For the first time in three years there’s a rising sense of optimism about the outlook for the Australian wine industry.
Thanks to the drought, frost, hail, bushfires and grower adjustment to ultra low prices, this year’s vintage looks like being the lowest since the Olympic year of 2000.
It’s something of a bitter pill to realise that the three greatest threats to rural livelihoods are going to help the industry out of the slough of despond caused by overproduction here and overseas.
And yet as many in the industry start smiling, there’s been a timely reminder from the Federal Government’s prestigious commodity forecaster, ABARE (The Australian Bureau of Agricultural and Resource Economics) that the wine industry needs to cut costs further and become more efficient if it’s to hold its world market position over the next five years.
Why? Because prices are forecast to fall in real terms over the next five years from already low levels.
And a recent edition of The Economist magazine has a small feature on the Chilean and Argentinean wine industries and their differing approaches to the same segments Australia operates in.
They are both planning more investment and more production in the price segments we operate in in the huge UK and US markets.
But there’s no disguising the improved outlook for this year.
According to the February update from the Australian Wine and Brandy Corporation around half the 2007 vintage has been harvested and “is expected to come in at 1.35 million tonnes”.
According to the Corporation there will be 400 million litres less wine than last year. That could mean the surplus stored around the country could be absorbed in about a year and supply-demand might be back in balance in 2008-09.
You can blame, or credit a combination of the widespread drought, hail and frost damage in several states (Tasmania, Victoria, parts of South Australia), bushfires (Victoria, Tasmania, parts of WA and South Australia) and smaller plantings after the impact of the miserably large 2006 harvest which flooded wineries, storage areas, supply chains and led to widespread cuts in prices, a surge in sales of cheap, no label or cleanskin wines and depressed export prices.
It wasn’t just here; there was a glut of grapes and wines elsewhere, in North and South America for instance.
In a statement last month the man in charge of information and analysis at the Corporate, Lawrie Sandford said “The 2007 harvest stands out as one in which seasonal conditions are conspiring to reduce yields (tonnes per hectare) to levels which would be a 30-year low.
“The national vineyard this season was subjected to frost, drought, early-harvest rain episodes and every prospect of a hot/dry finish.
“As a result, yields in 2007 are expected to be around 35% down on the average of the last three years. This reduction will be only marginally offset by an expected 2% increase in hectares of bearing vines after at least five years of subdued planting.”
There’s also an upside for growers that the drought has meant small grape bunches and berries and a more concentrated set of flavours, and hopefully a lift in quality.
In its 2007 interim profit announcement Fosters mentioned that there would be an additional cost this year from the smaller 2007 harvest which would be of higher quality, with a shortage of some premium style grapes.
Mr Stanford said the 2004, 2005 and 2006 harvests were all above average at around 1.8 to 1.9 million tonnes and the smaller 2007 harvest is a ‘compensator’ for the supply load from these seasons.
He said that more than half the red winegrape crop still had to be picked as at the middle of February, with around a third of the whites to go. Because of the drought the harvest started two to six weeks early in many regions.
Mr Stanford said it was possible that the estimate of 1.35 million tonnes could prove to be too high and the Corporation will release its second harvest update in April with the Winemakers’ Federation of Australia to release another assessment in June.
“Yields in cooler-climate regions were more reduced than those in the warm-inland districts because of the concentration of frost incidences in the cooler districts that added to the effect of drought. Yields in the warm-inland regions (Riverland, Murray Darling/Swan Hill and Riverina) are anticipated to be down 32% on last year with the cooler climate regions down 42%.
“Reds were more affected than whites by the seasonal conditions with yields thought to be 40% down compared to a 29% decline in whites. The higher proportion of reds in the cooler-climate regions would have contributed to the greater effects on reds than whites.”
Mr Stanford said the harsh 2007 conditions are likely to have carryover effects into the 2008 harvest by again cutting the amount of fruit vines can carry.
“This, together with expectations of reduced irrigation water availability in the warm-inland districts, means the industry looks with some concern to the 2008 season. There is the full expectation that yields will again be reduced in 2008.”
So that’s encouraging news for winegrowers and investors in companies such as Fosters, Lion Nathan, McGuigan and the struggling Evans and Tate.
For retailers and wine consumers it should be a signal to buy up now and buy big because the boom on cleanskins and cheaply-priced wines will be disappearing.
But there’s no way the good times are returning and anyone thinking of knocking the top off a bottle of bubble or three and celebrating should think again.
Constellation, the world’s largest wine company (it owns Hardys in Australia) is struggling with too much wine and warned at the start of the month that there was a problem with carryover stocks of wine.
This was being helped by a slowdown on sales in the UK market and to a lesser extent parts
