New Zealand: southern magnet for North American investment

Wines & Vines, Oct, 2003 by Susan Low

From the investors' point of view, there is much that's attractive about New Zealand, not least of which is the relatively low cost (and the availability) of vineyard land.

So, how do land values compare? Alan Brady is a pioneer of the Central Otago region. In 1981, he founded Gibbston Valley Wines Ltd., before moving on in 1997 to found Mount Edward, where he is now owner and winemaker. Brady says, "Land prices are a bit hard to keep track of. There's been a boom in planting in Otago over the past few years and they've risen a lot. Currently, plantable bare land is being sold for vineyards at between NZ$12,500 to NZ$41,600 per acre (NZ$1 = US$.58). It's possible to buy at less, and established blocks, of course, are selling for a lot more than NZ$100,000. Compare this with the NZ$1,000 an acre when I planted my first grapes at Gibbston in 1981."

The other big hotspot is Marlborough. Stuart Smith is president of the Marlborough Grape Growers Association, chairman of Wine Marlborough (a company jointly owned by grape growers and winemakers to promote Marlborough wine) and owner of a winery called Fairhall Downs. He says, "I believe the highest price paid is NZ$100,000 per acre about three months ago (March 2003). That was for planted producing land in one of the more recognized areas."

Up-to-date land prices in California are also difficult to track accurately, but a number of sources put current land values in Napa and Sonoma at around US$50,000 to $120,000 an acre, with development costs at around $35,000 an acre. Clearly, New Zealand land, though by no means cheap and rising rapidly in cost, is still a relative bargain. Development and maintenance costs are cheaper, too.

Exchange rates have also been favorable. David Babich, assistant general manager of Babich Wines Ltd., says, "Up until recently the exchange rate on the U.S./NZ dollars made New Zealand investments a bargain to anyone shopping with U.S. dollars. At the moment the rate is about NZ$1.72 for every U.S. dollar (which is approximately the historical average), but at the start of last year the rate was as good as $2.63 and it was around this rate for over a year."

The low exchange rate and rapid growth within the industry, Babich believes, were important factors in the high growth of New Zealand wine exports. "The wine, generally being of very good quality, has been very well received by the trade and by wine writers (this is over the past 10-year period), creating increased demand for New Zealand wine. One outcome of this is the exposure the New Zealand industry received, which has prompted individuals, but to greater extent multinational liquor interests, to seek a stake in the booming New Zealand industry."

Factors such as relatively cheap land, favorable exchange rates and New Zealand's high-quality wine profile, added to other factors, such as highly-trained winemakers and grape growers and an English-speaking population, have combined to make New Zealand an appealing investment opportunity. Babich says, "U.S. investors (mainly private) who are interested in getting into the wine industry have looked at the distinct lack of bargains offered in California, plus the lower operating costs and advantageous exchange rate, and have decided to put their money into New Zealand." So much so, that a whopping 85% of production volume in New Zealand is now owned by foreign interests (Australia has the most money invested in the country). So, is this a good thing for New Zealand? That depends on whom you ask.