New Zealand wine is a major export success story. But our wine producers must grapple with all the issues that come from being part of a complex global economy – market access uncertainties, rising information demands and traceability among them. SCAN talks with Philip Gregan, Chief Executive of New Zealand Winegrowers (NZ Wine) which represents, researches and promotes the interests of grape growers and winemakers.
Question: How has New Zealand wine been so successful in the global market?
We can look back to the opening up of global trade over the past 25 years, and couple that with New Zealand’s own programme of economic reform since the mid 80s and with a huge shift in the traditional beer drinking countries like Britain and Australia to consumption of wine as well. On top of these broad foundations, the plain fact is that New Zealand produces world class wines that are truly distinctive and have really captured attention because of their style and quality. The obvious example has been Marlborough sauvignon blanc ... it's world class and you can’t get it anywhere else. Likewise, you can only get a Hawkes Bay syrah or Central Otago pinot noir from those places, and people know that! Even today if you’re doing an international wine tasting, people can tell the difference between a Marlborough sav blanc and anything else. At a recent tasting I attended, everyone simply said it was “classic”. The future for this country is to keep producing wines that express our New Zealandness … I think so long as we continue being world class and distinctive, there’s definitely a place for New Zealand wines in the world.
Question: Where does sustainability fit into that?
To maintain our distinctiveness, we absolutely have to be sustainable. That means looking after our land, water and air, and also looking after our people. It’s not optional from either a production perspective or a market perspective. We started out in 1995 with a sustainability programme, and in 2010 we said that anyone who participates in any New Zealand Wine event anywhere in the world needs to be certified “sustainable”, whether that was recognition as organic, biodynamic or sustainable in context of another programme including our own. Effectively the whole New Zealand wine industry is part of some certification programme and of course, within each of those the bar is getting higher all the time. Wine is also recognised as a relatively efficient use of land and of water, and we're not a big source of nitrogen leaching either. The industry looks good in much of that space but we’ve got to keep moving forward on all aspects of sustainability so that we retain the support of our local communities.
Question: You have a target of $2 billion in export sales by 2019-20, that's extraordinary growth over the past 23 years. Can it continue?
We will hit that target in the next few years – and yes, there is definitely further growth to come. Whether we encapsulate that in a new big export growth target is another question because actually our success story is broader these days. Wine tourism within New Zealand is part of it, and that doesn’t get counted in export sales. There will be other indicators of success. Grape production is continuing to grow, with just under 1,000 hectares of new vines being planted each year. We’re at 38,000 hectares in production this vintage. That said, land availability is becoming an issue. Marlborough is running out of land and we had PwC do a strategic review last year which put the land still potentially available for new planting at about 5,000 hectares. That will be eaten up quite quickly. The industry is facing some challenges to its growth although New Zealand can’t compete on the global market on a volume basis anyway. We are only 1% of world wine production and our cost of production, in a cool climate, is always going to be high. So, we’re always going to be about distinctiveness, sustainability and quality, rather than volume.
Question: Market access issues are always at the fore for New Zealand exporters, wine included. What is your take on global trade and protectionist risks in 2019?
There’s no doubt we have benefited from steady improvements in market access over many years, starting with CER1. Today we export to around 100 countries. The New Zealand Government has signed several treaty level agreements specific to the wine industry. For example, when we export wine to the United States this product can be made in accordance with New Zealand wine making rules not those in the US … same with our exports to Canada, Chile and some other countries. NZ did a very smart thing in the mid 90s and based our rules on how wine is generally made all around the world … we have a very open system with some baselines around product integrity and food safety. The European Union (EU) is the classic example of more restrictive technical rules and you adapt your winemaking to suit those rules when producing for that market. We have passed a Geographical Indication, or GI, system in this country because it suits our interests but it also provides alignment with the EU rules. Looking around the world today, there are a lot of positives. CPTPP2 gives us improved access into Japan and of course, we have the free trade agreement with China. That said, there are uncertainties on the horizon in relation to “America First” in the USA and Brexit. People ask me what Brexit will mean for NZ wine… if the UK Government doesn’t know the answer, then I absolutely don’t! Our role is to help wineries prepare to manage that uncertainty.
Question: Could there be a big issue around New Zealand wine exports into Europe via the United Kingdom?
Potentially there is an issue and also in regard to wine moving the other way across the Channel. But if the UK gets into negotiating free trade agreements with other countries, there’s an opportunity from our perspective to have more liberal winemaking rules than NZ currently faces when selling into the UK. We see some potential positives, although in the short term there may be disruption at the border.
Question: What is the trend in other, technical forms of trade barrier from national licensing boards, buyers’ special requirements and so on?
There are different levels of trade restriction, from governmental regulatory standards, to quasi regulatory standards, through to private standards as set, effectively, by supermarkets around the world. The risk around private and quasi regulatory standards is that they start becoming regulatory standards even though they don’t formally have that role. At the end of the day, a buyer can impose any standards they want but they need to be equally and fairly applied to domestic as well as foreign producers. From our perspective, you have to look at the direction of travel and ask, ‘is the level of activity taking us all in the right direction?’ Basically it is about deciding whether protectionism is on the rise or not. With Canada in recent times, we saw rules that favoured Canadian wine in terms of where it could be sold vis a vis imported wines. And we decided the direction of travel was all wrong there. I don’t think this type of problem is on the rise worldwide. For New Zealand, and other countries, one of the bigger issues on the horizon is the future of the World Trade Organisation (WTO) system and the weakening of its appellate processes. We are not going to have the judges who are needed to look at breaches of WTO rules. As a small country with no real power, this is really concerning because we have no other way of getting trade rules enforced. Everyone is concerned about fraying of the global trade rules system. It comes back to greater uncertainty for exporters and higher risk around what we produce, how and for whom.
Question: Can New Zealand producers contain some of those risks by ensuring they adhere closely to global standards for identification and data sharing? For wine makers and exporters, there has perhaps been a tension between global standardisation and the fact that they are producing such a distinctive product as you alluded to before.
I don’t think there is a tension between those two things but yes, there are times when wine producers don’t fully understand what is being asked of them in the global market. There are definitely some baselines that wine producers must meet. Whatever channel you are going to be selling through, there are standards to be complied with … and usually that means your product needing to be separately and uniquely identified. That’s just part of doing business and being in the world. This is what private standards are partly about. It's much easier if you also understand the ‘why’ behind a requirement, and that applies to complying on data standards too. Without it people will be inclined to say, ‘I’m not going to do that because it doesn’t make any sense’. We’ve got an industry where people come and go all the time … wineries are bought and sold, people are coming into the industry from different backgrounds. It’s easy to lose the understanding within individual wine making organisations. We see that when dealing with wineries on labelling and export issues.
Question: Are private standards generally clear enough for people in the industry as they approach export markets?
Much of the time, the issue comes down to who the wine producer is actually dealing with in a foreign market. Many producers and exporters don’t know the retailers who are ultimately selling their wine … they deal with an importer and rely on them to provide all the information that will be needed. What we sometimes see – and it is particularly common in Asia – is that the importer will represent regulatory demands in ways that are quite different from what they actually are. Exporters are being asked for much more information that the regulations require. We see this all the time … we go back to wineries and say, ‘no, this is not required, if you give this level of information to your importer, they will then ask everyone else for this and the private standards will, in effect, become the regulatory ones’.
Question: To the extent that the issue is about data and information, it must be extremely useful to have one set of global standards for everyone to refer to and one organisation like GS1 that is present in every market.
In 1990, less than 1% of NZ wine was exported. Today that figure is 85% and it’s only going to increase in the years ahead. So our industry as a whole is international – and when you’re in an international business, there are international standards and protocols to be applied whether you like it or not. The standards need to be complied with … and when your product is global, it is much better to have one system of standards that applies across 100 markets than just a few. One of our roles at NZ Wine is to tell people what the labelling requirements and other standards they should be following. We give advice within our areas of expertise. We are not experts in product identification and barcoding or in data capture and sharing … that’s where GS1 comes in and our members have to rely on GS1's expertise in those areas
Question: How do you view the prospect of product data which is collected for use in New Zealand trading systems then being shared with overseas border authorities with the ostensive goal of expediting trade and clearance?
It could be very advantageous where data sharing supports trade flows and reduces cost in the supply chain … but there is that risk of ever increasing demand for information from producers – some of that information commercially sensitive – that cannot actually be justified in the interests of all parties. You always have to ask, ‘why do other countries want all this data from us?’. There’s a big difference between private sector transactions, where a particular buyer is asking questions of a particular supplier as part of their marketing and supply chain arrangements, and the collection of information that becomes built into regulatory standards without understandable advantages to all parties. Over time, there is a danger of more and more information flowing not just to customers but also to border authorities, at a cost to the producer but without any obvious advantage to them or to consumers. Where information is passing through to authorities, the question becomes, ‘what, really, are the risks that need to be controlled and managed by those authorities having access to all this information?’.
Question: There are advantages generally in sharing information to combat the counterfeiting of products which is a huge issue in some markets. Is counterfeiting of New Zealand wine an issue for you yet?
We have no instances of counterfeit reported yet. I’ve been to big trade fairs in China and there are products on display that are clearly imitating or trading off other brands. Penfolds from Australia is the classic example. We haven’t attracted that sort of attention yet. The difference is that Australia exports over $1 billion of wine to China compared with our $40 million. But yes the risk is there as our presence grows in that market. We think that success in China isn’t about growing your sales 50% from year to year, but about being in the market long term and developing a sustainable business there.
Question: How good is the wine industry at traceability today?
We have the Wine Act 2003 and central to that is record keeping … winemakers must keep accurate records. To make good wine, you need good records. The consumer who buys a bottle of NZ wine anywhere in the world should be able to look at the label and know who the producer or importer was. There are lots of other questions they can ask as well... the vineyard the wine was sourced from, where the vines came from and when they were planted, when the grapes were harvested, what sprays were used, and so on. Much of this information must exist by law. The big question is how much of it is transferred up the supply chain and how. Yes, there are challenges in how you as a wine producer capture, store and share that information so that it is available for customer inquiry and for traceability. As a brand owner, you are in the centre of gathering all the data and being able to make it available, and that can include the scenario where your wine is exported in bulk and then bottled offshore for offer to consumers in particular markets.
Question: What advice do you give members on traceability systems?
Our role is to be expert on things that are particular to New Zealand wine. There are plenty of other issues which are very important to our members but on which we are not experts – and that includes GS1 standards and systems for product identification, standardised data and traceability. Wine producers need to use that expertise when they need it.