Boom and Bust. It’s not bad luck. It’s bad management.

This weeks Listener is carrying an article by Karl du Fresne which explores the career of Peter Hubscher. He is arguably one of the pioneering greats of the wine industry in the sense that he was at the forefront of the establishment of New Zealand as a producer of quality wines on the international scene. The peak of his achievements saw him running Montana for over 13 years in its heyday from 1991 to 2004.

The Listener article is a great read. I encourage those who wish to get an inside view of his opinions and philosophy to purchase a copy.

Sadly, the message that predominates throughout the feature is the recent mismanagement of the industry that saw it succumb to the worst aspects of greed and excess at the expense of sound planning and strategic thinking. To use a quote from the excerpt at the Listener site “An industry touted a few years ago as a glittering success story has fallen victim to the classic boom-and-bust cycle, led astray by short-term expediency, greed and feckless corporatism”.

Strong words and some might be thinking that there is a sense of sour grapes as a result of Hubscher’s experiences with the Te Kairanga vineyard. Here he took over a vineyard that was suffering as a result of poor crops and bad press (think back to the shipment of wine to Germany with excessive copper in 2007). He made good progress with his new project but he couldn’t escape the financial disaster of the wine industry and left the company in the middle of 2010.

The Listener article claims that he was advising caution of the possibility of a wine glut as far back as 2000. A quick search will supply just such a prediction. In May of 2000, the then managing director of Montana, Hubscher was brushing off the previous vintages lower than average crop which had affected Montana to a far smaller extent than many others. At this time he posted a warning that while the bigger players in the market could cope with the variation, “The bigger problem for some will be if there's a big crop the following year coming off a difficult financial base”. As it turns out 2001 was another troublesome year, but in 2002, there was a record harvest of 118,700 tonnes.

In 2001 Montana merged with / bought Corbans. This made the company the owner of 57% of the local market and responsible for 49% of international exports. At this stage, there was speculation of whether Lion Nathan or Allied Domecq was going to purchase the group. Ultimately the prospect of effectively purchasing the NZ Wine industry was too much for Allied Domecq and they purchased Montana later in 2001.

In 2002, on the back of the record harvest, the then chairman of New Zealand Winegrowers, Peter Hubscher predicted in the annual report that the “record” 2002 yield would be short lived, effectively changing the supply landscape for the industry. “It now seems reasonable to assume the producing vineyard area will reach 20,000 hectares by 2006, making vintages of 200,000 tonnes or more a real possibility within five years. A 200,000 tonnes vintage is two thirds larger again than this year’s record harvest and represents nearly three times the current total level of industry sales”.

Peter stayed on at Montana, but in 2003, further rumblings began to be felt. Martyn Nicholls helped design the vine cull subsidies that knocked out a fifth of New Zealand's vineyards in the mid 1980s. In 2003 he had just completed his Wine MBA, and was raising a warning that the country was entering into a global wine glut and will be hit hard. In his words “To meet the upcoming oversupply we will need to quadruple our exports in the next four or five years in some varieties. I challenge anyone to explain how that is going to happen.”. Not everyone was downbeat however. Allan Scott is quoted in the same article saying “Messages of doom and gloom had been circulating for the past 10 or 15 years and the region's wines had yet to take a hit. It is hard to know, but our experience has been that the market for sauvignon blanc is insatiable.” Those words must have a sting nowadays.

In 2003 Investigate magazine published the article interestingly titled “The Grapes of Wrath” (The same title as this weeks Listener article). In it, the surge of planting grapes as an investment is suggested by Hubscher as a trend to capitalize on the “current industry hype”. The article goes on to state “Statistics show that the New Zealand market for our own wine is not only small, but it is also static. Over the last decade, annual consumption per capita has, more or less, hovered around the 10 litre mark. Even Hubscher acknowledges that the domestic growth of sales is limited. Essentially what is happening is there are more grapes being grown, and more wineries producing greater volumes, but the same amount of wine is being consumed. As Hubscher says, "the principle growth opportunities for our wines are in the international marketplace," suggesting the only option is to export the surplus.” The article also quotes Professor Kym Anderson of the Adelaide University, who states that the predictions for World prices are dire. The only means for New Zealand to compete is in the upper end of the market. The bottom end is awash with wine that is cheaper than we can produce and at vastly greater volumes than we could hope to generate. Observes Neill Culley of Cable Bay Vineyards - there’s a market for large volumes of cheap wine and small volumes of quality expensive wine. “Because we are not a low quality producer, that’s one of our biggest assets.”

Observes Jon Harrey of Te Mania Wines - it won’t be the wine that suffers - it will be those speculative growers who don’t have a contract with a winery. Although the number of wineries has increased dramatically, he suspects there isn’t going to be adequate infrastructure to process the increasing volumes of grapes that the industry has predicted.

Further on the article states - some in the boutique industry reckon Hubscher’s warning is just sour grapes. They acknowledge the possibility of a fall in price but say bulk wine is going to suffer the most, like it has in Australia. Then again, Hubscher could be right.

Further in the article - only the future will reveal whether or not a wintry world wine market stems the prolific growth of our industry. But what emerges from the argument about a ‘wine glut’ is that some healthy balance, clearly absent at present, needs to be struck between supply and demand for grapes in the local market. If it isn’t, those landowners gate-crashing the party by planting more vines may end up with a bitter taste in their mouths when they find no winery needs their crop. As the saying goes, "Wine grapes are only good for one thing…"

Let’s remember, this information is from 2003. The warning signs of New Zealand’s involvement in a global market where we could never compete in bulk wine sales was evident. The industry at the time was concerned at the increase in planting and the lack of infrastructure to process it. It was recognised that New Zealand’s only hope of succeeding was to ensure that it’s wines were seen as high end luxury goods. The wine industry knew that they were overextending raw production at the expense of processing and that without NZ wine being seen as a quality product, the industry was going to be crippled.

In 2004 Peter Hubscher retired from Montana, just as it was being re-branded by its foreign owners “Allied Domecq Wines” In the 2011 Listener article he is massively critical of the disposal of the Montana brand. In a eulogy of sorts, Keith Stewart wrote in the Listener in 2004 that “In the wine industry, one of his legacies will be the co-operative organisation that he championed between the winemakers and grape growers. These two groups have little common ground. Because the merger improved the power of large wine companies who buy growers’ grapes, the ramifications are likely to trouble the wine industry for some time.” In today’s climate we can’t say the same thing. With the removal of Peter Hubscher the industry faltered. There was no strategic vision, there was no New Zealand Connection and the marketing of wine as an investment opportunity drove the market to an excess that ignored economic and practical signs of implosion.

The 2004 Listener article finishes by saying “Reflecting on Hubscher’s career in another generation, it could be that he will be remembered not for creating in Montana New Zealand’s largest wine company, but for creating the world’s largest wine boutique. That would be a fine achievement, indeed. ” It would have been, but for the greed and excess of those who would succeed him.

And so we come to today. Another bumper harvest coming up (the season has been extraordinary for growth) There has been no improvement in processing since 2008, yet the massive planting that was underway in the years up till then is now coming on stream. Little wonder then that we are filling shipping containers with bladders and sending them to Australia for processing as bulk wine. The vineyards are manned by machines, with the subsequent reduction in quality and costs. The strategic vision comes from NZ Winegrowers pleading (or demanding, depending on your viewpoint) with growers to reduce harvested volumes, but the relationships with the wineries is broken. Now it’s all about money. The small players are going under and the banks can’t even sell the mortgagee properties. New Zealand’s reputation as a producer of quality wines is all but eroded as investment monkeys scramble to salvage anything from the debacle and sell anything at any price.

This is not the legacy that Peter Hubscher wanted or deserves.

I assume you were misquoted!

I'm sorry, but what sort of rubbish is being spouted in the media thats attributed to the lawyer for the New Zealand Winegrowers?
According to the news report here, The Hurunui District Council and the NZ Winegrowers came to an agreement to limit the noise from frost fans last year and the rat-bag local residents kicked up a fuss.
Err... Now correct me if I'm wrong. The Hurunui District Council did the whole consulting with the residents and local industry thing and put forward a plan change. But it wasn't the local residents kicking up a fuss was it?
No, you will find that it was the NZ Winegrowers who appealed parts of the change and and the HDC was the Respondent. There were local residents as section 274 (interested) parties, but it wasn't them that took the Council to Court.
Word on the street is that the plan remains pretty much the same as before the appeal with progressive moves on  frequency of use and cumulative effects. I suppose if you've got your clients to spend all that money on legal advice, you've got to tell someone that you've won right? Especially in these hard economic times. I mean I'd hate for the people who actually paid the money to the NZ Winegrowers in the first place to think that their cash was going down the gurgler faster that 2010 Sav Blanc.
Well done. You're on a roll. Boy you really showed those locals! How dare they complain about the introduction of industrial noise to the peaceful countryside. They got what was coming to them.
And you know what? I think they actually did :-)