Over a barrel
Extreme weather, poor prices and a lingering grape glut make for cheap wine, but the industry is close to breaking point, writes Mark Russell.
WINE prices could remain at record lows for another five years despite the industry’s latest efforts to tackle Australia’s six-year grape glut.
A report on the struggling wine industry confirms downward pressure on prices will continue in 2011 because of the oversupply of grapes, the rising Australian dollar and a ”shocker” of a season caused by heavy rain, floods, locusts and disease.
The report, ”Decision time for wine growers”, by corporate recovery specialist Taylor Woodings and released last week, says the industry is still battling a large grape glut despite a significant drop in production.
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Taylor Woodings partner Andrew Schwarz says there is too much wine around and believes prices could stay low for the next five years.
”It’s a worldwide problem, not just in Australia,” Mr Schwarz says.
”It’s a good time for consumers but not that good for producers.”
The 2011 vintage is expected to produce 1.4 million tonnes of grapes, down by about 200,000 tonnes from the previous year, but some growers believe the real figure could be as low as 1.1 million tonnes given the recent impact of extreme weather and disease.
Many wine regions along the east coast have been victim to an outbreak of downy mildew and powdery mildew due to unseasonably humid and wet conditions.
In 2010, the vintage was 7.5 per cent lower than 2009, producing 1.6 million tonnes of grapes and 1.1 billion litres of wine.
The problem, according to Wine Grape Growers Australia executive director Lawrie Stanford, is that at least 300,000 tonnes of wine grapes still have to be removed from the nation’s harvest to solve the oversupply issue.
This equates to 10,000 to 15,000 vines being ripped out of vineyards.
Mr Stanford said the industry, which began to address the grape glut by tearing out 6750 vines last year, believed it could take another three to five years to end the glut.
This means consumers will continue to enjoy bargain prices for some time, but the downside is that many wineries are being forced to shut down because their businesses are no longer financially viable.
Prices for grapes have dropped to as low as $150-$200 a tonne compared with up to $1200 a tonne in the 1990s.
”In the Murray Valley, which was particularly hard-hit this season, they have had record numbers of people leaving their vineyards. No one begrudges consumers lower prices, but at the end of the day the Australian wine industry is under threat,” Mr Stanford said.
Murray Valley Winegrowers chief executive Mark McKenzie says struggling grape growers are being exploited by having to supply Foster’s Treasury Wine Estates grapes at up to 40 per cent below cost because of the glut.
He wants regulators to step in and investigate ”the abuse of overwhelming market power by Foster’s and a handful of other major wine companies in regard to wine grape pricing”.
Meanwhile, the Winemakers Federation of Australia says the closing of vineyards across Australia may eventually be a good thing for the industry, with less grapes being grown leading to an easing in the grape glut.
Victoria has 3000 growers across 21 wine regions. There are more than 800 wineries and 650 cellar doors.
Victorian Wine Industry Association chairman Chris Pfeiffer, who owns Pfeiffer Wines at Rutherglen, says wine prices had to go up eventually but he did not know when.
”There’s no way known a winery can continue to make wine and sell it so that you’re paying $2 for it at Dan Murphy’s, which happens. It’s just not sustainable.”
Mr Pfeiffer, whose first vintage was in 1974, says it was one of the industry’s toughest times.
”There’s two views out there. One is that we can’t sell the wine, therefore we don’t need to grow as many grapes; the other is we should be working harder to sell the wine. ”It’s a very difficult position. Unless we can get our sales up and make a profit, we’re going to have to remove some fruit [grapes]. And where all that fruit comes from is open to debate.”
The Taylor Woodings report says challenges facing the wine industry include supermarket chains such as Coles and Woolworths entering the retail and wholesale alcohol market, offering discounts and further increasing competitive pressure on suppliers, and the fact that in many growing regions the costs of production this year will again exceed the grape price growers can expect.
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