There’s no doubt that the wine trade is a difficult one right now, but to the year ended February 2004, Australia’s wine exports were actually up by 14% over the previous year by volume and 6% by value, worth A$2.47 billion. There has however been a 7% decline in the average return per litre on wine exports, despite a massive appreciation by the Australian dollar against key currencies. While the UK remains the largest market by volume, the US was responsible for 46% of the growth in export volumes and 81% of the net value growth. With volumes down by 1% and value down by 7% on the previous year, the UK imported 215 million litres against the US level of 159 million litres. Sales to the UK were worth A$841 million, while sales to the US were worth $875 million. Figures from the Australian Bureau of Statistics confirm the difficulties concerning the domestic wine market that I hear about on a daily basis. Right now, unless you’re a well-established brand with a price-point above $25, it’s very hard to sell any wine above that price. It would appear that consumers have well and truly awoken to the fact that there’s not a lot of difference in quality between many wines in the $12-15 area and those in the $18-25 area, so they’re largely spending below $15. Volumes of domestic sales are also declining by around 5.5% on a year-on-year basis. Not unsurprisingly, these difficult sales conditions are exacerbating the temporary over-supply situation, which key analysts believe will exist until around 2006. Therefore there is perhaps some relief attached to the news that the searing recent heat across the warmer regions of south-eastern Australia has in fact caused the stop-start 2004 vintage to come in with lower volumes than initially predicted, although the consequences with respect to quality in some areas are hardly encouraging. While the official forecast for this year’s crop remains at 1.7 million tonnes (up by 22% from last year), some forecasts remain as high as 1.75-1.85 million tonnes. I, on the other hand, prefer to follow the forecasts of McGrath-Kerr Business Consultants, which in its Wine Industry News publication of March 1, predicts a national crop in the range of 1.6-1.65 million tonnes. As we all know, Australian wine exports will inevitably account for an increasing proportion of total sales. The Bureau of Agriculture and Resource Economics (ABARE) predicts that exports will reach 65% of total production by 2008/09, against the 49% level of 2002/03. The expected overall annual production growth is anticipated at 12%, against a 27% anticipated increase in the bearing area of vineyard. There is already significant data based on plantings up to 2002/03 and a lack of activity in 2004 to suggest that this increase lies at the very optimistic end of forecasts. However, given the boom-bust historical nature of grape supply versus demand, there’s little doubt that given the right trading circumstances, Australian wineries will again encourage the rapid large-scale plantings of new vineyards. For the time being, prices of Barossa Valley shiraz have fallen in some instances from A$2500 per tonne to A$500. If that’s the low point in this cycle, that’s an awful lot better than in the early 1980s, when you could buy Barossa shiraz in muffins.
