fair warning!

Wednesday, November 11, 2009

The structural, economic and oversupply problems of the Australian wine industry have been news fodder for the past year or more, but rarely if ever has any industry trade association issued a statement as unblinkingly honest as the one that came out yesterday, co-authored by four different groups.

In a joint statement issued by the Winemakers’ Federation of Australia, Wine Grape Growers’ Australia, the Australian Wine and Brandy Corporation and the Grape and Wine Research and Development Corporation, a startlingly detailed and (presumably) accurate account of the massive problems was laid before the country’s winemakers – and the world.


It should be read by every winery and vineyard owner in this country. The problems it describes in stark, no-spin terms are not, for the most part, Australia’s alone. In many respects, Australia is the canary in our own wine industry’s coal mine.

To briefly bullet point some of the main concerns:
• Surpluses of grapes and wine are devaluing Brand Australia
• Discounting is endemic and causing long-term damage
• The country produces 20 - 40 million cases a year more than it sells
• At least 20% of bearing vines are surplus, with “few long-term prospects”
• At least 17% of the nation’s vineyard capacity is “uneconomic”
• Supermarket ‘house brands’ clutter the market and have no investment in capital infrastructure or the long-term health of the industry
• Unwanted, unviable vineyard expansion must be stopped
• Better global economic conditions will not restore previous demand

What I find most remarkable about this clear-headed assessment, is that it comes with several ongoing programs to help move people OUT of the wine business.

Now, look at our own domestic wine industry. Does it have similar problems? How would we even know?! There is no trade association in existence (let alone four of them) that can cover the country in its entirety, do the sort of clear-headed polling required to draw such pragmatic conclusions, and take steps to fix the long term problems. The only national wine organizations of which I am aware are designed to either 1) lobby at the Federal level to prevent even more onerous taxes, labeling regulations, and shipping controls; or 2) promote promote promote – pure marketing of grapes, regions, or wine styles.

The thought that we might act in consort as a national wine industry seems utterly absent. We act regionally and locally, and avoid acknowledging problems at all cost. Spin spin spin. That seems like a sure path to becoming the next Australia.


Steve Heimoff said...

I don't know what the answer is, but I doubt that the American wine industry is in as much trouble as Australia's. Actually the "American" wine industry pretty much means CA, OR and WA doesn't it? Maybe NY. I think California's reasonably okay. Some individual brands will go broke or have to sell but so far the damage has been limited -- and the recession is supposed to be over. I'm not an expert on Australia but I think they got themselves into trouble by selling mainly plonk which ruined th

Ruth said...

Am I wrong, or does this Australian wine crisis seem similar to our financial crisis in the US? It sounds, however, like there are constructive steps being taken to stop the slide and turn things around. Hopefully the Australian wine industry will emerge leaner and stronger. Can this happen in the US? Don't almost all states now have wineries? Is some sort of national wine association necessary?

Jeff said...

It is a bit naive to think that the continued liquidation of wines from other countries is not affecting the glut of our own wine business.

PaulG said...

I see WA wines being offered for 30 to 50 percent off their "regular" retail. This is common now. I also see a lot of these supermarket specials (custom labels) in case stacks at the grocery stores. They bought some cheap juice, slapped a label on it, and voila - they are in the wine business. No investment in vineyards, facilities, labor, etc. etc. And yes, the fact that other countries are dumping wines will certainly impact us here in the U.S. Unlike my friend Steve Heimoff, I am not so sanguine about the near term for our domestic wineries.

Roger said...

If it is reasonable to observe that the Austrailian issues started with vineyard plantings under financial syndicates seeking tax advantages created by the AU Gov and then lead into surplus wines of all qualities and colors, rather than just wineries involved in their oversupply, then it is reasonable to see the same issues haunting the US (West Coast) wine industry.

We flat over planted CA in the 1990's, not out of gov tax deals but rather out of limited vision of the short term profits of vineyards due to undersupply. Since 2000 grape growers have paid hell to move that oversupply, discounted heavily to wineries to take the surplus that caused so much more wine to be produced of all sort quality.

I remember the large 05 crop was leveraged heavily by one CA commodity winery who found extra tank space for another 100,000 tons at end of harvest because pricing could be set at $100 per ton and the change in vintage dating allowed that surplus to carry forward for years.

In Ca we removed over 100,000 acres of grapes in the San Joaquin Valley and still have serious over supply issues, now in the coastal areas. Until wineries and growers can find a common language to manage long term supply demand realities we are certainly open to the issue now facing AU.

winenxt said...

i think Europe has same wine crises...

Tiny said...

Great blog in the Wine Economist about this subject. To Plonk or not to Plonk is that the question? To me the wine world is a great example of capitalism. I don't think we learned much from the Nasdaq fallout of 2000---I did--don't go there---and if you do go slowly. If the Aussies import 20 million cases of wine to the U.S. and Bonco sells 20 million cases which plonk do you want to drink? Most Americans will choose the cheaper. To ask a question--with some of the good Washinton wines at SAFEWAY approaching plonk prices--what is that going to do to the real plonksters? The capitalism pendulum swing one way the the other--I think we are approaching---then the other --which means bad things are going to happen to some body. Paul i' going to buy some juice my first label--Sanguine Red--Indeed it is a good time to Champagne.

Tiny said...

It appears that i need an editor!

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