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wine industry: troubled futures « Previous | |Next »
December 10, 2005

On the drive down to Victor Harbour from Adelaide you pass by the McLaren Vale nestled amongst the Mt Lofty Ranges. It has become a significant tourist attraction with up market wineries, gourmet restaurants and stylish cafes. As you continue to drive to, and along, the southern coast of the Fleurieu Peninsula you cannot help but notice the stretches of newly planted vineyards popping up everywhere.

Where's all the wine going? Whose buying it? Whose drinking it?

In the newspapers you read about the wine glut, in the cafes you hear about the grapes being left on the vines, from the environmentalists you hear about the salt and in the business press you read about the large corporates gobbling up the smaller niche players and their declining profit margins.

The signs are clear. The Australian wine industry has gone for commercial grade fruit, short-term profits, large scale industrial production, lots of water and mass market wines in a big way. You would have expected the industry to have built on its strengths by going for long-term sustainability through the export of prestige---good to valuable wines-- based on an ecologically sustainable fine wine culture built around the marked regional differences.

Simon Evans in the Australian Financial Review says the consequences of the former strategy is that the growers are shouldering too much of the financial burdern of oversupply as the corporate wine companies preserve margins by squeezing their suppliers with lower prices and reduced terms. He says
'

...all that does is put free fruit on the market, which some vulture wil pick up. That "vulture" then puts cheap plonk on the market, which adds to the fierce competition on pricing. It's a self-defeating strategy. '

On world markets Australia's commercial wines are not that much different different to those from South Africa and Chile. Australia is but one of the wine producers jostling for position on the shelves of northern hemisphere liquor retailers and supermarket chains. It just happens to be in favour for the moment.

Quality is the way to go for the global market.

| Posted by Gary Sauer-Thompson at 5:41 PM | | Comments (10)
Comments

Comments

As an insider, I can tell you that the industry is in dire straits.

Way too many people have been sucked into this supposed lifestyle industry, with little knowledge of how to sell the final product.

Basically, for the small end-where I have spent most of my time-the iceberg has already hit, it's just a matter of seeing who manages to get a seat on a lifeboat.

Your point about quality has some validity, but the industry is based on volume. You have 2000 litres of crud, you have to sell it for $20-50 a bottle, you have a million litres of Grange material, you have to sell it for $6 a bottle.

Sadly, the industry reflects the world at large. It is being de-charactered at an increasing rate and the most vulnerable are being crucified by the corporates.

Ironically, the wine industry is one of our few successful value-added industries that can convert our primary product into something the world will buy.

Big Bob,

What you say about volume is right.

But volume is not what is produced by the quality wines from the Barossa Valley's Henschke Winery. Their quality shirz is produced from very old vines(circa 1950s)lots of mulching and very careful watering. It is good viticulture and winemaking.

Cameron,

I cannot see much value adding in cheap plonk and wines for the lower end of the market. Their practices cause the underground saltwater to rise through excessive overwatering.

It is only some wineries that have engaged in value-adding and adopted sustainable practices. Australia's international reputation will be based on this kind of wines, not the mass market ones.

Gary, You think American wine buyers care about salinification when they buy a Hunter Valley wine for $10 USD? Lindemanns pioneered the international grape, this is what Americans buy. It is the best balance on price and quality in the US atm.

Our minerals and energy industries send their products directly overseas, at least the wine industry converts the primary product into a value added product - rather than selling a hole in the ground.

If the market is getting crowded in Au with too many poor quality wineries, they will soon get shaken out and the competitive ones will continue. Those that rape the land to maintain production will only hasten their demise.

Maybe we should store nuclear waste on the vineyards that fail, or go out of business. That should give the land enough time to recover and keep humans off of it.


Cameron,
nope the Californian consumers might not taste the salt. The wine tasters here in SA do; as do the more discerning wine makers who reject the grapes.

The upmarket supermarkets in Britain and Germany are wanting clean and green --meaning sustainable agricultural practices---at a winery and on the horizon a region. That means no salt in the wine.

Tis a big problem for the Coonawarra because they are pumping more water out of the acquifer to irrigate, than is going into the acquifer. It ain't sustainable.

Henschke are a great example of doing things right, no doubt about it. However their brand was built before this crisis began and have assets that aren't available to the new labels.

There are others who have succeeded that are relatively new, but thay are few and far between.

But I still stand by my point - there are too many vines in Australia for the market to bear their produce. In some ways this means that increaing quality only means you can potentially sell your product-it doesn't guarantee you will. Take in the significant extra costs of producing highest quality wines and you could be in a worse position.

In terms of sales, there is no market growth in the highest quality wines. Thus moving up the ladder may increase your potential margin - but you are trying to squeeze into a crowded market place.

All this doesn't mean I don't agree with you - just that the situation is complex. Too complex for most of the newcomers to survive.

Big Bob,
I agree with your analysis.

Why don't the high quality small wineries band together into a regional collective and export?

That is what is happening to the Eden Valley Riesling winegrowers and they seem to be doing okay.

The problem is worse for those regions that haven't got the profile of places like the Eden Valley.

Industry rationalisation is going on. A lot of small producers are forming joint ventures or merging. There is movement on collective marketing. However, most people in the industry are pretty independently minded, so getting them to move to collective models is hard.

BigBob
regionalism in a globalised world is a key.It takes time to build up the regional profile.

It was what the French have done so well for a hundred years or so.

In SA (eg. Barossa) it has been connected to regionalism in quality food. Same with Margaret River in WA. Same with the Hunter Valley in NSW?

I am not sure that the big corporate wine companies are behind this.