New Zealand Winemakers Seek Protection for Local Labels

Updated September 16, 2013, 5:40 a.m. ET

New Zealand Winemakers Seek Protection for Local Labels

LUCY CRAYMER

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MARLBOROUGH, New Zealand—When the first winemakers harvested grapes here in the 1970s, they joined an army of New World vintners taking on established producers such as France and Spain. Now, New Zealand’s winemakers are resorting to an Old World tactic to fend off a challenge from newer rivals—regional trademarks. As wine consumption booms in countries such as China and Russia, entrepreneurs are setting up vineyards there, raising fears among New Zealand growers about knockoff wines posing as premium labels exported from regions like Marlborough and Central Otago. New Zealand winemakers are lobbying for the same legal protection for their brands that French producers won for Champagne two decades ago.

“The New Zealand wine industry has raised concern with me about the possible growth of counterfeits in our export markets,” Craig Foss, the minister in charge of the sector, said in an interview. One option being discussed is legislation preventing winemakers in other countries from using the names of local brands. Such so-called geographical indications are recognized by the members of the World Trade Organization and come under its protection.

It wasn’t clear whether Chinese or other vintners had produced knockoffs of New Zealand premium wines, but any plan by the government would amount to a pre-emptive strike against rival winemakers who could try to capitalize on the New Zealand label.

And it is more than reputation at stake.

The value of New Zealand’s wine exports has risen 33% to 1.2 billion New Zealand dollars (US$983.4 million) since 2008, with shipments to China alone jumping tenfold to 2.2 million liters. That is offsetting flatter growth in traditional markets such as Australia, the U.S. and the U.K., which remain the biggest buyers of New Zealand wine.

“As we have a bigger presence in international markets we have something we need to protect more,” said John Barker, a trade official at New Zealand Wine, an industry lobby group. “Particularly as we go into markets recognized as having issues with intellectual property protection like Russia, China.”

The amount of land in China cultivated for vineyards grew 19% in the five years through 2012, according to the International Organization of Vine and Wine, a Paris-based intergovernmental organization. That expansion outpaced all other major wine-growing nations, including France and the U.S.

At the same time, bulk wine sales are rising globally as exporters look to ease a supply glut. New Zealand vintners fear unscrupulous importers could attempt to pass off bulk wine as premium Marlborough vintages when it is bottled.

For years, sheep farming, forestry and fishing dominated the economy of Marlborough, located on the northeastern tip of the country’s South Island, where plains stretch from a rugged coastline to sheltered north-facing valleys.

Then a small group of growers placed a bet in the 1970s that Marlborough’s warm days and cool nights were ideal for growing grapes that could be used to make wine.

It paid off. The Marlborough region now accounts for 80% of New Zealand’s wine production, with vines growing on more than 23,000 hectares of land. Its top-selling product is Sauvignon Blanc, which accounts for two in every three bottles leaving cellar doors in New Zealand, ahead of both Pinot Noir and Chardonnay.

For Alex Giesen, the region’s fortunes have changed significantly since he produced his first vintage in 1984 with his two brothers. Back then, New Zealand wine was of poor quality, suitable for sale only in bulk at cheap prices, he said.

At his winery in Marlborough’s Wairau Valley on the outskirts of Blenheim—styled like a Mediterranean villa with stucco walls—a bottle of a 2010 vintage Sauvignon Blanc sold for NZ$42.95, putting it on a par with prices at châteaux in France’s Val de Loire region, where the wine variety also dominates.

Mr. Giesen said the U.S., the U.K. and Australia remain the top destinations for exports. But his company is now trying to break into the Chinese market by targeting smaller cities where local cuisine is sweet rather than spicy, and thus complementary to white wine.

“You’ve made it as a brand when they try to counterfeit you,” he said.

Lawmakers have tried before to protect the Marlborough brand. But a bill introduced in 2006 didn’t get far because New Zealand’s winemakers faced more immediate challenges like a glut of grapes and the global financial crisis, which led consumers to reduce their wine intake and drove down prices.

Mr. Foss said the Ministry of Business, Innovation and Employment would recommend measures to protect New Zealand wine against counterfeits in a report due within weeks. The report could help revive the earlier bill, which if passed into law would mean brands like Marlborough and Central Otago could only be used for wines where at least 85% of the grapes used are produced locally.

New Zealand and other New World producers, including Chile and Australia, are taking a page from Europe’s playbook on protecting their wine industries.

In 1995, the world’s major trading nations agreed on rules for wines and spirits that stopped sparkling-wine makers from California and Australia from calling their products Champagne when sold outside their home countries. Only bubbly from a northeast corner of France was thereafter allowed to carry the name globally.

Chile introduced laws to protect its wine industry last year, including regional trademarks. Rene Araneda, president of Vinos de Chile, which represents the country’s vintners, said the move would help the country’s winemakers market themselves as premium brands in New World wine.

For New Zealand, protecting its best-selling wine brands has become increasingly important as Asia’s growing middle classes seek out a wider range of delicacies such as premium wine and cheese.

In recent months, the goal has been set back by food scandals that have tarnished the country’s image.

Last month, China imposed a temporary ban on some New Zealand milk products amid safety concerns, and weeks later U.K. authorities warned cheap honey shipped from the country was being passed off as the more expensive Manuka variety.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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