Budget-conscious New Zealanders have been drinking less wine in the past year but export sales are on track to hit $1 billion by 2010.

New Zealand Winegrowers' figures show domestic wine consumption fell about four million litres, or 5 per cent, to 87.4 million litres.

Chief executive Philip Gregan said falling discretionary spending started to show early last year.

"We really noticed from about April last year that the market started to go sideways and then from January on this year it really dipped."

Given rising food, fuel and housing costs, consumers looking to buy a $10 to $15 bottle were faced with a choice.

"Is it petrol for the car or wine for the table - the car needs to be driven. Without doubt that's had an impact."

The domestic market made up about a third of sales and would remain tough, Gregan said.

Exports grew 14 per cent to $798 million, slightly ahead of kiwifruit but dwarfed by dairy exports of $10 billion in the past year.

Wine sales to Australia grew 37 per cent to $247 million, ahead of Britain on $240.7 million.

Gregan said New Zealand sold mainly Pinot Noir and Sauvignon Blanc in Australia, which did not compete head-on with local styles.

Premium New Zealand wines were selling strongly in Britain, about £2 above the nearest competitor.

Growth in the United States market - where distribution is difficult - had been hurt by the high kiwi dollar.

"With a lower dollar now we might see a re-emphasis in the US market - time will tell."

Shipments to Canada rose 64 per cent as liquor boards added more New Zealand wines to their portfolios and developing markets in Asia were showing strong growth.

Gregan said that just as in the New Zealand market, economic uncertainty in other countries was affecting the outlook. Higher costs in wineries were also affecting margins.

"Our exporters are very mindful of the downturn in the economy globally so it's a bit wait and see at the moment."

Three years ago the industry had set a target of $1 billion in exports by 2010 and this was still achievable. It was hoped to pass the $2 billion mark between 2015 and 2020.

A leading wine industry figure, Kim Crawford, said the biggest immediate challenge was dealing with the size of the 2008 vintage, 40 per cent above expectations due to the hot, dry summer. "We've got a hump to get over this year."

A wine glut in Australia had seen returns in some cases fall by 50 per cent and that was not the model to follow, Crawford said.

"Sure we've got the grapes in the ground but investment in the infrastructure and marketing is of major concern."

Gregan said prices for 2008 harvest could see a further reduction in imports.

"With a much bigger volume of wine available we'll see a decline in the bulk imports and given the size of the harvest a greater array on the shelves.

"At the end of the day it's not the wineries who set the price, it's the retailers who do that."

NZ Winegrowers chairman Stuart Smith said membership of Sustainable Winegrowing NZ by both growers and wineries had grown by 50 per cent in the past year and was on track to reach 100 per cent by 2012.