Disastrous 1995 vintage to push wine prices higher

It was a Clayton’s vintage”, one wine industry Chief Executive told me. “The wine makers and cellar hands worked white-collar hours. In at 8, out at 5. No frantic, round the clock rush to cope with all the fruit.”

No one had ever seen such a short, small vintage. The casual labour is all being paid up and sent home a month earlier than usual.

But the calm in the wineries is not matched in the boardroom. For the desperate shortfall of grapes around Australia will have the most profound impact on the bottom line of an industry already noted for financial underperformance.

And in this instance, unease in the boardroom will translate directly into significantly higher wine prices. Prices simply have to go up to retard consumption and to claw back higher production costs attributable to the grape shortfall.

The same Chief Executive lamenting his Clayton’s vintage showed me the sums. Last November the Australian Bureau of Agricultural and Resource Economics (ABARE) published the projected 1995 grape crush, based on a survey of wine-maker expectations.

At the time, the industry looked forward to an 851,000 tonne crush — a figure some thought not adequate to meet demand.

Immediately prior to vintage, the figure was revised down to 700,000 tonnes. But with grapes from the warmer, earlier ripening areas already in and crushed, my anonymous Chief Executive estimates the final figure will be between 550,000 and 600,000 tonnes.

It seems the warmer areas were particularly hard hit because of drought and savage winds that late last yearhit vines during flowering time, stripping them of the embryonic 1995 crop.

The Hunter Valley, Mudgee, and the Riverland suffered severely, with crop losses of up to fifty per cent.

And while it’s not possible to pick the exact shortfalls yet, we can probably say that cask wines will be hard hit, given the disaster in the Riverland. As well, a spot price of $1200 for irrigated chardonnay, suggests big brands like Lindemans Bin 65 Chardonnay may face severe volume restrictions.

Sales lost because of the disaster present only part of the problem. According to my Chief Executive, his winery lost forty per cent of its crush. But his fixed costs remained largely unaltered, and savings in labour because of the reduced vintage were small in relation to total costs. He puts the increased production cost per case in his own winery at $11-$12 and suggests that the industry overall needs a 10-12 per cent price hike to recoup its losses.

With demand, especially in the all-important $5-$10 a bottle market, so sensitive to price movements the industry faces a severe dilemma as to how much it can move prices without killing demand completely. However, prices simply have to go up or there just won’t be any wine left to sell.

While the position for the industry is very tough, it’s not all bad news for consumers. With the dollar strong against the currencies of several wine-making countries, part of the shortfall is sure to be made up by imports.

I know of at least six wineries looking to import bulk wine for bottling here (and there are bound to be more) and as well there are the established wholesalers and retailers now looking to plug the gap.

This may present a culture shock to Australian wine drinkers, currently amongst the most parochial in the world. But if we expect to drink good wine under $10 a bottle then, like wine drinkers elsewhere, we will now be forced to look beyond our shores for an increased proportion of our wine for the next few years at least.

Of course, agricultural shortfalls and cornucopias are never universal. As our large wine areas face a cruel fate, Canberra’s wine makers have commenced harvesting what looks to be the biggest crop in the district’s twenty-four year history.

Ken Helm reports that last year‘s record harvest of 300 tonnes looks like being eclipsed by a 1995 crush of 500 tonnes — pushing district production to around 35,000 cases.

1995 has seen the first use of mechanical harvesting taking place in the district, too. Andrew Garrett Wines sent in the machine to take 20 tonnes of chardonnay and pinot noir from the Park Lane Vineyard at Hall.

Local grape prices, Ken tells me, have remained stable, largely because the various parcels are just too small to attract bids from the larger wine makers.

While it’s good to see stable pricing and continuity from the local makers, the future of mainstream suppliers seems less certain with shortages and higher prices in sight.