The Ministry of Agriculture and Forestry describes the astonishing growth of the Marlborough grape-growing area as the most sustained and significant horticultural land development in New Zealand’s history.

New Zealand’s productive vineyard area stands at about 30,000 hectares says MAF in a 96 page report on the situation and future of this country’s agriculture and forestry sectors.

The national vineyard’s area is projected to expand to about 35,000 hectares by 2012 the report says, based on vines already in the ground.

However, given recent deterioration in market conditions, a mothballing or removal of some plantings is likely over the next two to three years.

Most of the recent growth in plantings and production is due to development in the Marlborough region, and almost exclusively the sauvignon blanc variety, MAF says.

New Zealand exported 105 million litres of wine valued at around $945 million in the year ended March 31 2009.

The country’s major export markets continue to be the UK, Australia and the US, and they collectively account for 85 per cent of exports by volume. Sauvignon blanc makes up more than 80 per cent of wine exported. Total exports to date of this variety are up 35 per cent on last year, although the proportion of the 2008 vintage exported to date is below levels achieved in recent years.

The Australian market continues to achieve remarkable growth, now accounting for 35 per cent of total New Zealand wine exports, compared with just over 2 million litres or 14 per cent of wine exports 10 years ago.

The Australian consumer’s rising preference for New Zealand wines was demonstrated last year when a New Zealand sauvignon blanc – Delegat’s Oyster Bay - took the number one position in the Australian market for white wine sales.

The UK market has also performed well as British consumers consider New Zealand wine as great value for money. The demand in this market for traditional favourites from France, Italy, Spain and Germany has declined as the strength of the Euro makes these wines more expensive.

MAF says the challenge for the wine industry in the next two to three years is to profitably sell increasing volumes of wine into constrained overseas markets.

New Zealand wine has occupied a niche at the upper end of the wine market spectrum and, like all other market segments, has been affected by the recession.

Consumers in all our main markets are becoming more price sensitive in their wine purchases as they respond to turbulent economic conditions. As a result, lower prices are expected in New Zealand’s export markets for the duration of the recession.

Globally, vineyard area and production for 2008 were both down marginally compared with recent years. Some countries like France have been actively removing vines while new members of the EU have restructured their vineyards. In contrast, Oceania (representing Australia and New Zealand) has seen its share of world trade in wine jump from 1 per cent in the late 1980s to a forecast of 9 per cent in 2008.

This contrasts with traditional grape-growing countries like France and Italy, whose combined share of world trade has dropped in the same period from 58 per cent to 38 per cent.

While the global recession is causing some erosion in market price, the weak New Zealand dollar has helped hold up export prices per litre.

MAF expects the industry to go through a supply correction as prices to growers and producers drop. A return to more attractive prices is expected by 2013.