Wine producers to make meal of the grapes of sloth
"Australia for two decades has shown incredible growth around the world but is plateauing now and there's an adjustment on the production side which is totally normal," said Xavier de Eizaguirre, chairman of wine fair Vinexpo, which is being held in Bordeaux in June.
"It doesn't mean Australia is in trouble in terms of exporting, it just means there's a correction after years and years of spectacular growth," he said.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said wine grape production declined from about 1.8 million tonnes in 2007-08 to an estimated 1.58 million tonnes in 2011-12.
This year, ABARES forecast wine grape production in Australia would rise slightly to just over 1.6 million tonnes and would be slightly higher again in 2013-14. The local wine industry is still coming to grips with a persistent wine glut that has fed the market for cheap wine as the high Australian dollar forces local winemakers to head upmarket.
The company behind export success story Yellow Tail - Casella Wines - plunged to a $30 million loss last year as it tried to maintain market share in the US despite the high Australian dollar. The company has flagged a new strategy to produce premium wines targeted at the Asian market.
The IWSR study does not include export forecasts but does reveal that between 2007 and 2011 Australian exports declined 13.3 per cent from 89 million cases to 77 million. In monetary terms the value of Aussie wine exports fell 20.9 per cent to $1.89 billion in 2011-12. This is down from a peak of $2.68 billion in 2007-08, according to ABARE.
Nevertheless, Mr de Eizaguirre insists the picture is positive for the local industry. Winemakers will move to more specialised or boutique labels that eventually will lead to a more sustainable and profitable sector, he said. "It will take a while for the Australian industry to adjust to the new trends, but it will translate into less volume, better qualities and higher prices."
The IWSR study reveals Chinese consumption of imported still wines grew in the five years to 2011 by more than 550 per cent by volume. And it is forecast to expand a further 62.7 per cent by 2016.
But there will be challenges on this front. China's wine import growth is expected to slow in coming years despite expectations that it will be the second biggest consumer of wine by 2016.
Local wine production is expected to fill the gap, with China expected to displace Australia as the world's sixth largest wine producer by 2016, according to the IWSR report.
Frequently Asked Questions about this Article…
Vinexpo, citing an IWSR report, forecasts Australian wine production will fall by around 15% over the next five years. ABARES data in the article notes production declined from about 1.8 million tonnes in 2007–08 to an estimated 1.58 million tonnes in 2011–12, with a forecast rise to just over 1.6 million tonnes this year and a little higher in 2013–14.
According to Vinexpo chairman Xavier de Eizaguirre, the decline reflects a normal production adjustment after two decades of strong growth rather than a crisis. The commentary in the article suggests this is a correction—less volume but potentially better quality and more sustainable pricing—rather than a sign that the industry is in fundamental trouble.
The IWSR study cited shows Australian wine exports fell 13.3% by volume from 89 million cases to 77 million cases between 2007 and 2011. In value terms, ABARE reports exports dropped 20.9% to $1.89 billion in 2011–12 from a $2.68 billion peak in 2007–08. For investors, that signals pressure on export volumes and revenue during that period, highlighting the importance of watching export trends and company strategies.
The article says a persistent wine glut combined with a high Australian dollar has pushed many local winemakers to move upmarket. That means producers are focusing on premium and boutique labels to protect margins, since a strong dollar makes competing on low-priced exports harder.
Casella Wines, the company behind the Yellow Tail brand, recorded a $30 million loss last year as it tried to hold US market share amid a high Australian dollar. The company has signalled a strategic shift toward producing premium wines aimed at the Asian market.
The IWSR study highlights dramatic growth in China: consumption of imported still wines rose by more than 550% by volume in the five years to 2011 and was forecast to grow a further 62.7% by 2016. However, the article also warns growth may slow and that increasing local Chinese production could fill supply needs, so opportunities exist but come with caveats.
Industry commentary in the article expects a shift to more specialised and boutique labels, resulting in lower volumes but higher quality and prices. The view is this transition will ultimately produce a more sustainable and profitable sector, though it will take time to play out.
Investors should monitor the persistent wine glut, pressure from a high Australian dollar on export competitiveness, declines in export volumes and values, potential slowing of Chinese import growth, and rising Chinese local production. Company-level responses (for example, moving to premium brands) are also important to watch.
Call 1300 880 160
Start a chat
Schedule a call
