Wine industry in turmoil as Montana slashes grape orders (Updated)

New Zealand's biggest wine maker, Montana, has confirmed it is significantly reducing orders for grapes from this year's harvest and reviewing its contract arrangements with growers after a softening of demand for chardonnay wine. (Updated to include further response from Pernod Ricard New Zealand.) Industry sources told interest.co.nz Montana was not renewing expiring three year contracts and had shocked many grape growers with the scale of the cutbacks, triggering potential legal action as growers had invested in new vines for the long term. A meeting between lawyers for the growers and Montana is scheduled for Monday, one industry source said. One source said short term one year contracts were also not being renewed or being cancelled. Growers on longer term contracts are disputing whether Montana had obligations to keep rolling contracts over once they had expired, the source said. Pernod Ricard New Zealand, which owns Montana and other wine producers, said on Tuesday, February 24, that meetings had taken place the previous day between growers and its staff, but that lawyers were not present. "We've not heard anything about legal action," Pernod Ricard spokesman Tony Hoksbergen told interest.co.nz. Hoksbergen said Pernod Ricard had met with growers that would be affected, and although some had been disappointed, most understood the reasons and were "quite understanding." Pernod Ricard said demand for chardonnay had continued to soften in recent months despite investment in new packaging and new styles. "Accordingly we must unfortunately take steps that adjust supply to reflect the real demand with these wine styles and as such we are in the process of reviewing our grower relationships," Montana spokeswoman Cathy McKeown said in an emailed statement. "We anticipate the 2009 harvest to be slightly smaller than the 2008 harvest, and we have planned to get the balance right between supply and demand predictions and forecasts," McKeown said. "We would like to reiterate that we value our strong relationships with our growers and that any decisions to not renew grape supply contracts from growers will not be taken lightly," she said. New Zealand Winegrowers released survey results on Friday forecasting a 2009 grape harvest of 275,000 tonnes, which is down from the record 2008 harvest of 285,000 tonnes despite an extra 3,000 hectares of grapes coming into production. The Marlborough Express reported that grapes were being cut from vines early to make the harvest more manageable and that the wine industry still had wine from 2008 in its tanks. Industry sources said Montana was applying for resource consent to dump surplus grape juice in Marlborough and many vineyards were expecting to leave grapes on vines if they were not bought by the big winemakers. Pernod Ricard told interest.co.nz they had not applied for resource consent to dump wine. "Absolutely not," Hoksbergen said. Here is the full email exchange with Montana. From Alex Tarrant. We have a few questions regarding Montana (in NZ) cutting back on supply contracts with vineyards. "¢ Has Montana begun canceling supply contracts with supplier vineyards? "¢ When did it start to cut back on these contracts in large numbers? (ie as opposed to previous years when it might cancel a few at the end of each season, but pick others up) "¢ How many contracts has it canceled from the amount it had last harvest? "¢ Is it possible to get figures on how many less grapes Montana will be getting from non-Montana owned vineyards this harvest? "¢ What factors are involved in pushing Montana to cancel/cut back on contracts? "¢ In what regions of New Zealand has Montana canceled contracts? Is it possible to get figures for each region? Reply from Cathy McKeown at Pernod Ricard. "¢ You will no doubt be aware the New Zealand wine industry has been through a period of strong export led growth over recent years, driven largely by global demand for our Marlborough Sauvignon Blanc. Our export success has been built on that quality and we are recognised for this internationally. "¢ At Pernod Ricard New Zealand, we have gone to considerable effort to stimulate consumer demand for Chardonnay and initiatives include new product development, innovative packaging, capital investment and changes in wine style. In spite of this, international demand has continued to soften. "¢ Accordingly we must unfortunately take steps that adjust supply to reflect the real demand with these wine styles and as such we are in the process of reviewing our grower relationships. "¢ We anticipate the 2009 harvest to be slightly smaller than the 2008 harvest, and we have planned to get the balance right between supply and demand predictions and forecasts. "¢ We would like to reiterate that we value our strong relationships with our growers and that any decisions to not renew grape supply contracts from growers will not be taken lightly. "¢ We will be continuing to invest in our brands and despite the current economic indicators, the overall wine market still remains positive.