Profitability in New Zealand’s Marlborough wine region falls by 13%

The profitability of New Zealand’s Marlborough wine region before tax has fallen by 13% on the back of rising costs, according to the latest figures by Wines of New Zealand.

The Marlborough Model 2019 Viticulture Benchmarking – an annual report based on data taken from 50 growers in Marlborough – showed that the profit before tax of the model had fallen 13% to $8,700 per hectare in the year to June 2019, compared to $10,000 the previous year, or $11,600 in 2017, even though it had been an average vintage in terms of volume and the price for fruit had remained stable.

The report, which is produced by government body the Ministry for Primary Industries and New Zealand Winegrowers, said one major actor behind this was the rising costs of labour. Costs of labour and working expense per hectare rose 10% to $12,235 over the year, it noted, a rise of 18% compared with the average of 2014-18, mainly due to an 7% rise in labour costs following a 5% hike in the minimum wage which kicked in in April 2018. 

In addition there were “significant increases” in rates, diesel fuel prices, and the costs of pest and disease control costs, which was needed to mitigate the rising incidences of of mealy bug and trunk disease as well as ongoing powdery mildew pressure.

As a result this marked a 21% fall in pre-tax profits compared to the annual 2014-18 average, with pre-tax profits falling steadily since 2016. However the profit is still higher than that recorded in 2015, $6,100, when the vintage yield dropped dropped to just 326,000 tonnes, sparking fears at the time of a Sauvignon Blanc shortage. 

Increased forecast yields were likely to see profits improve in 2020, the report said, and although the rising costs and static prices were an ongoing concern, growers reported a “definite feeling of relief” at the better vintage after two challenging years.

Production average yield fell 2% in the 12 months to June 2019 to 12.5 tonnes per hectare, although the Sauvignon Blanc yields remained stable, and prices for the popular grape variety rose 2% to $1,855 per tonne, a rise of 2%, while the average prices across the model rose 1% over 2018 at $1,945 per tonne. The 2019 model Sauvignon Blanc average price is 6% higher than the 2014-18 average, it said.

Winemakers also reported that it was some of the best quality fruit in many vintages, with the hot and dry weather later in the season bringing forward the ripening process, leading to an early and orderly harvest and low disease pressure.

“Winemakers across the region have been overjoyed with the quality of vintage 2019 fruit and expect there to be some stunning wines produced across the varieties,” the report said.

Meanwhile global demand for New Zealand wine is at an all-time high, with total export value to importers and distributors reaching a record NZ$1.83bn, according to New Zealand Winegrowers.