Light year impacts profits
A combination of lower grape yields, lower price per tonne, and increasing vineyard operating costs, is hitting Marlborough grapegrowers in the pocket, says WK Advisors and Accountants Director Hamish Morrow.
The business advisory and accountancy firm has been working with growers grappling with oversupply, including those with unharvested fruit in the 2025 season, and those whose contracts have since lapsed. "The next harvest is going to be as challenging, if not more. At the moment getting a grape supply contract is very difficult."
That means some growers have tough decisions to make in terms of investing in their crop for 2026, Hamish says. "Do they bite the bullet and do the work on the possibility of it getting harvested and sold?" Growers with older vines may use the oversupply period to invest in vineyard redevelopment or choose to mothball their blocks. "Do we pull them out now and look to go through a replanting programme? Or pull them out and just sit and wait?"
WK has been working through scenarios with clients, including cheaper pruning techniques, more efficient practices, lower yield expectations, and the viability of redeveloping vineyards. The 'Investment Boost' incentive in the New Zealand Budget 2025 will mean those who do choose to redevelop can deduct 20% of the cost from their taxable income, in addition to standard depreciation deductions. A tax benefit is helpful but does not solely justify capital investment, Hamish says.
He emphasises that many Marlborough growers achieved a good financial outcome for the year, including those with long-term contracts. They may not have ridden the highs of supply-constrained markets in the past but are now benefitting from the lower risk strategy. "Those who were off contract are the ones feeling the pain."
The industry at large had some "very good years" leading up to the oversupply, allowing some growers to pay down debt, so they have "a little bit of reserve to fall back on". Those operators tend to find current conversations with banks easier. The banks take a long-term view of the wine industry, are invested in its success, and don't want to create panic, "which is the last thing the industry needs", Hamish says.
When it comes to winery clients that are able to maintain volumes and values of bottled and branded products, "which are tracking relatively well", there are opportunities ahead, including the option of being more selective with fruit, and paying less for it than a few years ago. It’s important to look at the industry on a five-to-10-year scale, not season by season, he adds. “There’s a bit of a pain out there at the moment, but fundamentally there’s still a good product with good sales.”
On The Block
Vineyard sales have warmed up in the past six months, thanks to lower interest rates, a wider range of values, and renewed confidence in the prospects of Marlborough’s wine industry. Bayleys Marlborough Salesperson Kurt Lindsay says the market was slow in the last half of 2024, but is gaining some energy thanks to existing growers upsizing in a down market, and new players opting in while prices are lower. Unlike six months ago, “people are now saying, there’s light at the end of the tunnel... The message is that quality bottled product is still selling.” Grape supply contracts and vine age are key in the current market, and now lower interest rates are making conversations easier, he adds.
Recent sales include blocks that require redevelopment, sold by growers who were ready to retire. “They say they’ll meet the market,” says Kurt, noting that astute buyers feel the returns on a 30-year investment are still “pretty good”. Overall, many growers are “taking a breath” after what has been a great run in the wine industry. “Now it’s adjusting budgets, and adapting vineyard management and yield expectations for the next few years.” Kurt says. “Like all operators in many different sectors at the moment, it is a
time to be conservative and utilise more data and knowledge prior to heading into the next season.”
