From July 1, small wineries will see excise rates on domestic wine sales increase by 1.5%. This will amount to a further excise tax of about $2.33 per bottle and $28 per case of 12 bottles. The new rate is expected to worsen the situation for an estimated 300 small wineries that predominantly sell their product to the domestic market.
Many small wineries that rely on domestic sales have been hard hit by the pandemic that has seen a decline in demand from the hospitality sector. According to the New Zealand Winegrowers CEO, Philip Gregan, there have also been challenges from increased production costs. Producers like Te Whare Ra’s Anna Flowerday also noted the problem of having to pay taxes on tasting stocks that are not actually sold. Australia offers an exemption on this up to a certain limit for its winegrowers. Excise taxes have also been criticised by New Zealand Winegrowers board chair, Clive Jones as being one of the highest components of wine cost.
A lack of tourists has also affected revenues as many cater to international wine tourists that partake of winery visitor experiences. International wine tourists are considered high value, spending 27% more than the average holiday visitor. Gregan expressed disappointment at the government’s intention to go ahead with the increased excise rate when small wineries were still struggling.
This is at odds with large exporter winegrowers that have enjoyed strong overseas demand and bumper harvests in 2020. Wine has become the country’s sixth-largest export. A report from the Ministry of Primary Industries(MPI) found that export revenues grew to $1.9 billion over the last year up to June 2021. This is a 0.6% growth in revenue from the previous year.
The export market growth was attributed to bumper harvests in 2020 that supported strong demand from overseas retailers in the form of supermarkets and bottle shops. The export market does not rely as much on hospitality establishments like hotels, restaurants, and bars and was thus able to avoid any substantial fall in demand as a result of reduced tourism around the world.
Harvest shortfalls this year are however likely to result in lower production for the export market. Wineries like Invivo Wines confirmed their harvest was down by about 20 to 30%. MPI however remains hopeful, predicting that the wine industry will recover and further grow export revenues to $2 billion by 2025. The incoming increase in excise rates and strong overseas demand is likely to make the export market more attractive to small wineries.