1. STRUCTURE OF THE NEW ZEALAND WINE SECTOR John Barker New Zealand Winegrowers

2. The New Zealand wine sector in context 34,269 hectares in production 10 major regions 200 – 240 million litres produced per annum 75% of production is exported 80% of exports are Sauvignon Blanc +/- 35% of exports are bulk $US 5.60 per litre fob average export value $US 960 million total export value

3. Viticulture 1840 vineyards Average size: 18.5 ha – 60% less than 10ha (by number) – 32% 10ha – 50ha – 8% 50ha+ 45% - 50% of harvest grown by wineries 50% - 55% grown by “contract growers” i.e. sell grapes to third party wineries Contract growers grouped by region

4. Wine production and sales 700 “wineries” – i.e. make wine or have wine made for sale on their own behalf 609 small (less than 200,000 litres) – 7% sales by volume 68 medium (200,000 – 4 million litres) – 45% sales by volume 15 large (4 million + litres) – 48% sales by volume 300 registered winemaking facilities

5. Firm behaviour is highly flexible Some firms are specialised in a single function e.g. – contract grape growers – contract winemaking facilities But the majority of firms will carry out a number of functions and conduct a range of transactions to manage capital costs, economic risk and vintage variation

6. FunctionTransactions grape growing own use / contract wine production own use / contract / sale in bulk sale of branded wine own production, produced under contract, purchased in bulk sale of un- branded wine own production, produced under contract, purchased in bulk brokerage cleanskins, bulk

7. winemaking facility produced under contract bulk wine own brand purchased grapes own production grapes owned by contract client A complex firm strategy bulk wine

8. Grape sale & purchase Seller Core business model or part of diversified strategy No investment in wine and production needed for contract grower Supplementary cashflow / supply balancing for winery grower Buyer Core business model or part of diversified strategy No investment in vineyard establishment or management Risk of grapes remains with grower until harvest Allows for flexibility in product lines Reduces time to market for new enterprises

9. Contract winemaking services Seller Core business model or part of diversified strategy Generates cashflow to manage capital & operating costs of winery Maximises utilisation of facilities Buyer Core business model or part of diversified strategy No investment in winery equipment or operating costs Reduces time to market for new enterprises Manages temporary capacity issues in own facilities

10. Bulk wine sale and purchase Seller Core business model or part of diversified strategy Generates cashflow to manage capital & operating costs of winery Clears excess stock without brand damage Clears excess stock in forced sale Buyer Core business model or part of diversified strategy No investment in winery equipment or operating costs Reduces time to market for new enterprises Allows product shortages to be met Opportunistic purchasing Access to NZ wine “brand” Manage transport costs and currency effects

11. Conclusion NZ firms identify primarily as growers or wineries Within that typology, the activities can be varied and complex in response to economic circumstances both within the firm and within the sector as a whole Facilitated by rules that do not create barriers to entry but mandate full traceability independently audited