Industry information

Winegrape harvest 2012 – progress report

As at February 14, 2012

National overview

Stage

  • Whites and sparkling base progressed in the warm inland, Queensland and Hunter regions
  • Other regions generally completing veraison

Timing

  • Traditional start is Australia Day and finish around Easter
  • Variable reports re timing with the warm inland reporting ahead of long-term average but the cautious note that cooler weather, including rain in the eastern states, over the last week and a bit, has slowed the ripening
  • West of WA had earliest ever start to harvest on record (20 Jan)
  • Rains forecast in the eastern states and WA for late February

Yields

Yields are thought to be down on the whole (compared with last year definitely and possibly long term average) as a result of:

    • Heavy crop loads last year
    • Coolness/wetness at fruit set
    • Deliberate shoot-thinning in some varieties
  • Semillon and Shiraz in the Hunter are exceptions: both substantially up
  • Early days in terms of visual impressions about crop load versus the final quantitative judgment at the weighbridge

Disease

  • Heavy rain in late January has put disease pressure on vineyards in the Hunter
  • Minimal disease in Murray Valley but at considerable cost of control to growers
  • Other regions generally minimal problems
  • No reports of constraints in availability of preventative sprays

Quality

Relatively mild and cooler season generally has allowed for slower ripening and more flavour development – but:

      • A bit too early to tell for reds and –
      • Some nervousness about the February weather forecasts (especially anticipated rain in many regions)
Regional key points

Riverina

  • Harvest started early but has now slowed due to heavy rain
  • Powdery has been detected in some vineyards
  • Prices up slightly on average compared with last year

Hunter Valley

  • Whites and sparkling base have been picked
  • Heavy rains in Jan and Feb have affected ripening and are causing disease problems
  • Shiraz, Semillon and Chardonnay yields up; Verdelho down
  • Acid up; Baume down

Queensland

  • Moderate temperatures and lack of sunshine have delayed harvest
  • Yield down 10 – 20%
  • Quality looking very good in whites

Murray Valley

  • Harvest 2 – 3 weeks earlier than average
  • Yield likely to be 20% down. Vines reacting to heavy crop loads in 2011
  • Quality looking good on the back of a relatively mild season
  • Upward price movements of around 5% – 7%

Limestone Coast (SA)

  • Harvest likely to start in mid-February – about 1 -2 weeks early
  • Minimal disease pressure but bird damage seems unusually high
  • No extreme weather conditions mean high quality potential

Victoria (outside Murray Valley)

  • Harvest yet to start – but is likely to be on time or slightly early
  • Quality indications very good
  • Yields expected to be consistent with long-term average

Western Australia

  • Earliest harvest date on record in west of WA
  • High spring rainfall in southern regions has produced large crops
  • Heavy rains have meant more disease pressure but impact minimal due to vigilant spraying

 

 

Wine industry must continue to focus on transition (Dec 2010)

A statement to industry by the Winemakers’ Federation of Australia, Wine Grape Growers’ Australia, and the Australian Wine and Brandy Corporation

6 December 2010

 

 

Background

In November 2009 the national wine industry organisations launched a Wine Restructuring Action Agenda (WRAA) with the release of a statement to the wine sector about the need to confront the reality of grape and wine oversupply.

 

The key messages were that:

  • Structural surpluses of grapes and wine were damaging the industry by devaluing the Australian brand, entrenching discounting and eroding profitability.
  • At least 20% of bearing vines were surplus to requirements and the problem was not restricted to specific regions, varieties or price points.
  • Australia could not compete in the global commodity wine market and needed to change its product mix to focus on sales that earn viable margins.
  • The industry’s rapid growth in the 1990s had added some vineyards of questionable value and even undermined the integrity of some regions.

This second statement reports on progress and outlines the next phase of initiatives designed to assist the industry’s transition to a new structure based around long-term sustainability and market opportunity.

 

Issues and progress

 Oversupply

There are signs of adjustment in vineyard area and wine stocks but these are by no means sufficient to suggest the “oversupply problem” has passed. It is particularly concerning that:

  • A smaller harvest in 2010 was the biggest factor in the adjustment and thus there is potential for oversupply to rise again if harvest levels return to previous levels.
  • Disease issues in late 2010 may have a short-term impact, but in the longer term the risk of an increase remains.
  • The adjustment does not address imbalances in the quality, varietal mix and cost efficiency of vineyard capacity.
  • Some cooler regions still believe oversupply is primarily an issue for, and the responsibility of, the warmer regions.

Australian Bureau of Statistics (ABS) data suggests a net reduction in vineyard area of 6600 hectares (8000 removed and 1400 planted) up until March 2010, with an additional 13,000 hectares not harvested during vintage 2010. [Removals may be understated as growers who have exited completely are unlikely to have responded to the survey]. These net removals represent a reduction of 4.3% of national vineyard area. However, if the hectares not harvested are permanently withdrawn the combined reduction is 13%.This compares with the 20% identified as the minimum necessary in the first WRAA statement.

The AWBC estimates a combination of decreased wine production and increased sales will see stocks fall from 1.9 billion litres to about 1.72 billion in 2009-10. However, an estimated 300 million litres of sales that led to this stock position are considered to be unprofitable and unsustainable and hence could be interpreted as distressed sales.

We also must recognise the increasing influence of businesses that are dumping cheap surplus wine on global markets, creating a false demand for fruit at unsustainable prices, undermining the image of Brand Australia, and delaying the adjustment process. This is not new but it has now become more entrenched and a more substantial influence.

In summary, despite clear market signals, adjustment is not proceeding at a sufficient pace. Larger and more commercially focused businesses are generally well advanced, having taken steps to clear surplus inventory and assets, realign their supply chain, revise brand portfolios and shift their market and price-segment targets. However, a combination of unrealistic expectations, non-commercial motives and short-term opportunism continues to motivate many operators to resist change.

Contributing factors include but are not limited to: the WET Rebate and/or off-farm income shielding otherwise unprofitable businesses; existing contracts causing complacency; barriers to exit (prohibitive costs, inability to recoup debt etc); a lack of alternative uses for land; demographic factors overriding business considerations; and a belief that oversupply is someone else’s problem or that demand initiatives will solve it.

 

Demand

Export volumes have risen 10% since 2007-08 but value is down by 19%, with exports of bulk wine below $1/litre rising 85% to 187ML in 2009-10. Most disconcerting is the decline in high value exports; volumes halved between 2003 and 2010. We can anticipate continuing recovery from the GFC but it is slow and, as the table below indicates, there is evidence Australia is not benefiting to the same extent as our competitors.

Changes in exports for key exporters, 2010 (From Rabobank)
Country Volume change (%)

Value change

(%)

Period of measure
France

+41

+21.9 Jan- June
Spain

+17.4

+6.3

Jan- July
Italy

+6.1

+8.6

Jan- June
US

+6

+22

Jan- June
Argentina

-6

+18

Jan- July
Chile

+ 13.1

+ 13.8 Jan- Aug
Australia

+3.1

- 8.7

Jan- June
New Zealand

+18.1

+5.7

Jan- June

Source: Australian Wine and Brandy Corp., ‘The Gomberg-Fredrikson Report’, Instituto Nacional de Vitivinicultura (Arg), Observatorio Español del Mercado de Vino, South Africa Wine Industry Information System, French Federation of Wine and Spirits Exporters, Wines of Chile, The New Zealand Winegrowers     Note: Value changes in local currencies

 

Domestic sales have grown by volume but imports continue to take a significant share of this. Of concern is the erosion of margins and profitability as cleanskins and retailer own-brands increase their share; Neilsen data shows a jump from 14.9% to 21.7% in just two years. While retailer power is the fundamental driver of this trend, the endemic oversupply is fueling it.

Recent developments further weigh against wine businesses. US monetary policy decisions have further strengthened the Australian dollar against the US dollar, impacting on competitiveness in one of our opportunity markets, while Australian interest rate increases will increase costs and reduce domestic demand.

 

Vineyard viability

A qualitative analysis of the physical performance of Australia’s vineyards undertaken to identify any underlying issues that might cause a region to underperform made the following observations:

  • Some celebrated regions have seen their overall performance diluted by rapid expansion and an increasing proportion of young vineyards.
  • Most regions produce a wide range of varieties with limited specialisation, leading to a national varietal mix that is not delivering to our potential.
  • In some regions site selection has too often been based on land availability rather than the potential to produce the best fruit, particularly during the recent planting surge.
  • Vineyard operators need to ensure they meet best practice standards in vineyard layout and make appropriate adjustments to match changing climatic conditions.

  

The next steps

It is vital to maintain our momentum in specifying and pursuing the changes necessary to resolve the imbalances between Australia’s current wine supply capacity and competitiveness (in terms of quantity, quality and environmental sustainability) and the market opportunities that can deliver ongoing profitability. The scope of these changes encompasses four areas.

Supply

  • The overriding priority remains the need to address oversupply issues and at least meet the minimum 20% reduction in total area as set out in the first WRAA statement.
  • Willingness to identify and then remove or redevelop vineyards that fall short of either physical (quality) or financial (cost) performance measures.
  •  Better align our vineyards and wineries to market opportunity
  • Universal adoption of best practice in water use efficiency.
  • Improve performance in addressing environmental custodianship.

 

Competitiveness

  • Develop strategies to cope with rising production input costs for wineries (labour, capital, water etc).
  • Adapt to the likelihood that the value of the Australian dollar will remain high and volatile.
  • Better understand our advantages/disadvantages relative to competitors in each market.

 

Demand

  • Increase emphasis on consumer access and engagement as an antidote to route-to- market consolidation.
  • Introduce more differentiation into the Australian wine offer, in wine styles and in the strength of the brand propositions (eg regional).
  • Specify new market opportunity metrics (geographies, channels, price segments).
  • Switch wine business emphasis from sales volume to sales margin, even where this entails conceding unprofitable markets.

 

Marketing

  • Reposition the Australian wine category to enhance credibility in the mid range and luxury wine segments.
  • Change focus of market development strategy from individual brands promotion to category reputation building and market penetration.
  • Prioritise high growth high yield markets for promotion effort.

 

WRAA priorities and actions

 

To support necessary industry developments, the WRAA partners have committed to the following specific initiatives:

  • WFA and WGGA will more closely monitor and analyse reductions in vineyard capacity and shifts in performance to ensure the scale and direction of supply restructuring is consistent with future requirements.
  • WGGA is upgrading and expanding its Vinebiz business support program to facilitate appropriate adjustment and build the capacity of growers to make independent judgements about (and promote) their produce to meet market requirements.
  • WFA and WGGA will create tools to encourage and assist vineyard benchmarking.
  • WFA is restructuring its WineSkills program to provide advice and information across the range of business development issues facing wine businesses and regions. Content will be developed in consultation with state and regional associations.
  • WFA will continue to support the Australian Taxation Office crackdown on WET Rebate abuse and evaluate reform options to reduce market distortions.
  • AWBC is preparing to implement strategies outlined in the China market research launched at the recent Wine Industry Outlook Conference and disseminate market intelligence, WFA and AWBC will commission research into other key Asian markets.
  • AWBC has completed detailed market opportunity analysis for key markets which it will release before the end of 2010.

 

Related activities

  •  WGGA, WFA and AWBC are developing a new biosecurity framework for the grape and wine sector.
  •  WGGA and WFA will commission research to gain a better understanding of the impacts of proposed Murray Darling Basin reform and work to ensure due consideration is given to economic, social and environmental impacts and goals.
  •  AWBC has introduced additional compliance measures to address the risks associated with the increasing share of bulk wine exports in the total export mix, particularly to emerging markets in Asia.
  • WFA, AWBC and WGGA are investigating an alternative approach to collecting and disseminating data and information that more effectively meets the needs of wine businesses than the current ABS collections.
  • WFA, AWBC and WGGA will review the sector’s R&D priorities to better align them with the restructuring imperative.

Download PDF version of this statement

The apparent 2011 crush indicates enduring oversupply

After a meeting of the national representatives of Wine Grape Growers Australia (WGGA) last week, the WGGA Executive Committee today predicted that the national crush in 2011 is likely to be between 1.3 and 1.4 million tonnes. That would represent a crush of between 19% and 12% down on the previous year’s crush and represents the third annual decline in a row following the 1.83 million tonne crush four years ago.

Drivers of an anticipated lower 2011 crush were (i) lost or rejected tonnages due to disease, (ii) as yet unquantified removed or abandoned vines, and (iii) un-economic or diseased fruit left on the vine or dropped at harvest.

WGGA Executive Director, Mr Lawrie Stanford, issued a warning that despite another apparently lower crush in 2011, the evidence was that the industry was still capable of producing more wine than could be profitably utilised by all members in the value chain.

While the crush is believed to be 1.3 to 1.4 million tonnes, it is understood that a lesser amount (in the vicinity of 1.1 to 1.2 million tonnes) went into wine production that had real prospects of returning a long-term profit in the marketplace.

In what was a relatively cool season that hindered full sugar development, the balance of the fruit above the 1.1 to 1.2 million tonnes going directly into wine production represented otherwise unwanted fruit, purchased well below the cost of production, for the purposes of making concentrate to boost the sugar content of grapes taken in for winemaking.

Alternatively, in a dynamic not fully understood or quantified at this time, the ‘balance’ may have been used for low grade wine in order to compete with low-cost world producers and bulk wine traders. Such practices concerns WGGA because it is only possible by purchasing fruit at well below its cost of production. In the process, this trade is impoverishing growers who in recent years have assumed by far the larger part of the agricultural risk. Moreover, it damages the reputation of Brand Australia in the eyes of wine customers and consumers worldwide and undermines Australia’s aspirations to be, and to be seen as, a premium wine-producing nation. It further devalued the efforts of the nation’s wine marketers to build Australian wine’s reputation at a time when demand was suffering.

Harvest update Feb-March 2011 – trends and issues

Industry Release 22 March 2011

WGGA Harvest Update – February/March 2011 – Trends and Issues

With the harvesting of white winegrapes well underway in most districts across Australia, but with the red harvest yet to start, an upward trend in tonnages has been reported in a new harvest update conducted in late February/early March by Wine Grape Growers Australia (WGGA) and Wine Grapes Council of South Australia (WGCSA).

After a brief reprieve from earlier wet, cool conditions, a period of generally dry and warmer conditions in late December/early January, suggests that tonnages from the 2011 harvest have edged up from the 1.4 million tonnes reported from a similar survey in late December. Quality expectations are high for the white fruit that has survived the ravages of disease over the course of the season. The reds that are yet to be harvested will face continuing challenges and uncertainty.

Commenting on this phenomenon, Lawrie Stanford, Executive Director of WGGA, said “In an interesting trade-off, the season has produced strong flavours and good acidity for crisp, aromatic whites. This will maintain the quality and interest despite some dilution of these characters by a good dose of water” Reflecting on factors that can, and can’t be controlled, he commented that “While we have ways to manage disease, it’s hard to turn off the water when it comes from the sky”.

In sum, the harvest thus far has been characterised by cooler than normal conditions, plus prolonged wet and then humid conditions – all of which led to early disease pressures. This was associated with practical as well as financial difficulties in management and considerable pessimism about the crop’s welfare.

Despite the challenges, successful management appears to have predominated although there still appears to be some variability influenced in part by the existence of abandoned and financially stressed vineyards. The reprieve from the wet conditions in late December/early January allowed some finishing-off for the white crop that is exhibiting good expression of character because of strong vine growth and the relative coolness of the season.

Variability is once again the key and region-by-region reports will be vital to gaining a complete picture.

It is apparent that the prevailing moisture levels this season have led to bigger fruit and higher tonnages per hectare that have more than offset losses from disease. Adding to this affect has been the relaxation of yield limits by some winemakers because of earlier pessimism about available production due to observed disease losses.

With the cooler nature of the season so far, the vintage is 3 to 4 weeks behind last year. The red harvest is generally about 2 to 3 weeks away at the time of writing. “Continued sporadic rain events in different parts of Australia nevertheless serve to remind us that the harvest is at best, half way through and there is much that can happen yet” said Mr Stanford. “If there is further rain in some regions the red harvest could end up being very different from current expectations.”

As the red harvest is about to commence, an additional challenge is expected to emerge – that of the red crop’s ripening. Some concern about this has been reported due to the lateness of the season and the damage caused by disease on leaf functionality.

While there were indications that tonnages were edging up from earlier estimates, Mr Vic Patrick, WGGA Chair, stated that a credible estimate was not possible. “It is regrettable that the industry is not collecting harvest intelligence in a timely fashion – industry stakeholders want and need to know” said Mr Patrick. “To the extent that these estimates rest in some part on knowledge about the actively maintained vines in the industry, it is puzzling why more industry resources are not assigned to understanding this component of the industry’s production equation.”

In recent years, on the back of massively increased charges sought by the Australian Bureau of Statistics to collect viticulture data through the Vineyard Survey, the regular collection of this data has been disrupted. Nevertheless, WGGA notes that GWRDC will invest more than $670,000 of levy funds on a full vineyards census in 2012 but a gap year exists for 2011. The Australian Bureau of Statistics’ Agriculture Census will cover events in 2011 but on standard timelines, the data will not be available until April 2012.

Even in the best of circumstances, the currently vital vine removals data comes with a lag. This lag leaves the industry blind to up-to-date adjustment that is occurring. The latest national intelligence available to the industry on vine removals is for 2009 – which primarily influenced outcomes in the 2010 harvest.

Despite some informal attempts by WGGA and WFA to measure removals leading into the 2011 harvest, nothing is clear. “At a time when the industry is going through supply adjustment that is vital to the industry’s future, the industry is not reliably informed as to what is happening”, said Mr Patrick.

At last count, for the 2010 vintage, 13 000 hectares or about 8% of the industry’s total area, was left unharvested or the fruit was dropped at harvest. Mr Patrick commented that “We also don’t know what has transpired with these vines leading into the 2011 harvest. Such gaps in industry knowledge can be costly to both grape growers and winemakers in terms of prices and orderly logistical handling of the harvest. The industry needs to develop systems to capture this data in a timely way.”

WGGA and WFA, together with the Grape and Wine Research and Development Corporation (GWRDC) and Wine Australia Corporation (WAC), are committed to the creation of a national vineyard database, along the lines of the SA database administered by the Phylloxera Grape Industry Board of South Australian. However, due to the requirement of legislation, this is a medium-term solution.

While acknowledging limitations on industry planning funds in the current operating conditions, WGGA views the industry’s service bodies, the GWRDC and WAC as bearing the greatest responsibility for the funding and analysis of such critical intelligence until the national vineyard database is in place.

For further information please contact WGGA Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

 

FURTHER NOTES ON HARVEST TRENDS AND INFLUENCES

The white harvest is all but complete in the more northerly Australian winegrowing latitudes such as Queensland and the Hunter while it is largely complete in the middle latitudes in which the bulk of the harvest is taken and finally, the white harvest is yet to commence in the southerly latitudes such as the South Australian Limestone Coast and Tasmania.

In the eastern parts of Australia have been under the influence of La Nina which has defined the season. The dominant seasonal influences have been relative coolness accompanied with a wet winter and spring. These conditions even dragged into December. As the months became warmer (although still relatively cooler than the average) the wetness was progressively associated with humidity.

Late December/early January then saw a period of general reprieve with warmth and dryness allowing the crop to develop normally. With ample moisture and healthy vines the white crop finished well.

Sporadic rain episodes nevertheless resumed and continued into February albeit on a less protracted basis than earlier in the season. In this period, the hope was that the moisture would evaporate quickly because withholding periods in spray schedules meant spraying for mildew was not possible in many instances.

Inaccessible, saturated vineyards and in the extreme, even flooding, were the starkest expressions of this season’s wet conditions. Vineyard inaccessibility added to the challenges of disease management. While flooding was relatively rare, it was reported in the tropical-storm devastated areas of Queensland, isolated blocks in Leeton of the Riverina while extensive inundation has been reported in the Murray Darling-Swan Hill districts which appears to be the worst hit area among the warm inland districts that produce the largest part of the national winegrape crop.

In complete contrast, Western Australia, distant from the La Nina influences, experienced a dry winter, dry spring, some refreshing rain in January and, without any heat spikes as the summer progressed, consistent heat. Quality, balanced fruit development is reported to be in abundance.

As reported by WGGA earlier in the season, the costly management of widespread disease pressure has meant disease management has been variable depending on access in vineyards, access to sprays, the sales prospects of the crop and the financial reserves of vineyard operators.

It appears that effective management has nevertheless been possible for the majority of the crop.

Ample moisture has meant strong vine and canopy growth and the relative coolness is widely reported to have allowed good flavour development, lower sugar and higher natural acidity. For whites, this means the season will be good for the aromatic flavours that have met with consumer approval over recent years.

On the other hand, ample moisture has enlarged the berries and placed upward pressure on tonnages. As a result, tonnages are likely to be higher than they were thought to be earlier in the season when disease pressure was at a peak.

A further influence on the upward trend in tonnages has been added by the prolonged wet and uncertainty about continued rain which lead to some fruit to be taken off early, without full sugar development. This occurrence lead to the poorer, disease-affected tonnages that would have otherwise been rejected, being taken by wineries for the purpose of producing concentrate that can be added back to achieve required sugar.

Without the lashings of water in the west, character development of the whites that are done so well in that state, have been intensified. A great, if not necessarily an ample year, results in the west.

Thoughts now turn to the red harvest. Reports of the prospects are, as for the whites, variable. The red crop also faces the uncertainty of rain but in addition, faces challenges of ripening. Risks to full ripening are posed by the lateness of the season which could mean vine shutdown before ripening is completed. There are already some reports of reddening and yellowing leaves. Moreover, deterioration of leaf functionality through the ravages of this season’s downy attacks is affecting ripening ability.

Enlarged fruit due to this year’s moisture levels pose a risk to colour intensity.

If rain continues further into the vintage, there will be a contest between botrytis rot and ripening – continued wet favouring the former and drier, warmer conditions favouring the latter.

From the outset, the tonnages per hectare of the dominant red varieties, Shiraz and Cabernet, were thought to be lighter than last year, reflecting a rest year after last year’s big crops. The current risk to ripening adds to the production risks for reds.

In contrast to most other parts of Australia, the red harvest in Hunter Valley is complete due to its more northerly location and earlier maturing. Perhaps consistent with the increasing risk, the longer the fruit hangs out there in a season such as this one, the Hunter Shiraz has been reported as ‘awesome’.

Download PDF file of this media release

 

 

 

Warm inland winegrape growers paying the price

Industry Release              22 March 2011

Wine Grape Growers Australia (WGGA) today expressed concern about the rate of adjustment in warm inland winegrape production capacity. This message is released in conjunction with the latest WGGA Harvest Monitor, which outlined a disproportionate impact of this season’s early downy and mildew attacks in the warm inland regions (the SA Riverland, the Murray Darling-Swan Hill districts of Victorian and NSW and the NSW Riverina) and their costly mitigation.

Mr Lawrie Stanford, Executive Director of Wine Grapes Growers Australia (WGGA), said “The cost of disease mitigation this year, on top of the costs of additional water over the last few years, has the potential to financially break many warm inland producers along the major Murray Darling Basin river systems. This will cause further disruptive economic impacts in these communities and accelerate adjustment out of warm inland production.  However, while supply adjustment in the wine sector is necessary, it is not the warm inland product that is principally in oversupply. Oversupply is predominately located in coastal-temperate winegrowing areas (the rest of Australia’) yet warm inland winegrowing areas are paying the greater penalty.”

It has been long acknowledged that production from outside the warm inland districts has been the predominant source of Australia’s excess production capacity. “At the end of the day” said Mr Stanford, “the 40% of Australia’s winegrape production accounted for by coastal-temperate districts, is trying to squeeze into about a 15% share of Australia’s wine sales.”

The reason warm inland production takes the hit derives from the fact that coastal-temperate fruit, due to its quality, is more desirable than warm inland fruit at the lower prices created by oversupply, and it is purchased for inclusion in warm inland wine brands in preference to the traditionally sourced warm inland fruit.  This has the consequence of driving warm inland prices even lower and pushing warm inland growers out of the market.

Price and production outcomes in 2010 are cited as evidence for this distortion.

In 2010, the Wine Australia Winegrape Purchases Price Dispersion Report showed that the average decline in warm inland winegrape prices was 19% while that for coastal temperate fruit was 5%.

On the production front, the 2010 Vineyard Survey data shows that warm inland regions accounted for a 72% share of the estimated net tonnages removed in 2009-10. This share is 12 percentage points ahead of warm inland’s traditional share of total production meaning it is over-represented in the removals occurring within the industry.

At the same time, demonstrating the oversupply of coastal-temperate fruit, the coastal-temperate districts held the higher share (at 53%)of the tonnages estimated to be left or dropped at harvest – meaning it is over-represented in the industry’s oversupply (production without demand) by 13 percentage points over its 40% contribution to total production.

“It is inconceivable that all of the higher-cost coastal-temperate production is sustainable at the current prices for which it is being sold into warm inland wine brands.  At the same time, warm inland prices are driven down to unsustainable levels. This can’t be good for the industry” said Mr Stanford.

The wider ramifications for the industry as a whole are that the industry will get smaller,is necessary in the current context of oversupply, but there will not be a sustainability dividend because unsustainable coastal temperate production will replace otherwise viable warm inland production.

The impact on large number of people and businesses in warm inland districts is demonstrable. Data collected by the Phylloxera and Grape Industry Board of South Australia (PGIBSA) illustrates the case.

PGIBSA data in 2010 shows that warm inland growers could account for a third of all winegrowing businesses.  Moreover, for SA in particular(and possibly demonstrating the case across Australia), the Riverland accounts for one and a half as many winegrape growing businesses as the next largest major wine growing district.

Another way of looking at the PGIBSA data is to net out businesses that are not full-time grape growing operations(taken to be 24 hectares or less) since they will have other income for support in a time of winegrape downturn. On this basis, there is still the largest number of full-time businesses in the Riverland despite a higher proportion of ‘part-time’ winegrape growers.

WGGA believes that factors like the current season’s disease impact are just bad luck for warm inland production, and to be taken on the chin.  However, it doesn’t seem to be in the best interests of the industry for the sizeable warm inland sector of the industry to be dealing with a disproportionate amount of the adjustment pain from oversupply when it is largely not they who have created the problem.”

It is notable that 2011 appears to be very similar in terms of largely unsustainable price outcomes as 2010: the problem has become critical for warm-inland growers.

The case is also made by WGGA that industry information and analysis is currently not up to the task of providing timely, accurate information to best understand the critical changes underway in the industry’s viticultural foundations.

WGGA is encouraging the industry’s service bodies to improve the level of information and analysis available to the industry.  It is also committed to assisting all winegrape growers understand their businesses better, to assess what parts of their businesses are profitable and to restructure as appropriate.

WGGA identifies the following courses of action required to bring about an equitable and effective adjustment process that yields the most benefit to the Australian wine sector.

  • Better and timelier information on adjustment occurring to the sector’s viticultural foundations.
  • Pro-activity by the industry’s organisations to facilitate adjustment that is in the best interests of all industry participants.
  • For winemakers to remove their own vineyards identified as being in excess of requirement, rather than selling them back into the production pool.
  • For winemakers to work with their growers to identify profitable production, to offer sustainable prices for that fruit only and to encourage growers to remove that which is not.

For further information please contact WGGA Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

Download PDF file of this press release

“Partnerships in profit” are needed to overcome low prices

Media  Release  
25th January 2011

The Executive Director of Wine Grape Growers’ Australia, Mr Lawrie Stanford, said that Australian winegrape growers were carrying an unacceptably high level of the financial and production risk in winegrowing, particularly in this 2011 vintage.  “We believe through general hearsay that prices in 2011 will be similar to those in 2010, despite a start having been made in reducing production capacity in the industry and despite significant crop losses this season through disease pressure” said Mr Stanford.

Supporting calls for better returns to growers issued recently by the Murray Valley Winegrowers in Mildura and the Wine Grapes Marketing Board in Griffith, Mr Stanford explained that the financial risk of production was born by growers more so than winemakers due to several factors faced by growers:

  • Indicative grape prices released far too late in the season, after the bulk of production costs had been incurred and long after growers needed to make sensible economic decisions in their vineyards.
  • The high cost of disease management this year, in what has been an extraordinarily high season for disease-pressure.
  • The strong possibility of further disease outbreaks from continued wet conditions.
  • Fears of fruit being downgraded after receival at the winery.

Mr Vic Patrick, the Chair of Wine Grape Growers Australia said “Growers need sustainable prices and most prices in the current operating environment sit at less than the cost of production. Growers are encouraged to work closely with their off-takers to negotiate sustainable prices. The alternatives are one of two difficult choices – to operate at a loss or to review and adjust their business operations.”

Wine Grape Growers’ Australia went on to say that it was important to understand the role of market conditions in determining low prices. These conditions include (a) the surplus of wine grape production, (b) poor economic conditions in our key markets that affected consumer ability to pay and (c) a strong Australian dollar that has eroded margins.

“At the end of the day” explained Mr Stanford “the low prices on offer point, yet again, to the critical importance of effectively dealing with the one factor within the control of growers – the systemic oversupply that is at the root of the problem. Oversupply must be dealt with so Australian winemakers’ marketing programs can build momentum and lift the returns to the whole wine industry value chain, including winegrape growers.”

At the moment, because of the oversupply and low prices, rather than focusing on the quality of Australian wine, the major tangible signal coming from the Australian wine sector is “that Australian wine is cheap.”

Mr Stanford said, “The problem is that the dominant mentality in the Australian wine industry at the moment is a supply chain mentality – too many operators are hooked on low prices.” There are several important dimensions to this situation. Being dependent upon low prices is not sustainable and can’t last, it is sending the industry broke, it leads to a rundown of infrastructure and it undermines consumer perception of Australia’s quality wine product.

Wine Grape Growers’ Australia strongly urged the Australian wine sector to break out of the unprofitable spiral of events created by a reliance on low-prices to retain or grow its market share.

“Winemakers pay low prices for winegrapes for a number of reasons – in response to the competitive pressures they experience in the market place, because of expectations created by retailers through discounting, and because, in the current oversupply situation, they can. Consumers ultimately benefit but in the process, our industry is damaged and viable production and jobs will be lost. Consumers need to realise that unsustainable prices can’t last – the industry is going broke and the local product consumers cherish will dry up. Unfortunately, growers contribute to the spiral by continuing to grow unprofitable fruit and by accepting low prices for that fruit – through desperation and a misplaced belief that better days could be just around the corner.”

While the somewhat better prices growers should be able to negotiate this year are due to seasonal effects, the fundamental conditions that are keeping prices low are more enduring and go instead to the core underlying problem – excess production capacity in the industry.

To break out of the low-price spiral created by excess production capacity, growers are encouraged to determine what parts of their vineyards are profitable and to structure their businesses around those areas and varieties. They must also demand wineries pay sustainable ‘cost-plus-margin’ prices or walk away from the offer and strongly consider removing those areas of vineyard.              

“Growers are invited to talk to us about how to go about analysing their vineyard’s profitability” said Mr Stanford, “we have developed excellent programs in recent years that give growers the opportunity to work with others on analysing which areas of their vineyard are profitable and the results of restructuring accordingly.”

Finally, Wine Grape Growers Australia appeals to Australia’s winemakers:

  • not to offer prices below production costs just because they currently can,
  • not to take fruit if there’s not a sustainable market for the wine or profit for the grower of the fruit,
  • to remove those areas of their own vineyards they have identified to be in excess of requirement, rather than selling them back into the production pool, and finally
  • to work with their growers to identify the grower’s profitable winegrapes, offer sustainable prices for the fruit and help and encourage growers to remove that which is not sustainable.

“Developing such a ‘partnership in profitably’ between winemaker and grower is the pathway to a sustainable industry and offers the best chance the Australian wine sector has to break out of its debilitating reliance on low prices.”, Mr Stanford said.

For  further information and  media  interviews, please  contact WGGA  Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

Analysis of vineyard statistics 2009-10

Key observations and a perspective on area adjustments

 Author: Lawrie Stanford – Executive Director – Wine Grape Growers Australia

21 October 2010

Summary

In 2009-10, there was a solid start to the process of adjustment in the national vineyard with a net removal of roughly 6 750 hectares.  There was a seven-fold increase in the area removed in 2009-10 compared to the year before.

While not yet representing the final 2009-10 tonnage, the Vineyard Survey production estimate shows that the off-take was around 9% smaller than last year at 1.53 million tonnes.  It should be noted that the Vineyard Survey traditionally under-numerates the final ABS crush number by 2% to 5%. The latter is taken to be the final tonnage and which is usually available in November-December each year,

The major contributor to a smaller off-take in 2009-10 was the lower yields per hectare rather than the net removal of vines.  Lower yields are thought to have resulted from constrained fruit set after heat in November 2009 and caps on yields per hectare set by the major off-takers.

Not only were there more vines removed in 2009-10 but a greater number of hectares were also left uncropped.  While uncropped hectares were greater in 2009-10, uncropped tonnages in 2009-10 are estimated to be less.  With a greater proportion of relatively lower-yielding Coastal-Temperate vine in the mix of hectares left uncropped this year compared to last, the tonnages uncropped this year, are estimated to be less than the year before.

The warm inland held a 70% share of the estimated tonnages removed from the system in 2009-10. This share is 10 percentage points ahead of warm inland’s traditional share of total production and therefore represents an over-indexing in the warm inland for removals.

While accounting for the higher share of tonnages estimated to have been removed compared to the Coastal-Temperate districts, the warm inland districts accounted for a lower share of estimated tonnages left on the vine or dropped at harvest.  By definition, the converse is also true: the Coastal-Temperate districts held the higher share of tonnages left or dropped but a lower share of tonnages removed from the system.

It is concluded from the preceding point that a larger share of warm inland surplus in 2009-10 was dealt with by removal than in the Coastal-Temperate districts.  Moreover, it is thought that the higher proportion of Coastal-Temperate tonnage thereby left in the system, is suppressing warm inland prices and accelerating its exit.

Unless demand dramatically improves for the 2011 season, the 2009-10 Vineyard Survey data suggests that the adjustment needed in 2010-11 is a minimum of twice that which occurred in 2009-10.  The data does not however provide insight into the fruit that was traded at unsustainable prices and additional adjustment for this fruit should also be considered.

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Australian Winegrape Outlook 2008-2012

Download the Australian Winegrape Outlook 2008-12, prepared by McGrath-Kerr Business Consultants for WGGA