Strong dollar is tough on wineries

THE soaring Kiwi dollar is badly hurting the export capabilities of Gisborne wineries, even as the New Zealand wine brand continues to flourish overseas.

Local wine has built an impressive international reputation as a high quality product, but the strong dollar has meant some wineries are even considering withdrawing from certain markets where demand suggests they should be expanding.

The dollar reached its post-float high against several currencies on Monday and was trading at 0.88 against the US dollar and 0.54 against the British pound this morning according to the National Bank.

The Millton Vineyard owner Annie Millton said that although their wine continued to be popular overseas, profits had significantly decreased because of the exchange rate.

“When the money comes back into New Zealand dollars, it does absorb a lot more of the extra profit,” she said. “It’s not at all a good environment for exports at the moment.”

Ms Millton said the high dollar was particularly regrettable given the high demand for Millton wine overseas, particularly in the UK.

“Some of our export markets have been really good for us, but we’re now having to come up with new strategies on how to handle the high dollar.”

She said The Millton Vineyard would look to increase prices abroad in an attempt to reinforce profitabilty, and would even consider withdrawing from certain markets if those price increases weren’t received well.

“It’s disappointing that it’s come to this because we’ve worked hard to build up our presence in those markets over many months and years,” Ms Millton said.

“But the New Zealand dollar is going to grow stronger and we have to come up with ways of coping with that.”

Wine Exports New Zealand, which sells Indevin’s large volume of Gisborne wine overseas, said it had arranged seven-month insurance cover with its bank in an attempt to insulate profits from market volatility.

The company’s marketing director, Phil Dagger, however, said that even with the stability that insurance package provided, Wine Exports New Zealand was still trading at a rate that was “not at all ideal” and the high dollar presented “a huge challenge for the industry”.

Gisborne Winegrowers Society marketing director Simon Gardiner said while the exchange rate “hits established exporters very hard”, it also restricted smaller wineries who were well placed to begin exporting in a market ripe for expansion.

“The dollar really disincentivises exporting for wineries who should be thinking of going overseas,” Mr Gardiner said. “A lot of producers are choosing to focus on the New Zealand market, even though there are plenty of opportunities for New Zealand wine elsewhere.”

Shona Egan, export manager at Bushmere Estate, which started exporting to the UK, Singapore and Japan this year, said the effects of a high dollar were already being felt.

“Overseas importers are slower to put in re-orders because the high dollar is cutting into their profit margins. But we’re trying to stay positive. Hopefully this is as bad as it gets.”

Leading economists, however, expect little respite for exporters any time soon, with many tipping the New Zealand dollar to pip US 90c.