There’s no need for the Australian wine industry to lose its nerve. That’s the view of most key players in the commercial and export markets, despite the potential threats posed by countries like California, South Africa, Argentina, Chile and the south of France. True, at around 1,180,000 tonnes 1999 was by far a record vintage year and a whopping 15% above industry expectations. Sure, for the first time in several years there are growers in the irrigated regions still awaiting payment for fruit which has since been made into unsold wine. Granted, the US is reaching self-sufficiency for the first time. And correct again: the unprecedented plantings over the last three years have put Australia about a decade ahead of the supply expectations generated by the industry’s blueprint, Strategy 2025. But Graham Cranswick Smith, chief executive of Cranswick Estate, an entrepreneurial Griffith-based publicly floated wine company which sells significantly more wine overseas than in Australia, is very optimistic. Just back from Germany with an order for 125,000 cases of chardonnay for a supermarket chain in his pocket, he says it’s more of a timing issue than a real glut. ‘We don’t have a surplus; but we have a softening of prices which is allowing us to be more competitive and penetrate markets we have not been able to penetrate before. There’s an enormous pent up latent demand for Australian wines, especially in the UK’, he poses. In a nutshell, Cranswick Smith’s point is that some producers are not marketers. You can’t just put reasonable wine in a bottle at a reasonable price and expect to beat away the hordes of buyers arriving on your doorstep. ‘This year production in Griffith increased from 115,000 tonnes to 150,000 and some makers crushed grapes just because they were there. Some of these don’t have access to markets and have bought in grapes in excess of their ability to pay for them. Ultimately they will find markets with companies with brands and distribution networks in place.’ Grapegrowers have obviously planted fruit independently of winemakers wanting fruit for their brands. Stephen Strachan of the Winemakers Federation of Australia (WFA) estimates that by 2003 there will be 83 ML of wine not accounted for by projected export and domestic sales growth. Neither Cranswick Smith nor the WFA view this amount, which equates to about 120,000 tonnes of wine grapes, as an oversupply. Says Cranswick Smith: ‘When companies like ourselves have sold all our own wine we will go shopping. We will regard the little wine lake as reserve stock to keep our export drive going. I don’t think there will be a glut provided prices keep softening. It’s essential that we have enough stock to keep up with the growth in exports.’ Indeed most major wine exporters could have and would have sold substantially more red wine overseas than they have done in recent years if the supply was available. The WFA estimates that Australia is still around 12 months away from being able to fulfill potential red wine orders. It’s also worth making the point that these recent plantings, of which around ninety percent have been red varieties, also become part of the long-term asset base of Australian viticulture. Strachan expects any surplus wine to be sold as buyers own labels, as bulk wine or else used to replace the multi-purpose grapes like sultana and muscat gordo blanco in casks and low-priced bottles. The extremely high prices for the premium varieties of chardonnay, cabernet sauvignon, shiraz and merlot has unquestionably been a factor in the increasing prices of commercial Australian wine and one of the reasons why Australian wine exports have become more expensive relative to the wines of Chile and South Africa, to name but two competitors. However there’s no doubt that prices will fall; by around 50% over the next two years according to many industry commentators. Given that grape prices account for 20-30% of the pre-tax wholesale price of wine, growers will experience a severe pain in the wallet, while Australian wine exports will again become very price-competitive against their competitors. Steven Strachan anticipates price adjustments for white grapes by the 2000 vintage and for reds by 2001. This, as Cranswick Smith suggests, is where marketing and brand positioning comes into play. Existing strong brands should be able to survive without reductions in prices, but newer brands coming onto the market will have to offer excellent value at cheaper prices. Their survival in an increasingly competitive world market will depend more than ever on how quickly they can establish themselves through marketing and distribution, yet let’s not exaggerate the danger. After all, Australia only accounts for 3% of global wine production and only 1.6% of the US wine market. If by 2003 Australian exports to the US have increased from present levels around 40 ML to 70 ML, it would still only represent 3.2% of US wine consumption and a mere 15% of its total wine imports. Although there will certainly be some pain during the interim, the future remains as bright as ever before. Australia’s proportion of premium varieties is becoming higher with every passing vintage. Domestic wine sales, especially for red wines, are growing at a rate far in excess of that anticipated in Strategy 2025. Believe it or not, it is both certain that there will be a shortage of premium chardonnay in the very near future and a shortage of commercial chardonnay is also very likely. Graham Cranswick Smith makes the point that Australian wine is no longer entirely dependent on its small domestic economy and the traditional boom-bust cycles it has typically faced. ‘Big increases from one vintage to another have always been hard to cope with, but we are now playing in a world wine market in excess of 500,000,000 people. Therefore we have to throw out our preconceptions of what actually is a surplus. I’m very optimistic indeed.
