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Viticulture toasts better times ahead

A significant shift in the dynamics of supply and demand in the viticultural sector is underpinning purchase decisions, as the market rebalances grape supply with consumer demand.

Bayleys’ latest viticultural insight report highlights a market starting to regain some balance between supply and demand, after a tumultuous period where consumption dominated consumers’ buying behaviour.

Bayleys Marlborough agent MikePoff says this season’s harvest, which is about 20% down on average, will go some way to rebalancing a market that has seen significant product overhang for the past two years.

“The global distribution of wine was seriously disrupted in the last couple of years. It resulted in over ordering and over stocking of product, delivering a lower value grape price back to growers. That price is back anywhere from 10-15%, taking grape value down to about $2,000 a tonne.”

Meantime costs have put a further squeeze on the margin, driven particularly by hikes in the cost of labour. With a smaller volume harvested this season, he is confident the market will rebalance itself within a relatively short period of time, and with it prospects for vineyard values are likely to strengthen.

“For New Zealand it is always going to be a story dominated by Sauvignon Blanc which accounts for about 80% of our production. We are starting to see some recovery in orders from overseas, it is just a matter of time for that rebalance to occur.”

For sellers wanting to exit their vineyard operations there has been a need to understand the reality of the market, and although there are constraints in Marlborough around the amount of bare land left that is suitable for vineyards, this will be slower to move under current conditions.

“The appetite for converting from bare land is limited right now, given where margins have been at.”

However, he is still seeing some lifestyle block vineyard purchases, particularly in the $2.5 million to $5 million price range, with the appeal of a passive income source still there among buyers.

Contracted vineyards were also now more appealing as marketable properties.

“We have essentially seen the total supply chain move from an undersupply to an overstocked supply chain. Previously, buyers were wanting to secure grape production and wanted to acquire uncontracted vineyards.

“Given the supply has caught up and for the moment, exceeds demand, vineyards that have contracts are more appealing and attractive to buyers. Together, with the systemised nature of vineyard operations, having certainty of offtake can make buying opportunities look quite appealing compared to where we have previously seen transaction values.”

Contract management also remains an option across the spectrum of vineyard size, albeit having to adjust to a higher debt cost environment.

Looking across New Zealand’s global markets, the impact of the cost-of-living crisis means wine has not escaped consumers’ budgetary caution, but the country’s reputation for its fresh, distinctive Sauvignon Blanc variety has not dimmed despite that.

“We are fortunate to be able to offer a unique product that has universal global appeal and as the market rebalances, we should expect to see growth in demand continue.”

Alongside that is the exceptional work New Zealand winemakers have done meeting shifting consumer attitudes around alcohol, with their efforts leading the world in developing low or zero alcohol wines.

Higher income markets, including the United States and the United Kingdom, are predicted to continue to drive strong growth in this sector, with Sauvignon Blanc’s lighter fruit flavours lending themselves well to the rapidly emerging genre.

“Longer term the prospects for viticulture remain sound, and for buyers it is a case of being able to see the value amid the relatively tumultuous supply demand state we have witnessed," says Mike Poff.

View the full Rural Insight report here.

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