Don't write off the Aussie battlers just yet

19 September, 2008

Winemakers in the lucky country have always had to endure environmental disasters, but they now face a perfect storm - and that's not just the climate. Jeremy Oliver reports from Down Under

The wine industry Down Under is


a tough time, make no mistake. It's facing fights and putting out fires on

many different fronts. It needs strong leadership like never before. It knows what needs to be done to get back on track - as spelt out in Wine Australia: Directions to 2025, co-ordinated by the Australian Wine & Brandy Association and the Winemakers' Federation of Australia - but it is perhaps struggling to find the will, which is really about finding the dollars, to do it.


are the nine biggest challenges and opportunities facing the country's wine producers:


Climate change

With the Murray-Darling system experiencing its lowest inflows on record in June 2008, the drought is not only threatening the wine crops of Victoria's Sunraysia, the New South Wales

Big Rivers and South Australia's Riverland

regions, but the very survival of

the country's largest

water network . Unless these plantings were either saved through a reversal of climatic fortunes or replaced by plantings in cooler, more southerly regions,

Directions to 2025 suggests that the dire predictions of the recent Berry Bros & Rudd report might well be correct . Berry's research claims that "by 2058, Australia will be too hot and arid to support large areas of vine".

The Riverland

in South Australia is one of the country's largest winemaking regions, which is now staring

redundancy in the face. Why? There is scarcely any water that far down the river , the growers have used up all their credit to buy in water

if it becomes available, and

vineyards are simply dying through stress.

Langhorne Creek, a historic South Australian region with a genuine quality reputation, is

in the same boat.


Currency issues

When the Australian dollar was pushing well above 95 US cents,

the nation clearly struggled to maintain its market presence. Sales to the US for the year ending June 30 2008 fell

18% by volume and 22.5% by value. The Australian dollar has fallen

amid speculation over interest rate reductions, the first of which happened recently. If maintained, this is

good news for all Australian exporters.


Science or politics?

Under the new


government there are consistent signs of a powerful re-emergence of the so-called health lobby,

which has already persuaded the government to increase the tax on pre-mixed spirits by 70% .

T he National Heath & Medical Research Council

has made a preliminary declaration that an adult who

consumes four "standard" drinks ( the equivalent of five UK units) has actually been binge-drinking.

The wine industry is deeply concerned about : the likelihood of an increase in the so-called



tax ( actually a tax on top of the




tax in Australia); increased pressure

to incorporate health warnings on wine labels ; and the imposition of

Draconian rules with respect to wine advertising.


The oversupply

After a small 2007 vintage that effectively made Australia's wine glut redundant in a single swoop, 2008 has caught the industry well and truly on the hop. A combination of ill-advised strategic water purchases by wineries

- plus some overall good fortune that the anticipated after-effects of the early, hot, 2007 vintage were significantly less damaging than initially expected

- resulted in a crop of 1.83 million tonnes , virtually double some predictions.

It is

possible that

there will again be

an oversupply, albeit a short-term one. If the drought persists, however, it is unlikely that as many growers will be able to afford to irrigate to the same extent, even if the water becomes available.


Carbon footprints

Australian wine producers are becoming more accountable for their carbon footprint. While Cullen Wines, the well-known Margaret River

company, was the first in Australia to become recognised as carbon neutral, the big issue today relates to the transport of bottles, empty and full, from one end of the planet and back again. Most

local wineries wishing to make a marketing statement import heavier and more ornately shaped bottles from Europe, rather than using those made locally .

The other issue relates to the weight of the glass , and the amount of energy required to make and transport it. Wine bottles weigh anything

from 300g for supermarkets

to 1kg for the super heroes. Some are calling for more wine to be sold in

bag-in-box , others for the new 75cl PETs that weigh just 54g. Following the lead of the UK government's GlassRite Wine programme, supermarkets and retailers are calling for Australian wines to be shipped in lighter bottles. There is also pressure from the UK for

wine to be shipped

in bulk and then processed at

a UK bottling line into lightweight


There is a

reluctance for winemakers

to do this

because it introduces a number of entirely new variables along the transport and packaging pathway that could easily affect the quality of the finished

product. The concept of "estate bottled" has long been valued by the UK wine market and media. So, thanks to its distance from that important market, Australia's wine industry might end up facing significant challenges that countries closer to the UK, such as France and Spain, might not.


The export

is falling

Australia's overall wine exports for the year ending June 30 2008 fell by 12% by volume to 702 million litres and 11.1% by value to AUD$2.66 billion (£1.2 2 billion). There has been a small, but meaningful, increase of 1.1% in the value per litre of wine exports.

Asian markets

such as China, Japan, Singapore and Hong Kong are becoming increasingly important to Australian wine. In the past financial year, exports to China grew

23.6% by value, with a 111.1% increase in the value per litre. China is an embryonic wine market, but one

with unquestioned potential.

It is also a significant wine producer in its own right. Once the Chinese population focuses more on wine in general, the opportunities

are virtually limitless.




Australian wine is presently undertaking a major structural review . It is seeking to streamline

its services to member companies and to

remove duplication of resources and activities without compromising its ability to regulate exports and to conduct its full suite of statutory requirements.

This could not come at a worse time,

since the industry's international marketing activities are, to some extent, in limbo .

The release more than a year ago of Directions to 2025, its own brilliantly conceived blueprint to make Australian wine sustainable, accountable and profitable, has led to little actual effect in the key export markets. Its key premise of requiring significant additional export-related expenditure in order to deliver its aims has simply not materialised. The clock is ticking, but to speed up the process might be equally damaging from a long-term perspective; it has to be done right.


The corporate environment

The broad uncertainty facing the wine industry is not helped by the challenges facing Australia's largest makers of quality wine, Foster's and Constellation Wines Australia.


the country's largest wine producer by volume, has had its wings clipped with the announcement of a major restructure that will lead to the loss of 350 jobs, the discontinuation of up to 35% of its product range and the sale of 8% of its Australian assets. Constellation is dropping the sale of many less profitable, lower-priced wines, to better position itself in a changing global wine environment that demands a higher level of regional identification in its wine brands.

The job losses represent 22% of

its entire workforce, and largely fall in the production-related areas of winemaking, packaging and viticulture.

Foster's already owns a large number of Australia's leading quality brands, but there is now serious doubt that it will be able to retain and operate its massive wine brand portfolio in its present form. Given the fall from grace of Rosemount and Lindemans, there must also be concern that if the company

is to shed some, or indeed all, of its wine brands, then it should do so before further damage devalues

its prospects .

It's now apparent that all courses of action are being considered by the Foster's board. Few people with any experience in Australian wine and a love for the industry would want the Foster's wine division to be broken apart in a frenzied reaction to these difficult circumstances. From Penfolds to Wolf Blass, from Seppelt to Wynns, from Leo Buring to Lindemans, these brands represent a great deal more than a label on a bottle of wine, even in the case of Lindemans, where the contents of a bottle might not necessarily come from Australia anymore. This stellar collection of brands, whose wines today are generally as good as, if not better than they have ever been before,

stand for something like the engine room of Australian wine.


The 2008 vintage

The 2008 crop was 31%

larger than 2007 . It produced 45% more red grapes, which accounted for 53% of the total intake, while the white crop was up by 18%. The god of wine obviously has an Old Testament sense of humour, so while it might be big, the crop was far from uniformly beautiful. The season's early start led to harvest around a month before what has traditionally been accepted as normal, leaving grapes to complete their ripening in the dangerously hot months of January or February, depending on where they were grown.

Then brutal temperatures - which included a record heatwave for Adelaide from March 2

to 18 - accelerated ripening to such an extent that the vintage was condensed into around half of its usual time. Fruit all ripened and/or overcooked at once, so wineries were choked with

grapes coming in, and left some grapes on vines for much longer than is desirable. Many red wines were harvested well above their usual sugar ripeness, but also without their typical levels of ripe flavour.

The good news is that fruit harvested before the heatwave has

created some brilliant wine, from South Australian Riesling to cool-climate Victorian Chardonnay and Pinot Noir. With the exception of Western Australia, which enjoyed yet another perfect season, most of the top wines will come from the cooler regions in the continent's south east.

Australian wine will emerge from its present issues. Wine and wine production have become ingrained in this culture, and too many people have too much at stake not to work together to find the necessary solutions. The industry might become slightly smaller, for sure, but it will also become more interesting, more diverse and more focused on quality and excellence.

Never, ever write Australia off.

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