A wine world rarity

New Zealand’s Marlborough seems to have it all. Jamie Goode charts the rise and rise of one of sauvignon blanc’s great regions

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IT'S STRANGE TO think it was as recently as 1973 that the first vines of the current era were planted in what is now by far New Zealand’s largest wine region.

At the time, the domestic demand for wine was outstripping supply and Montana, then part-owned by Canadian drinks giant Seagram, was on the lookout for new vineyard land. It was considering expanding operations in existing regions, but Frank Yukich, who with his brother Maté was heading the family firm, set his sights on a new region, spurred on by favourable reports from young Department of Scientific and Industrial Research scientist Wayne Thomas.

Thomas had studied 60 years of historical weather data from Woodbourne Airport, and he reckoned that the sheep-grazing country in the Wairau Valley at the tip of South Island was promising vineyard land. The Yukich brothers travelled with Thomas and UC Davis Professor Harold Berg to Marlborough. Together with local land agent John Marris they went scouting properties at the southern end of the Wairau. Paying over the odds for farming land – which, after a recent drought, was less profitable than ever – Yukich managed to secure 1173ha in one go. But the Montana board wasn’t impressed – Yukich hadn’t sought approval prior to the purchase and had paid the deposit out of his own pocket, and the board decided not to go ahead.

After what must have been some sleepless nights, Yukich persuaded Thomas, who had moved to study in California, to get four professors from UC Davis to validate the report Thomas had originally drawn up. Fortunately, the board felt this was sufficient evidence to allow it to back the Yukich gamble. So began the Marlborough story.

Sauvignon Blanc wasn’t in the first plantings, but it followed a couple of years later and turned out to be brilliantly adapted to Marlborough’s soils and climates. But it was to be another decade before things really got going in the region.

After Montana’s original plantings at what is now the Brancott Estate, other companies followed somewhat cautiously, relying on growers who were spreading the risk of farming such marginal country by planting vineyards. By the early-1980s, the only wineries in the region were Montana and the boutique operations Te Whare Ra, Daniel Le Brun and Hunter’s. The pace quickened in 1985, with two success stories that kicked off international interest in the region.

Hunter’s was one of the first Marlborough wineries to make international waves. In 1979, northern Irish emigrant Ernie Hunter paid NZ$3,000 per hectare for a 26ha block in Rapaura. His first wine, the 1982, was made in Bill Turner’s Cider Factory in Christchurch by a 25-year-old German winemaker, Almuth Lorenz, who he’d met shortly before at a New Year’s Eve party. It won six medals at the National Wine Show. In London, the 1985 Hunter’s Fumé Blanc was voted the most popular wine at the 1986 Sunday Times Wine Club Festival, and the UK began to wake up to this new style.

ICONIC WINERY

Cloudy Bay made it to the UK a year later. This now iconic Marlborough winery was started by David Hohnen, then of Cape Mentelle in Australia’s Margaret River. In 1983 some visiting Kiwi winemakers left him a bottle of Sauvignon Blanc, and he was amazed by the wine. In 1984 he visited New Zealand to see for himself, and met Kevin Judd, who was then working for Selaks. Determined to go ahead with his own Marlborough winery venture, Hohnen raised Aus$1m and in 1985 produced the first Cloudy Bay Sauvignon from 40 tons of grapes trucked up to be made in Gisborne by Judd – mostly over the phone. The following year’s wine made it to the UK and was a hit. The ensuing export demand for this remarkable style of Sauvignon turned out to be the making of Marlborough.

Fast-forward to the current situation and, despite the fact that 2017 was a tricky vintage to say the least, Marlborough Sauvignon is a rarity in the world of wine – a success story. Pretty much everyone in the business is doing OK. The grape price is high enough that the growers can make a good living, but not too high that the companies which rely on these growers can’t make money also. The figures bear this out. The average yield per ton of Sauvignon Blanc in 2016 was 16.5ha a ton. In 2017, the tricky vintage, it was still quite high, at 15.6 tons/hectare. With a juice yield of around 780 litres per ton from machine-picked Sauvignon, yields expressed in European terms are in excess of 120 hl/ha.

The cost of farming a hectare of grapes is NZ$9,000-10,000, and the average price for a ton of Sauvignon is $1,850. So the simplistic reading of these figures is that, per hectare, the grower will be receiving around $30,000, making $20,000 in profit (if the land costs have already been amortised). But New Zealand Wine Growers and the Ministry for Primary Industries have created a Marlborough Vineyard Model, which aims to typify the average vineyard for the region, using data sourced from 38 vineyards (29 contract growers and nine winery-operated vineyards).

According to this model, in 2017 a typical 30ha vineyard would make $11,600 before-tax-profit per hectare.

It’s because of these sorts of calculations that land prices in the region are high. In the best spots of the Wairau Valley (the lower Wairau, where it’s possible to get 22 tons/ha of good quality Sauvignon) a hectare will set you back NZ250,000. In cheaper areas of the Wairau, it might be $150,000, but the average is around $200,000.

There is still some more space in the Awatere (water availability there is the limiting factor, but there are lots of promising unplanted sites still), but the Wairau is now pretty much planted out. You can drive 50km up the Wairau Valley from Blenheim and still see vineyards on either side of you. Large companies are on the lookout for new vineyards to purchase or contract, because the more grapes they can source, the more wine they can sell, and they are keen to secure vineyards for future growth. And investors figure they can get strong yields through vineyard leasing.

BOOM AND BUST

But growers in the region are a little wary of cycles. The boom and bust around the 2008 vintage is still quite fresh in people’s memories. In 2008 grape prices were at an all-time high of NZ$2,400/ton, but there was a crash because of over-production and the global financial crisis. This meant that by 2010, these prices had dropped by half to $1,200/ton. Some growers and smaller producers are concerned that a similar reversal of supply and demand could occur in the future, if the brand of Marlborough Sauvignon is damaged, or Sauvignon falls out of fashion.

One threat identified by the participants in the Marlborough Vineyard Model is that of opportunistic buyers purchasing excess fruit at prices 75% lower than the district average. When a grower is given a contract, there are usually conditions attached. For example, it might specify 22 Brix ripeness and less than 5% rot. If it fails this, it can be rejected, or there can be a renegotiation of price. The contract will also typically specify a yield cap. Any fruit above this yield cap can then be sold on by the grower at a lower price, as long as the contract doesn’t prohibit that.

It is partly these excess grapes that are being turned into inexpensive wine by contract wineries then sold to large supermarkets under private labels or soft brands. Indeed, in 2017 40% of total exports were in bulk, up from 34% in the previous year.

Are major brand owners concerned about bulk shipments? “The bulk market has existed for some time,’ says Patrick Materman of Brancott Estate. “And, while it’s not the highest value segment, we feel it has a part to play in introducing consumers to Marlborough Sauvignon Blanc at an accessible price point, from which they can then trade up to more premium offerings.”

Pernod Ricard, owner of Brancott Estate, has traditionally favoured building brands, and sometimes this means it has to draw back from markets where price is dominant and private labels abound, such as the US and UK.

“Marlborough Sauvignon Blanc continues to grow in popularity, but there is very little land available in the region,” says Materman. “This land constraint is leading to demand outstripping supply, and a likely grape price increase as a result. As supply becomes constrained, producers of branded wines will focus exports on higher-value emerging markets where private labels are less prevalent, rather than some mature markets where promotional activity and consumer price sensitivity have eroded profitability.’

BRAND OR COMMODITY?

So is Marlborough Sauvignon Blanc a brand or a commodity? For it to benefit all in the region, it needs to be a brand, with a brand promise. If Marlborough Sauvignon is to be a reliable brand promise, then each bottle on the market needs to be good quality. If there is a lot of cheap Sauvignon being exported in bulk and sold at a low price, and which doesn’t have the defining characteristics of the wine that has built up the reputation of the region, then brand equity will be spent, and eventually bleed out. Then all that’s left is a commodity that sells only on the basis of price.

Most of the region’s stakeholders are aware of this and some are trying to think of ways of preventing it. One way would be to bring in some rules, and there are advanced plans for an unofficial appellation called Marlborough Pure. Another option might be to clamp down on bulk shipments, but some large brands ship in bulk and bottle in market, so this would be problematic. Ultimately, the region needs to have a strong community that self-polices. It’s such a great success story, it would be a shame for this brand to be devalued through bad, cheap wine.

But seeing bulk shipments as entirely bad is too simplistic a reading of the situation. They are a vital part of the ecosystem in Marlborough. “I think it is all too easy for people to jump on the negative bandwagon when talking about bulk wine from Marlborough,” says a senior industry figure who didn’t want to be quoted, such is the touchiness around this issue. “The reality is, the ship has already sailed, and it did so some time ago. Within the next couple of years NZ will be exporting more wine in a bulk format versus bottled.” He points out that there are some good quality branded wines already shipped in bulk and bottled in market. And bulk shipping has financial and environmental benefits. He thinks the threat from cheaper, lower-quality wines is small. “There always has been and always will be wines made from rejected or over-cropped vines,” he says, “but as a percentage of the total volume produced the number will be very small.

“The demand is there and being driven by the global supermarket brands, so people will take opportunities including using over-cropped or poor-quality fruit. Should there be more emphasis on branded wines? Probably, but we don’t really get the choice to control that – we get told what they [the supermarkets] want and we do it.”

In Marlborough, the 2018 vintage is just beginning to come in, and so far it looks to be promising, despite more than average rainfall. The world’s appetite for Marlborough Sauvignon shows little sign of diminishing, and while there remain some tensions in the region between the large companies (just five or six will be making 80% of the wine) and the smaller, more boutique producers who’d like to see more emphasis on quality over quantity, this remains one of the wine world’s great success stories.