Snapshot of the Aussie wine industry

As we move towards vintage 2008 Australia’s wine industry is in dramatically different shape than it was last year.

In spring 2006 as vines budded for the 2007 vintage, I was in the Barossa and Langhorne Creek hearing daily of cancelled grape contracts as large winemakers, with storage tanks full, anticipated a third consecutive bumper grape harvest.

Then, out of the blue, frost struck eastern Australia, decimating the embryonic 2007 crop. Drought wrought further damage and, in the end, vignerons crushed 1.4 million tonnes of grapes – half a million tonnes down on the 1.9 million tonnes each of 2005 and 2006.

The oversupply became a shortage overnight. And as the drought continued, vintage 2008 seemed almost certain to be even smaller 2007’s.

At a wine industry conference in Melbourne last month the Australian Wine and Brandy Corporation’s Laurie Stanford projected the 2008 harvest at 1.22 million tonnes and predicted an even smaller crop in 2009.

By my estimate the projected 2008 harvested might leave our winemakers about half a million tonnes short of replacing current consumption of Australian wine (1.1 million tonnes for exports; 0.6 million tonnes domestic).

So, with exports still bubbling along and domestic consumption growing modestly, where does that leave Aussie wine drinkers? Will we go without? Will we have to pay more?

The answers you get depend on whom you ask.

Tony Leon, General Manager of the Woolworths owned Dan Murphy brand, was in Perth opening the chain’s seventy-third outlet when I called. A projected turnover of $1.5 billion this year makes Dan the dominant force in Aussie liquor retailing, and a good litmus for the market.

Leon says we won’t go dry, but things will change. One way or another, he reckons, there’ll always be wines at the prices people want. But the day of the $1.99 and $2.99 cleanskin are over. These will jump by $1 to $2 a bottle.

And he believes that strong premium brands are likely to increase in price. For example, the Penfolds Bin Range reds, probably won’t be seen at under $20 next year – and certainly not at the $15 and $16 we enjoyed in 2007.

While Leon predicts that import volumes will increase substantially in percentage terms, their absolute volume will be small. ‘They won’t move the needle’, he said. But he also expects to see imports in some wine casks.

He expects our insatiable thirst for sauvignon blanc to continue into 2008. And to meet demand the next cleanskins of this variety will be from Chile and France – as there’s none to be had in Australia’s bulk market.

And what wines will we want most in 2008? In red wine, says Tony, we want straight shiraz or straight cabernet sauvignon. But we’re developing a taste for pinot noir, but the rapid growth in demand is off a small base.

Similarly there’s a buzz about the white pinot gris. It could grow from about one per cent to three per cent of white wine sales.

Canberra’s Jim Murphy, of Jim Murphy’s Market and Airport cellars, expects that the strong Australian dollar will curb imports to the USA and that this, in turn, could take the pressure off domestic supplies.

Jim says that there have been no price rises yet in the important $5-$10 a bottle range nor in the $15-$30 sparkling wine range – a sweet spot for the Christmas trade. With Christmas deals now done and dusted this suggests stable prices until the New Year.

He adds that there are enough small and medium wineries now to allow him to pick and choose what to stock.

A closer look at the grape supply figures, though, suggests where the price pressures might come in the new year, even if they’re not showing yet.

The real pain for growers is in the Murray Darling basin, source of something like seventy per cent of our wine grapes. These are the backbone of our cask industry (representing a little under half of domestic wine sales), and also of our under-$10 bottled wine market and much of our export push to date.

Most of next year’s grape shortfall will be because of water shortages in the basin. This year, for example, South Australia capped water allocations at 16 per cent, rising to 22 per cent in December.

The ABC reported a few weeks back that ‘many growers say that is not enough’. It went on to report that one Barmera grower vowed to use 40 per cent and said, ‘God help whoever comes out here on my property to tell me you’re not going to do that.’

Meanwhile that River Murray shortage is forcing larger wine companies to change focus. We may well see imported wine in wine casks. And Hardy Wine Company’s Sheralee Davies told me that their could be some rationalisation of their cask products and that there’d be a global push on top end and regional products – from the $15 Oomoo McLaren Vale range to flagships like the $60 Eileen Hardy Chardonnay and $100 Thomas Hardy Cabernet Sauvignon.

Premium growing regions, it seems, won’t be as badly hit as the Riverland and many may deliver normal crops, thanks to late but effective spring rains.

In Canberra, Tim Kirk of Clonakilla, Murrumbateman, and Jim Lumbers of Lerida Estate, say that fruit set suggests a healthy vintage. And Anne Caine, President of the Canberra District Wine Industry Association, reports good fruit set across the district, thanks to June rain and recent follow up falls.

What we’ll also begin to see increasingly in 2008 and beyond is the effects of concerns about global warming.

Increasingly, the industry will measure its carbon footprint and take steps to reduce it. This will be driven partly by international retailers, partly by legislators, partly by consumers and partly by producers themselves.

We’ve already seen the introduction by Foster’s of premium wine in PET bottles into the Canadian market and to a lesser extent in Australia. At one-tenth the weight of glass these deliver major savings in transport and recycling costs.

And Hardy’s has introduced one-litre tetra packs into its UK Banrock Station range. These will hit Australian shelves next year.

At the recent Wine Industry Outlook Conference, delegates learned of a new carbon-footprint tool developed by Australian company, Provisor. Wineries from Australia and other countries have agreed to adopt the tool as a means to giving standardized assessments across the industry.

What we can say for 2008 and beyond is that we won’t go dry; we’ll drink more imports; we’ll see a lift in basic wine quality; competition will keep a lid on prices, as it always does; and we’ll see a rapid greening of the industry – partly to survive, partly to gain competitive advantage and partly in response to consumer and government demands.

Copyright © Chris Shanahan 2007