Submission to the Marlborough District Council Annual Plan 2016/2017

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Cameron Day
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1 13 May 2016 Submission to the Marlborough District Council Annual Plan 2016/2017 Request: Applicant: Contact: $ pa funding for six years from 2017 to 2022, critical to establish the New Zealand Research Institute of Viticulture and Oenology, a new and worldclass wine industry research hub in Marlborough that will deliver significant economic benefits to the region New Zealand Research Institute of Viticulture and Oenology (a wholly owned entity of New Zealand Winegrowers Inc). Simon Hooker General Manager Research simon@nzwine.com

2 Summary The New Zealand Research Institute of Viticulture and Oenology (NZRIVO) is proposed under the new Regional Research Institute programme, established by the Ministry of Business, Innovation and Employment (MBIE). NZRIVO will be created in Blenheim, carrying out research in support of the grape and wine industry and delivering research results and economic benefits directly to the Marlborough region. The wine industry is the sixth-largest NZ export commodity and is growing far faster than GDP, with close to doubling wine export revenue since 2008 (from $800 million to $1.5 billion). This has had positive spillover effects in (1) directly related industries, including packaging and business services, (2) industries where households spend their income, e.g., retail and housing, and (3) Government tax-take. The wine industry is a success story that will continue through innovation, of which a core activity is research. The time is right to co-ordinate and focus New Zealand s grape and wine research activities through a single entity with an international profile, and that entity will be NZRIVO. The opportunity exists for Marlborough to establish NZRIVO, placing the district at the forefront of world-class wine industry research. The Marlborough District Council has the opportunity to demonstrate regional support for an industry that is fundamental to the future of the district. This support will leverage $10.5M of Government investment from 2017 to 2019, with the potential for further Government investment from 2020 to New Zealand Winegrowers is committing $ pa to NZRIVO for each of the next six years; MBIE expects to see regional investment alongside this industry commitment. We are aware that the Marlborough Research Centre is also requesting increased funds in the Annual Planning round, with a reference to NZRIVO. The MRC request must be considered as separate to this NZRIVO request. Only New Zealand Winegrowers is able to speak on behalf of the NZRIVO proposal, which needs direct support from the Marlborough District Council. (MRC is one of the many parties currently in discussions with New Zealand Winegrowers regarding the establishment of NZRIVO.) New Zealand Winegrowers is therefore requesting that the Marlborough District Council commit to $ pa directly to NZRIVO from 2017 to This will provide critical funding to initiate the provision of NZRIVO physical facilities and is requested on the basis of the benefits to the region hosting NZRIVO. These benefits include increased stability and prosperity of wine industry businesses, increased tertiary organisation activity in the region and increased investment in research in the region. NZRIVO will assist in Marlborough s goal of increasing its participation in the tertiary and quaternary employment sectors and retaining and bringing young people to the region.

3 Background In November 2015 MBIE called for concept documents regarding Regional Research Institutes (RRIs). The goal of Regional Research Institutes is to develop centres of research excellence, similar to Cawthron in Nelson, which are located in NZ regions, closely connected to industry and deliver measurable benefits to the region and to New Zealand. RRI concepts were submitted in February 2016 and, in a tough competition, NZRIVO was one of the three concepts approved to go to Business Case. MBIE s approval of the Business Case will commit MBIE to providing funding in the order of $10.5M over three years. The detailed Business Case, including budgets and external funding commitments will be submitted to MBIE by mid-august 2016, with final decisions to be made by October The NZRIVO concept is of a modern, world-leading research institute, which will provide a focus for coinnovation as well as a showcase of success in primary industry research, innovation and commercialisation. The vision is that all relevant grape and wine research in New Zealand will be driven through NZRIVO, which will also serve as the repository for industry knowledge developed from the research. The institute will provide employment for a significant number of research and technical staff, creating a solid knowledge platform from which the institute will grow and collaborate. Founding collaborators of NZRIVO will include tertiary institutions Lincoln University, University of Auckland and the Nelson Marlborough Institute of Technology (NMIT). Activities will be supported by a mix of funds from individual wine companies, New Zealand Winegrowers, competitive research funding and commercial contracts. The structure of NZRIVO is shown in Figure 1. NZRIVO will initially have four focus areas that have been selected by the industry as being vital to supporting growth in the near to medium term. However, focus areas will evolve over time as industry and regional needs change. The four initial focus areas are: (1) wine analysis for improved flavour and aroma, (2) value chain productivity and logistics, (3) genetic improvement for disease resistance, flavour and productivity enhancement, and (4) sustainability of the environment, the vines and production. The coalescing of all grape and wine research through NZRIVO will deliver a significant amount of funding through Marlborough. Although the Institute will support research undertaken at other locations in the country, a considerable proportion of research will take place within the Marlborough Region. The annual estimated NZRIVO budget is an average of $7.3M pa for the next 10 years, including $ pa from NZ Winegrowers, additional investments from grape and wine companies with particular research interests, and a further $1.6M of Government research funding (in addition to the RRI support). Government support of the NZRIVO Business Case is contingent, amongst other matters, on demonstrated support from the region. In the early stages of development, Simon Hooker from NZ Winegrowers discussed the NZRIVO Concept with Alastair Sowman, Mark Wheeler and Martin Fletcher with a view to MDC supporting this initiative. It is now time to take these initial, very positive discussions to the next stage as required by Government. This requires a commitment of financial support from the MDC on the basis that MBIE approves the NZRIVO Business Case. Therefore NZ Winegrowers is asking the MDC for a six-year commitment of $ pa. This commitment will be targeted at accessing and/or construction of NZRIVO physical facilities, recognising that NZRIVO will be established well before any new facilities can be created. The MDC s financial commitment will be reconsidered at the end of the six-year period, based on the performance of NZRIVO and its contributions to the region. It is essential to the success of the Business Case that a strong commitment to NZRIVO is demonstrated by the region.

Figure 1 NZRIVO structure The New Zealand Wine Industry The NZ wine sector has grown faster than GDP since 2008 (Figures 2 and 3): Wine export volumes have doubled from 89 million to 210 million

4 Figure 1 NZRIVO structure The New Zealand Wine Industry The NZ wine sector has grown faster than GDP since 2008 (Figures 2 and 3): Wine export volumes have doubled from 89 million to 210 million litres Wine export revenue has increased from $800 million to $1.5 billion. In a slow economy, the wine sector has been an all-too-rare success story. As Marlborough is well aware, an astounding 79 percent of all New Zealand export wine comes from the region. Wine sector growth benefits the wider economy as shown in Table 1, through increasing tax revenue, employment, demand for goods and services such as packaging and business services and household spending. Another important benefit is the rise in wine sector tourism, the income from which has nearly trebled since 2002 (Table 1). Twenty percent of international tourists visit a winery and wine tourists spend, on average, 1.5x the amount spent by other tourists. For every dollar the wine industry earns, approximately $7 more accrue in regional economic benefits.

5 Index, 2008 = 100 Figure 2 Wine sector versus economy-wide growth Nominal revenue Wine exports 80 Exports 60 GDP Figure 3 Volume of New Zealand wine sold (m of litres) Domestic Exports Figure 4 Total salaries and wages paid ($m) Grape growing Wine production

6 Table 1 Wine sector growth Nominal revenue Measurement Number of wineries 673 (535 Marlborough) 703 Number of grape growers 762 (140 Marlborough) 824 Productive hectares 35,859 33,400 Estimated employees 7,580 (2240 Marlborough) 7,700 Estimated wages $282 million $225 million Export sales revenue (FOB) $1,536 million $1,202 million Gross output (total revenue) $2,096 million $1,786 million Contribution to national GDP (%) 0.4% 0.3% Contribution to national GDP ($) $1,092 million $760 million Number of international wine tourists (visitors) 551, ,000 Spending by wine tourists $2.8 billion $814 million Benefits to Marlborough District Grape growing and wine manufacturing are very important to the Marlborough economy, contributing $371M in 2015 (2010 prices), or 17% of the total. Marlborough s 79% share of NZ s wine exports is worth $1.23B of the total $1.54B. The dependence of the Marlborough economy on the grape and wine sectors means that, when wine has a bad year, the economy of the district suffers. Figure 5 shows the impact of these sectors on the Marlborough region: in 2010, the wine industry s $38-million downturn accounted for more than half of the decline in Marlborough s GDP. Figure 5 Marlborough GDP and wine sector GDP As the district economy is highly reliant on the grape growing and wine manufacturing, it is essential that these industries remain vibrant and successful. Research is a key component to maintaining vibrant, forward-looking, flexible industries and organisations. We believe that a strong, focused research effort will maintain the success of the Marlborough, and New Zealand, wine industries for many years to come. We have an opportunity to build on the clear successes enjoyed by the industry to date, including the creation of Marlborough Sauvignon

7 blanc as a new and substantial wine category. A Primary Growth Partnership developed and managed by NZ Winegrowers (which will be integrated within NZRIVO) is currently seeking to develop lower alcohol/lower calorie wines; the programme is already gaining substantial traction nationally and has created a platform from which to build an international profile. A coherent grape and wine research programme, focused through NZRIVO with a considerable amount of activity occurring in Marlborough, will support the industry to identify, capitalise on and create the international wine success stories of the future. Figure 6 Infometrics data on employment sectors in Marlborough The local economy is not just about money, it is also about employment and the breadth of jobs available. The grape and wine industry contributes significantly to Marlborough employment, providing about 2,240 jobs in other words, about 10% of Marlborough employment. In addition, many more people are employed in related industries and considerable amounts of grape and wine industry revenue are spent in local businesses. The existing wine industry contribution to employment is important, but it has also been identified that Marlborough should increase the number of tertiary (health, educational and professional/trade services) and quaternary (knowledge-based) jobs in the region (Infometrics, 2015 and Smart and Connected Report for the MDC by Mandolin Associates). Currently such job opportunities are relatively scarce in Marlborough (Figure 6), and if the region wants to maximise its potential value, it needs to move from a production-based economy to the higher levels of the smart and connected triangle (Figure 6). Figure 7 Smart and Connected Report, Mandolin Associates NZRIVO will create new employment opportunities for highly skilled people in the region, while increasing the likelihood of retention of existing skilled staff in grape/wine research. These opportunities include both jobs in the Institute as well as researchrelated positions or part-positions in grape/wine businesses. We estimate that, by 2018, 14 highearning FTEs will be working at the Institute. In addition, a significant portion of the budget will be spent

8 on subcontracted researchers who will be sourced from national and international research and tertiary institutions. The research activities at NZRIVO will be linked with teaching activities in the associated tertiary institutions. Tertiary courses will allow young people from Marlborough to undertake training in grape and wine research in their district and will attract additional young people from elsewhere in New Zealand and overseas. It should be emphasised here that it is intended that within six years NZRIVO will become an internationally renowned and regarded institute for research on grapes and wine. It will draw interest from national and international researchers competing to undertake sabbatical study in Blenheim. Value for Investment The following mechanisms will ensure that councillors and ratepayers see the benefits being achieved for the region from MDC investment in NZRIVO: The Institute will report to the MDC on its business plan, targets and achievements on an annual basis. The Council can identify areas of research related to the wine industry and submit these for consideration in the research activities which will be determined by the NZRIVO Board. NZRIVO will acknowledge the support that it receives from the MDC in all appropriate documents and media releases.

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