Decision day looms for Australian wine

04 February, 2010

Australian wine producers are facing the prospect of their industry contracting by as much as 25%

The Australian wine industry is facing the prospect of reducing volumes by approximately 25% if proposals by Australia’s various statutory bodies and non-governmental organisations representing the industry, are accepted.

Capacity among producers equates to around two million tonnes while demand currently runs at 1.5m tonnes.  As an industry insider observed: “There is a significant overhang and Australia needs to put some ‘tension’ back into its demand and supply chain. It needs to look at sustainable dollars per tonne not production: tonnes crushed.”

Wine Australia boss Paul Henry was in London this week for the annual tasting and he outlined the situation and process to Drinks International.

Negotiations, given the acronym “WRAA” (Wine Restructure Action Agenda) have taken place between the Australian Wine & Brandy Corporation (AWBC) which is the statutory body; the Winemakers’ Federation (WFA), which the industry’s policy making and lobbying body; the Wine Grape Growers’ Association (WGGA), another industry representative body; and the Grape & Wine Research Development Council (GWRDC), which is a statutory body representing the likes of the Australian Wine Research Institute and university bodies running winemaking courses.

The chairmen and chief executives of these various bodies have been looking at all aspects of the Australian wine industry from the impact of droughts and water access, to demand from existing markets and anticipated growth from emerging markets.

It is expected that the conclusions of WRAA are that the industry is going to have to restructure, and that is likely to mean downsizing by as much as 25%.

Henry told DI: “I think we all know there is an elephant in the room and it is as though nobody is letting on. We have a capacity of two million tonnes. Last year the crush was about 1.8m, similar to the year before but demand is closer to 1.5m. I think there is an acknowledgement that we have to draw a line in the sand.

“Unlike other countries, Australian wine producers do not enjoy various government subsidies to sustain them,” said Henry

The proposal which is expected to be announced next week, is that wine producers will be asked to submit their production figures and business plans to a sort of ‘clinic’, region-by-region, where they will be scrutinised. They will be asked such things as the grade of their fruit, A to E, and the dollar per tonne yield along with output. If their business is deemed unsustainable, they will be offered government money to cease wine grape growing.

Asked which markets were most and least profitable, Henry said the UK and Germany were Australia’s least profitable markets followed by the US. Its best markets were Canada, Sweden and China.

The irony is that the Australian government in the 1990s encouraged production expansion of the wine industry by offering tax breaks.  As an observer who did not want to be named because of the intensely political nature of the proposals, wryly observed: “The Australian government, by giving tax breaks to doctors, dentists, orthodontists – ‘hobby farmers’ – so that they could take second homes with 30 hectares of vines, doubled the number of vineyard hectarage in a decade.  It is now going to have to use tax payers’ money to bail out the industry.”

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