The Wine Sectors of New Zealand and Chile. Dr Robert N Gwynne University of Birmingham

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1 The Wine Sectors of New Zealand and Chile Dr Robert N Gwynne University of Birmingham Chile and New Zealand Between competition and cooperation? Victoria University of Wellington Friday April 22 nd, 2005

2 Comparative analysis of the wine sectors of Chile and New Zealand Political Economy links Land under Wine Grapes Wine Production Wine Exports Wine Export Destinations

3 800 Figure One: Wine Exports from Chile and New Zealand, (US$mn) 700 Chile New Zealand US$ mn

4 TABLE 1: PRODUCTION AND EXPORTS IN THE CHILEAN WINE INDUSTRY, CHILE Producing Areas (hectares) Total Production mn. litres Export Volume mn.litres Export Value US$mn Export Volume as % of Prod. Volume 54,146 54,393 56,004 63,543 75,388 85, , , ,569 n.d Source: ChileVid, Banco Central de Chile.

5 TABLE 2: PRODUCTION AND EXPORTS IN THE NEW ZEALAND WINE INDUSTRY, NEW ZEALAND Producing Areas (hectares) Total Production mn litres Export Volume mn litres Export Value NZ$mn Export Volume as % of Prod. Volume ,110 6,110 6,610 7,410 7,580 9,000 10,197 11,648 13,787 15,800 n.d Source: New Zealand Winegrowers Annual Report, June 2004

6 Figure 2: Change in Land Under Six Main Wine Grape Varieties, Chile, Thousand Hectares Cabernet Sau Pais Merlot Chardonnay Sauvignon Bl Carmenere

7 Figure 3: Change in Land Under Six Main Wine Grape Varieties, New Zealand, ,000 Hectares 3,000 2,000 1, Chardonnay Sauvignon Blanc Pinot Noir Merlot Cabernet Sauv Riesling

8 Enterprise Development and Wine Regions Structure of New Zealand industry Structure of Chilean industry Enterprise Development and the Wine Regions

9 New Zealand Wine Industry Large wine enterprises linked to TNCs Montana (Allied Domecq) & Nobilo (Constellation Brands). 52% 2004 vintage. Medium-sized wineries some linked to TNCs (Wither Hills Lion Nathan) but most not. 30% 2004 vintage. Small-scale family-owned wineries. In areas near large metropolitan areas, significant sideline of wine tourism. 18% 2004 vintage.

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12 TABLE 3: MAIN NEW ZEALAND WINE REGIONS ACCORDING TO LAND UNDER DIFFERENT GRAPE VARIETIES, 2002 (hectares) Grape Variety Marlborough % Gisborne % Hawkes Bay % Other Regions % Total % Sauvignon 3, , Blanc Chardonnay Riesling Pinot Noir , Cabernet Sauvignon Merlot , All Other Varieties , TOTAL 5, , , , , Source: New Zealand Grape and Wine Statistical Annual 2003

13 Figure 4. New Zealand s M ain W ine Regions Auckland G isborne Hawkes Bay Auckland W a ira ra p a Nelson M a rlb o ro u g h Canterbury Mt Ruapehu Napier Hawkes Bay Poverty Bay G isborne Central Otago Nelson W e llin g to n Blenheim Cook Strait C hristchurch Q ueenstown Dunedin M iles Kilom etres

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16 Chilean Wine Industry Large domestic firms with a long brand history Concha y Toro, Errazuriz Subsidiaries of large foreign-owned wine firms can be wholly-owned or joint ventures. Medium-sized companies attempting to target niche export markets (UK 1 st ) Large cooperatives that have managed to upgrade (Cooperativa de Curico).

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20 TABLE 4: MAIN CHILEAN WINE REGIONS ACCORDING TO LAND UNDER DIFFERENT GRAPE VARIETIES, 2002 (hectares) Grape Variety Maule & Curico % Rapel % Maipo % Acon. & Casabl anca % Others % TOTAL % Cabernet 15, , , , , Sauvignon Merlot 5, , , , Carmenère 2, , , Pais 8, , , Other Reds 3, , , , TOTAL REDS 36, , , , , Chardonnay 2, , , , Sauvignon 4, , Blanc Other Whites 3, , , TOTAL 10, , , , , WHITES TOTAL 46, , , , , , Source: Chilevid

21 Figure 5. C hile s M ain W ine R egions Region Subregion Aconcagua San Felipe Casablanca Maipo Casablanca Santiago Rapel Curico Santa Cruz Rancagua Cachapoal San Fernando Maule Itata Mataquito Talca San Javier Cauquenes Curico Molina Bio-Bio Regional border National frontier River Borders of wine regions Wine towns Laja Km

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25 TABLE 5: LAND UNDER THE DIFFERENT WINE GRAPE VARIETIES IN THE RAPEL REGION, CHILE, 2002 (Hectares) Cabernet Sauvignon 15,536 Merlot 5,083 Carmenère 2,621 Chardonnay 1,602 Syrah 1,195 Tintoreras 963 Sauvignon Blanc 924 Semillon 483 Cot 447 Cabernet Franc 374 País 308 Pinot Noir 197 Alicante Bouschet 154 Other Grapes 573 TOTAL 30,460 Source: Sauter (2004)

26 Conclusions Wine sectors in both New Zealand and Chile represent examples of sectors unable to grow in the inward-oriented paradigm. With the scale of potential markets shifting from the national to the global, the wine sectors in both countries had the opportunity to follow a completely different trajectory. This is partly for geographical reasons linked to the environmental characteristics of certain regions within both countries. With investment in wineries and vineyards it became apparent that these regions could produce quality wines for global markets. After a process of trial (and error) with grape varieties, certain regions were recognised to have the climatic and soil prerequisites to become iconic regions for the production of those varieties at the global scale. The Marlborough region came to specialise in the production of the Sauvignon Blanc variety and the Rapel region in Cabernet Sauvignon and Carmenère.

27 Sustained growth? Both New Zealand and Chile could now be entering an era of sustained growth in their wine sectors. Over the past decade production, exports and investment have grown rapidly. A favourable spiral of expanding investment, upgrading of wineries and vineyards, improved products and increasing sales has developed. This has allowed for not only increased export volume but also for higher prices for those exports (per unit of volume).

28 A Paradox? There is an apparent paradox in the relationship between the wine industry and the political economy framework in New Zealand and Chile. In New Zealand, a long period of significant and enlightened state regulation of and intervention in the industry has resulted in an industry in which foreign-owned TNCs dominate the industry. In Chile, with a much longer history of market-and outward-orientation, a much more differentiated firm structure has developed but one in which foreignowned TNCs have little significance in terms of direct ownership.

29 Culture and economy explanation? Traditionally, New Zealand has been a beer-drinking country and formerly wine production in bulk was dominated by breweries; meanwhile, small-scale wine production was largely in the hands of Croat immigrants with little chance of significant growth in production.

30 In contrast, Chile has a long history of being a winedrinking country, and formerly wine production incorporated large numbers of firms that produced for the domestic market. With the shift to higher quality and export-oriented production, the required investments were taken on by a large number of these companies in Chile. These firms both competed against each other in certain business areas (such as in gaining access to export markets) whilst collaborating in others (as in technological acquisition). Thus, the contrasting cultural history of enterprise development in the two countries may provide at least part of the explanation to the paradox