New Zealand: Pinot central

Since the boom time of the noughties, the big players have applied an increasingly powerful grip over Central Otago. With little land now left for sale, what’s next for this extraordinary Pinot-producing region, asks Patrick Schmitt MW

Pinot accounts for 76% of all plantings in Central Otago – it contains an even greater proportion than Burgundy

Let’s face it, New Zealand is one lucky nation. Not only did the country accidentally create one of today’s most powerful associations in white wine – Marlborough and Sauvignon Blanc – but it went on to do so in red wines too, with Central Otago and Pinot Noir.

With the Marlborough Sauvignon success story attributed to the fortuitous combination of the right variety in the right place at the right time almost 50 years ago, similarly, Otago’s Pinot triumph was not planned: as next year marks 30 years since the region’s first commercial release of Pinot Noir, producers willingly admit that they had little sense that this grape would work so well in this remote area – or, indeed, that the variety would become so fashionable.

Felton Road winemaker Blair Walter recalls: “In 1991 [when Felton Road planted its first vines in the Bannockburn sub-region] no-one had any idea that Central Otago was so well suited to Pinot Noir, and, at that time, New Zealand was a white wine country.

“The happenstance of Central Otago is the combination of soil, climate and Pinot Noir… but back at the start, we didn’t really know what we were doing.”

Central Otago consultant viticulturist and co-owner of Ceres Wines, James Dicey, is similarly honest about the region’s beginnings.

“We took a punt… we didn’t know that Pinot Noir would be right, and, at the start, we were also planting Merlot and Cabernet Sauvignon,” he says.

At Mount Difficulty, where James’s brother, Matt, is winemaker, he says that the producer was still growing Merlot this century, which it didn’t pull out until 2004, replacing it with, you guessed it, Pinot. “Luckily, at the start, Mount Difficulty had planted Pinot, Riesling and Pinot Gris [along with other less well-suited grapes, including, among whites, Viognier],” Dicey says, “and then we realised that Pinot Noir was the happiest.

Now, Pinot accounts for 76% of all plantings in Central Otago, meaning we have an even greater proportion than Burgundy.”

Today there are 125 brands from Otago

WAVE THEORY
Mount Edward’s Duncan Forsyth also records the serendipitous combination of Pinot and Otago, pointing out that the initial plantings in the late ‘80s and ‘90s were done without soil analysis, and merely “anecdotal” climatic information.

He also charts the rise of Otago in stages, crediting the beginnings of Otago’s modern wine scene to “pioneers” in the ‘90s, followed by a second wave of producers during the noughties – who were mostly investors from outside the industry (“your classic doctors and lawyers”, says Forsyth) – and then a third and final wave in the last three to five years, which has seen the arrival of “big and professional wine companies for the long haul.”

The last stage represents a coming of age for Central Otago, but the transition has not been without its casualties. Looking back, Forsyth says that 2002 was a turning point for the region. This was for three main reasons: it was one of the warmest vintages on record, yielding “archetypal big, luscious wines”; the New Zealand dollar that year was at “its lowest point”, and Air New Zealand had just begun direct flights from Auckland to Queenstown, making the area more accessible for tourists and investors.

Together, this sent Otago “ballistic” says Forsyth, speaking about a vast expansion in the amount of small operations: “In 1997 there were 14 labels, in 2002 there were 35 and by 2007 there were 135,” he says.

FINANCIAL CRISIS
However, from 2008, New Zealand was feeling the effects of the global financial crisis and by 2012, a good 10 years after the sudden growth in Otago winery numbers, Forsyth says that “people realised what the wine business was really about”.

This meant, he adds, that many “ma and pa operations”, who were “struggling”, sold up or stopped making wine and moved into selling grapes, consolidating the Otago industry, and allowing the larger companies to come in and buy surplus fruit.

Today, according to Dicey, there are 125 brands from Otago, representing almost 20% of New Zealand’s 650 total, although, highlighting the still fragmented nature of the region, he points out that Otago represents just 5% of the country’s planted area.

“It’s not easy in Otago,” states Dicey. “The economics are hard to understand: the land and grapes are so expensive, and we can’t compete on volume or price with Marlborough.” Indeed, Otago’s prized sub-region of Bannockburn is now home to New Zealand’s most expensive vineyards, with prices surpassing NZ$200,000 per hectare (and $120,000 for bare land), a level found only within the best sites on the Gimblett Gravels in Hawke’s Bay.

BIG-BRAND POWER
Such high land prices explain why some large players in the New Zealand wine industry choose to buy Pinot Noir grapes from Otago rather than invest in assets. For example, the biggest producer of Otago Pinot doesn’t have any land in the region whatsoever.

Treasury Wine Estates, which owns New Zealand’s Matua brand, and the more accessible Squealing Pig label, is buying around 1,500 tonnes of Otago grapes annually, the equivalent of almost 95,000 cases, according to Dean Shaw of The Central Otago Wine Company and winemaker for Domaine-Thomson.

It’s a situation that worries Dicey. He explains why with an example from the recent past. Hawke’s Bay-headquartered Craggy Range was once the biggest buyer of Otago grapes, but stopped the production of Pinot from the region almost five years ago because it is rumoured that the company was losing money on every bottle it sold.

“It went from the largest producer of Otago Pinot to nothing in two years,” recalls Dicey. “Treasury Wine has since come in, but our concern is that this could happen again.”

The economics of Otago Pinot are hard to understand

A BLENDED MARGIN
Nevertheless, Dicey says that the pan- New Zealand producers “work on a blended margin”, which allows their returns from high-volume Marlborough Sauvignon to subsidise their Otago Pinot operations.

This does mean that those smaller companies whose business is based on selling just Otago wines find it hard to compete on selling price with the big players, but, on the other hand, the diversification of big New Zealand brands into Otago Pinot is making the region’s wines more accessible.

“They [the big brands] introduce people to Otago Pinot Noir and then, hopefully, consumers will explore the region,” Dicey says, on a positive note. Others are not so confident.

“The problem with the big brands is that people just look for Otago Pinot Noir at the cheapest price, and think that all of it is the same,” says Carrick winemaker Francis Hutt. But, as Forsyth identifies above, the current wave in Otago’s evolution concerns the investment in assets by major wine companies, which is a longterm development.

The latest to acquire land in the region is Constellation, which is already the second-largest purchaser of grapes in Otago, taking out 700 tonnes each year. According to Sam Glaetzer, who has just been appointed senior vice president of winemaking and production at Constellation, based in the US, the company, which owns New Zealand’s Kim Crawford label, has bought 9ha of land in the Bendigo sub-region.

“Half is planted and the other half we will plant this winter,” he says, noting that Constellation acquired the plot in December “to support the Kim Crawford ‘small parcels’ programme.”

But why invest in land, not just grapes? “Kim Crawford is one of the largest producers of Central Otago Pinot Noir and we were relying on the grower community, which changes, so having our own vineyards gives us more consistency,” he explains.

“New Zealand is close to being fully planted in some areas… so having control is an important part of our strategy.”

The major player already present in Bendigo is Accolade Wines, which has a long-term lease on the biggest single vineyard in Otago. With 82ha of vineyards, and another 80ha of bare land available for planting, it has a significant presence in Otago. In the relatively flat sub-zone of Bendigo it can also machine harvest, helping to reduce viticultural costs, which, combined with bulk shipping and then packing at Accolade Park in the UK – following successful trials last year – allows it to craft the UK’s most accessibly-priced Otago Pinot, currently selling on a multi-buy promotion through Majestic Wine for £9.99 under the Mud House brand.

Then, offering an important quality and commercial endorsement for Central Otago in 2014 was Cloudy Bay’s decision to augment its Marlborough-only vineyards with a property in Otago, when it acquired 25ha of vines in the Cromwell sub-region from Northburn Station.

Not all of these were Pinot Noir, although Oliver Masters, winemaker for Misha’s Vineyard – which has vineyards almost next door – says that the small amount of Riesling at the site has since been replaced by Pinot.

Land prices have got back to pre-2008 levels

IN ON THE ACT
Other changes represent a maturing industry. Actor Sam Neill, owner of Two Paddocks, acquired the six-hectare Desert Heart Vineyard in Bannockburn in 2014, and Akarua bought Wild Earth’s 35ha in Bannockburn and Lowburn in the same year.

Misha Wilkinson, marketing director from Misha’s Vineyard, explains the reason for the recent sales: “According to our accountant, as many as 80% of producers in Central Otago are not making a profit, and that’s because it is an expensive place to grow grapes and make wine, and we are convinced that you need a minimum of 20ha to make it work, and yields are very low,” she says.

“But it is changing – there has been consolidation, a lot of producers that were operating below the line have gone, these were people who came in, driven by passion, and were then reality hit.” Walters at Felton Road concurs: “Things have stabilised,” he explains, “but we did go through a boom period for planting, like Marlborough, through the 2000s, until supply exceeded demand through 2008 to 2009.

But now we are in a period of consolidation, and those brands that couldn’t find a home for their wines have gone; it’s not the wild west of two years ago when companies were rushing in to buy the excess.

”Indeed, the situation is now rosy for growers. Steven Green, owner of Carrick and chair of the New Zealand Winegrowers, explains: “Now we are seeing more of the larger companies trying to secure fruit for the long term, with Treasury, Cloudy Bay, Constellation all looking at long-term contracts, leases, and land. But planting is static; there is replanting, there has been consolidation, but not new planting – and Geoff Thorpe at New Zealand’s Riversun Nursery says the demand is stable for Pinot Noir vines, but still rising for Sauvignon Blanc.”

Consequently, he forecasts: “Fruit prices will go up. We have had NZ$3,600 to $3,700 per tonne for Pinot Noir, but this year it will be $4,000” – with up to NZ$5,000 being asked for the best Pinot from Bannockburn.

To give perspective on these prices, even much sought-after Marlborough Sauvignon commands half that, with an average price this year of NZ$1,800 per tonne. As for the cost of vineyards, Green recalls: “Land prices have got back to pre-2008 levels, but there is very little land for sale; it’s quite a hiatus really.”

SHORTAGE FEARS
Indeed, Otago is switching from surplus to shortage, according to Green. So what does that mean for the next stage in the region’s development? This, Dicey, Walters and Green all agree, will centre on increasing the emphasis on Pinot Noir, and with that, looking in detail at where the best grapes are grown, and why.

With more single vineyard wines hitting the market, and massal selections from some of these already being made, Otago Pinot is becoming more focused, professional and Burgundian in its approach. It has come a long way from its fortuitous start less than 30 years ago, but then, as producers realise, so too has the competition.

This article originally appeared in the August edition of The Drinks Business.