Winepress - June 2024

VANTAGE POINT

Dealing with financial pain

When the financial pressure is on it pays to learn from experience before cutting back on vineyard expenditure, says Jim Mercer, Fruition Horticulture’s Marlborough manager.

THE 2023/24 growing season will be remembered as one of the driest on record. It could also be one of the most financially stressful.

A combination of factors are at play, including including lower yields, some lower pricing and higher costs. However this is not new territory for any growers who went through the 2008 Global Financial Crisis and subsequent years. There are some key lessons from that period that could apply now. Firstly, what happened in the vineyard this year: Sauvignon Blanc fruit quality is generally excellent with minimal disease and early ripening, reported yields are variable but indications are that the average yield will be lower than the 10-year average for 2014-2023.

Poor weather conditions during flowering led to lower berry numbers and more ‘hen and chicken’ within bunches. The very dry season also reduced berry weights in many blocks. After two large harvests in 2022 and 2023 there was a large volume of 2023 wine still to sell as vintage 2024 approached. The smaller 2024 vintage is likely to help re-set the supply-and-demand balance but will put financial pressure on producers who harvested low yields. In addition, indications are that there is some downward pressure on grape prices for the current vintage. Assuming low yields and lower pricing, what can growers do to offset reduced revenue?

The MPI Vineyard Monitoring Reports for 2008-2012 vintages show what happened after over-supply from the 2008 vintage was compounded by the Global Financial Crisis. In the 2008 report the price for Sauvignon Blanc had peaked at $2,435 per tonne and this progressively fell away to a low of $1,190 in 2011. Many wineries introduced yield caps to rebalance supply and demand.

Vineyard working expenses in 2008 were $10,700 per hectare; this dropped to a low of $7,650 in 2012. Vineyard working expenses have increased annually to a high of $15,955 per hectare in the 2023 Vineyard Monitoring Report. When compiling the MPI Vineyard Monitoring Report 2009 -2012 many wineries were limiting contracted yields and therefore growers became very focused on reducing expenditure. The key items targeted were:

• Reducing or stopping fertiliser applications

• Reducing cane numbers, typically from 4 to 3 to reduce pruning costs

• Increasing mechanisation – machine stripping and pretopping

• Labour rate negotiation with contractors

• Reducing crop protection applications

• Deferring repairs and maintenance

• Owner-operators doing more work themselves

• Ceasing investment on new vineyards or redevelopment

• Reducing principal repayments or moving to interestonly loans

• Making own wine, often sold as bulk wine What can we learn from the 2009-2012 period of low returns?

Everybody’s situation is different but reducing crop protection inputs should only be considered with great caution as it can easily backfire with increased pest and disease issues. We would encourage growers to discuss chemical product options with their advisors.

Reducing or cancelling fertiliser inputs may be ok for a season if soil testing and leaf analysis suggests reasonable levels, but growers did experience a reduction in yield when non-application continued for longer periods.

Cane numbers laid down may depend on contracted yield levels, but long-spur pruning is an option that has been shown to reduce pruning costs. (A Bragato Research Institute trial of this technique will be presented at Grape Days on June 24.)

Employing more mechanisation where possible will help, and may involve investing in more time-efficient machinery such as three-row sprayers. Shopping around for competitive contractor rates is a must, but also consider the quality of work and timely supply of services. Another option is for owner-operators to do more work themselves.

Discussing debt repayment options with your bank and deferring non-essential capital investment and maintenance can all help with cash flow.

The Vineyard Monitoring Report for the 2024 vintage is due in October and will provide clarity on income and expenses.

Fruition Horticulture is contracted to collect and collate the data for the Vineyard Monitoring Programme and Report funded by the Ministry for Primary Industries (MPI) and New Zealand Wine Growers (NZW).