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National wine grape report prompts major reshaping of industry
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A far-reaching national report on the Australian wine grape industry has prompted the need for a major reshaping of the wine grape sector to ensure that many existing wine grape growers can remain in business in the longer term. The Report -Taking Stock & Setting Directions for the Australian Wine Grape Industry – has found very significant economic and structural challenges facing Australia’s 8000 wine grape growers, brought on by a doubling of the national vineyard estate in the last decade; a misalignment of grape supply with demand; a predominance of small scale, higher cost vineyards; and the negative effects of a more globally competitive market on wine grape and wine prices eroding grower incomes and longer term viability.
The Report – designed to assess barriers to future grower viability and propose strategies to bolster the industry’s resilience and long term sustainability – was funded by the Australian Government’s Industry Partnerships Program through the Department of Agriculture, Fisheries and Forestry. The Report follows six months of intensive consultation with growers across Australia and industry analysis during 2006.
The Report’s overriding theme is the rapid emergence of a far more competitive international market environment resulting from rapid growth in production in all New World producing countries, which will deliver more moderate wine grape prices than over the last decade. Linked with the growing consolidation of retailer market power across the world, the trends of downward price pressures on wine prices and the dominance of cheaper wine categories are becoming entrenched. Other major Report findings include:
- The Australian wine grape sector will be reshaped, as many existing growers exit the industry – through the realignment of production towards lower cost inland regional grapes in regions such as the Riverina, Murray Valley and Riverland to meet future export market trends. There will be a consequent reduction in higher cost, temperate and cool climate vineyard production - linked with the declining economic outlook for smaller scale vineyards in all production zones.
- Growers must respond to growing international market pressures by improving their economies of scale – through adoption of new vineyard business models – leading to vineyard aggregation, more joint management of vineyards and collective marketing of grapes. Vineyard economic benchmarking and new financial assessment tools will need to be adopted by growers to keep them ahead of their international counterparts.
- The industry must continue to invest in innovation in viticulture to reduce vineyard costs.
- Information gaps must be filled and industry data improved to allow better business planning and commercial decision making by growers – particularly on market intelligence, vineyard production trends and wine stocks.
- Growers will need to become more engaged in wine market development to ensure markets for their grapes continue to grow – through an all-of-industry approach to marketing and industry planning. There is an urgent need to grow premium, super premium and specialty wine markets, to expand the market for higher cost wine grapes flowing from the new vineyard plantings of the last decade.
- Growers, winemakers and retailers need to better understand the real costs of production and required margins at all levels of the value chain to ensure viable returns for all sectors.
- Development of better business relations between growers and wineries is essential for industry sustainability, including the resolution of the current tensions between new investment vineyards and existing growers – brought on by the overheating of plantings in recent years.
- Response strategies to climate change must be developed by the industry, leading with a review of water infrastructure and the continuing upgrading of irrigation water distribution and application technology for vineyards.
- The changing shape of the industry will bring new pressures in skills development and industry leadership that will need to be resolved if the wine grape sector is to remain sustainable.
- The new national growers body – Wine Grape Growers Australia (WGGA) – will need to be strongly supported by the industry to allow the new strategies and development programs to be implemented, and for the flow of independent industry and wine grape market analysis to growers.
Chairman of WGGA, Alan Newton, said the Report prompted the need for a new all-of-industry strategic planning approach, designed to tackle the current imbalances in the industry, expand the profitable markets for wine, and plan for economically sustainable vineyards and wineries in a much tougher international market environment.
“Neither the wine grape sector or the wine production sector can work in isolation if the Australian wine industry is to remain competitive. The new market environment is dictating that the Australian wine industry has to take a more planned approach to developing both sectors of the industry than we have seen in the past. The Report points to the need to grow profitable markets and reduce our costs wherever possible, and make structural changes in the industry to better align the long term grape supply with the likely demand for wine over the next decade and beyond.”
“With the wine grape sector in a very serious economic downturn, thousands of growers are facing a very uncertain financial future. In the next 12 to 18 months many producers will need to make the decision whether to stay in the industry, or to exit. It is not simply a question of whether growers can survive two severely drought affected vintages – but whether there will be a viable market for their grapes once the industry returns to a more normal production pattern. There is no doubt that we have longer-term structural imbalances in the industry – with too many vineyards in the higher cost production zones, and too many small vineyards that will struggle to survive. We must be able to give growers the most accurate information possible about the future trends for the industry, including their future market opportunities – for them to be able to make the best informed decisions on the future of their enterprises. We are not alarmist, but we must be realistic that the Australian wine grape sector is going through some fundamental changes. The core of the wine grape sector has a sound future if it can adapt to the new business environment, but sadly some growers will not have a place in the future industry.”
Mr Newton said that the new Australian Wine Grape Sector Strategic Plan, to be implemented by WGGA, would include - an industry structural reform program; improved market intelligence; better industry data and financial management tools for grower decision making; new grower business models; refined viticulture research and development priorities; a review of industry infrastructure, including an industry water management strategy; a wine grape sector plan to tackle climate change; and initiatives to improve relationships between growers and wineries – principally through an Australian Wine Industry Code Of Conduct.