Bordeaux or New Zealand?

It seems as if Bordeaux wine growers are not the only ones suffering from falling land prices; things are not looking too rosy in New Zealand either. When I was working in Marlborough, New Zealand, in 2004 it seemed no one could put a foot wrong. Bankers, airline pilots, film producers and multinationals were snapping up every available parcel of land and such was the scale of new vineyard plantings there were waiting lists at the nurseries. Vineyard prices hit a high of almost NZD 300,000 per hectare in Marlborough in 2007 (equivalent to USD 225,000; GBP 140,000; EUR 170,000 at today’s exchange rates) but a fall in grape prices has had a knock-on effect on land prices.

The tipping point was a record harvest in 2008 that took everyone by surprise. I remember spending hours in Ivan Sutherland’s vineyards (www.dogpoint.co.nz) counting bunches and then using average bunch weights from previous vintages to estimate the crop size.  However, for some reason everybody got their sums badly wrong in 2008 and, for the first time since the region hit the world stage, supply outstripped demand, particularly in the all important market for Sauvignon Blanc. A combination of good weather conditions throughout the growing season and significant new plantings coming on stream meant that the total harvest in New Zealand in 2008 was 285,000 tonnes, up 40% on 2007.  In Marlborough they harvested 194,639 tonnes in 2008, up from 120,888 tonnes in 2007, a 60% increase. This surge in supply could not have come at a worse time, coinciding as it did with a global economic slowdown, and grape prices soon began to reflect the softening market. The average price paid for a tonne of Sauvignon Blanc grapes has fallen from around NZD 2,400 (USD 1800; GBP 1150; EUR 1350) per tonne in 2007 to around NZD 1,200 (USD 900; GBP 560; EUR 670) per tonne for the 2010 harvest. For those producers without a supply contract prices were even lower and some were unable to find a buyer for their grapes. Predictably vineyard prices have followed suit. From a peak of almost NZD 300,000 (USD 225,000; GBP 140,000; EUR 170,000) per hectare the average price for a Marlborough vineyard is now around NZD 150,000 (USD 110,000; GBP 70,000; EUR 85,000) per hectare. 

So how does this compare with Bordeaux ?  Although the market mechanism is not the same (few producers outside the cooperatives sell grapes) a good comparison is the price of wine sold in bulk, which represented 51% of all dispatches from cellars in 2008/09, according to the Conseil Interporfessionnel du Vin de Bordeaux.  The bulk price for dry white AOC Bordeaux is currently around EUR 1,000 per tonneau (900 litres), which equates to EUR 110 per hectolitre, or EUR 660 (USD 870; GBP 550; NZD 1,170) per tonne at today’s exchange rates, remarkably similar to the current market price for Sauvignon Blanc grapes in Marlborough.  However, the similarities cease when comparing land prices in the two regions.  While a hectare of vineyard land in Marlborough is still worth in the region of EUR 85,000 at current exchange rates, one hectare of AOC Bordeaux land is worth only EUR 17,000, according to the SAFER (see Bordeaux Vineyard Prices).  Why this discrepancy ?  Is it a question of supply ?  The figures for overall plantings would suggest otherwise.   According to the New Zealand Winegrowers Statistical Annual 2009 (www.nzwine.com) there were 13,943 hectares of Sauvignon Blanc planted in Marlborough in 2009, 75% of the total planted area of 18,401 hectares.  By comparison, the total area of white AOC Bordeaux production is just 6,040 hectares, 5% of the total planted area in Bordeaux of 117,500 hectares.  Even taking into account the other Bordeaux AOCs producing dry white wine, such as Graves, the total area is still only just over 9,000 hectares, half the area planted with Sauvignon Blanc in Marlborough.  Evidence on the ground also points to a shortage of white AOC vines in Bordeaux, a factor that one might expect to be underpinning land values. 

So, if you had 1 million Euros to invest, would you be better off buying 12 hectares of Sauvignon Blanc vines in Marlborough or 60 hectares of white AOC Bordeaux vines ?  Five years ago, with a seemingly insatiable worldwide demand for New Zealand Sauvignon Blanc, I would have been tempted to opt for Marlborough; now I’m not so sure...

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