Banks eye blended wines

Banks may be taking a "wait and see" approach to the troubled wine industry for now but are likely to start forcing mergers as interest rates inevitably rise, a report says.

Markhams' 2010 summer wine business confidence survey issued yesterday, claimed banks were moving away from their "tough attitude" of 2009, allowing wine industry clients to trade their way back into a better financial position.

But Markham director Graeme Rhodes said tighter lending covenants and an expected interest-rate rise in June meant pressure would resume and probably force the merging of some wineries and vineyards in the next 12 months.

"There are already some vineyards considering it."

Most respondents in the survey reported a good 2010 harvest but growers were still struggling to sell grapes above cost, he said.

Despite these struggles, more respondents said they were positive about their prospects in the next 12 months compared with last year, with 31 per cent expecting conditions to improve.

Almost half expected trading conditions to remain the same in the next 12 months and 37 per cent said conditions had not improved in the past nine months.

Oversupply and a volatile exchange rate were listed as the biggest threats to the wine industry and growing new markets as the biggest opportunity.

Australia had been identified as one of those growing opportunities, with New Zealand sauvignon blanc increasing its market share across the ditch.

NZ Winegrowers export figures issued yesterday show that for the nine months to March 2010, wine exports rose 32 per cent to 107 million litres while the average price per litre dropped from $9.18 to $7.36. Sauvignon blanc dropped from an average $8.79 for the nine months to March 2009 to $6.92 in March 2010.

In Canterbury, Pegasus Bay Winery's marketing manager, Edward Donaldson, said he doubted prices would drop further because a lot of wine was already being sold below cost.

He agreed some merging was possible as more vineyards and wineries went out of business.

"A lot of wineries already owed a lot of money to banks before the recession ... It's kind of a double whammy."

However, Forrest Wines winemaker John Forrest said mergers were not the answer for the wine industry. "I don't buy that economy of scale argument."

New Zealand wine prices had bottomed out but would never rebound fully from the record low-level, he said.

"We have lost $200 million in value because of how we managed our wine in the last two years."

He did not expect banks to foreclose on wineries and vineyards because although the industry was still weak, the banks would have no hope of recovering their money.