were not as high for this variety as last season.
Morale is high in the Marlborough region among the majority of growers, and unlike some other regions, the majority of contract growers reported “reasonable to excellent relationships with their buyer wineries and had received good communication through the difficult conditions of the 2017 harvest.”
Issues of concern raised by those taking part in the survey and the Marlborough viticulture benchmarking model, were the large volumes of Marlborough Sauvignon Blanc selling at low prices and potentially indifferent quality from the 2017 vintage, and the effect this would have on Brand Marlborough. A shortage of labour, particularly skilled machinery operators is another issue of concern, as are potential changes to immigration policies which may impact on future RSE allowances.
This is the first year Central Otago has been included in the Variety Gross Margin Benchmarking, with 11 vineyards representing 198 hectares of Pinot Noir providing the data.
The figures show a gross margin of $2335 per hectare, less than a third of that in Marlborough and $1270 lower than Wairarapa. There are some good reasons for that the report says. Central Otago had lower yields per hectare and higher costs of production, particularly in terms of labour.
Yields were down in 2017 when compared to last year, (according to NZW Vintage survey 2017) by 10 percent, although this year’s yield was considered close to the long-term average. However, the price paid per tonne was well up on the 2016 average price – at $3985 per tonne, $500 higher than 2016.
This places Central Otago Pinot Noir at a far higher price point than Marlborough, ($755 per tonne more) but similar to prices paid for the premium fruit in Wairarapa.
“This price does not appear to adequately compensate for the higher growing costs and highlights the reliance on added value for the Central Otago winery grower,” the report says.
In comparison, Central’s labour expenses were $3000 more per hectare than Marlborough and just under a $1000 more than Wairarapa.
“The lower gross margin, especially when viewed from a contract grower point of view, makes attracting new investment to the region challenging.
Contract growers aim to contain their costs well below the averages reported in this gross margin model, to remain financially viable.”
The full report on the Varietal Gross Margin Benchmarking and the Marlborough Vineyard Benchmarking report, is available on the nzwine.com members site.