Industry outlook: The Australian wine sector in 2009

January 18, 2009


Too many of those

It does not look good for us grape and wine producers here “down under” at the beginning of 2009. Analysts and wine industry experts, among others, are predicting another surplus for the 2009 vintage. The global financial crisis (and not the drought) is the “hammer” going to hit many artisan as well as industrial wine producers. Otherwise the bigger producers would not worry so much in public. Everybody expects the demand for fine wine to be sluggish at best in 2009 and the years to come.

Australia has about 170,000 ha under vines. The total volume of the coming vintage is expected to be around 1.85 million tonnes, about 400 to 500 thousand too much, according to some analysts. Experts at the Australian Wine and Brandy Corporation believe that the sector has to shrink by 10, maybe 20 % in order to survive.

Grape growers will be hit particularly hard. Prices for fruit might be as low as 150 to 200 A$ per tonne. This is less than half of cost. The 600 A$/t we received for grapes last year are looking big by these new standards. For many grape growers the making of their own wines and the development of brands and markets are out of reach, and would anyway only be a temporary relief.

The “big producers”, accounting for about 73% of total production in Australia, are most likely to survive. In fact, they have recently made public statements calling for small producers to get out of production and out the way, thereby making room for the survival of the biggest (not the fittest). For instance wineries below an investment of 5 million A$ should close.

Findings from an accounting firm suggest that “most wineries with a sales volume below 10 million A$ (which is about 90% of all producers) are loosing money”. Implying that small producers are not competitive but inefficient and wasteful. Other suggestions call for the forced merger of wineries with less than 5 million A$ turnover per year. Average vineyard size, currently about 20 ha in Australia, should be more like 80 ha.

Well, small, boutique and artisan vineyards and wine producers have been around for a long long time at least in Europe and North America. Australia has a rather strong concentration in the sector where 4 to 5 big players are in fact calling the shots. Nowhere else in the world do such large wine companies exist.

However, why should we boutique vintners and small wineries loose out this time? Of course not everybody is going to stay in the business, but imagine who should keep the dream up? We not only sell wine, but visions and dreams about the land and the people, about how these people grow grapes and turn them into fine wine.

Just think of a wine factory and industrial production! How can it appeal to people looking for something else than the industrial age has to offer. Technically correct wine is one thing, a vintner on his vineyard is another.

We, the “small” vintners, add value to the lives of all the wine drinkers, the people driving through blooming landscapes planted with small vineyards and vines. The dreams are about freedom and independence, about love and nature, in short, the good life.

Fortunately, the development of modern technology is on our side too. Just read Chris Anderson’s book “The Long Tail” and how the many “fame less” products bought over the internet make more money than the few famous brands. Of course selling wine bottles over the internet is not the same as selling music etc. files but the major advantages of the “Long Tail Economy” (democratisation of production, distribution and marketing, the reduction of storage cost and the cost of information) can still be grasped.


Two Hills vineyard in the evening light

We at Two Hills Vineyard are still optimistic. We have a long-term strategy and are not fuzzed by quarterly profit and loss accounts and share market valuations. We have no debt and Margit and I are in good health. Millions of new wine consumers in India, China, Russia and elsewhere will eventually make their demands known. We only need a tichy tiny share of this to let us fly high.
Cheers, “auf Ihre Gesundheit” as we say in German (to your health)