Be very, very careful before you sign the dotted line for a grape growing investment scheme. A recent release from The Australian & New Zealand Wine Industry Journal suggests that Australia will have an unwanted glut of vineyards the size of Coonawarra if all the planned investment schemes are successful. It also comments that the Australian Securities and Investments Commission has information which suggests that investors could lose their money in three out of every four rural investment schemes on offer. I couldn’t begin to count the number of long-time industry professionals who are simply bewildered by the present rate of plantings and the irresponsible way they are being sold to potential investors. According to The Australian & New Zealand Wine Industry Journal, less than one in four of these new schemes has a contract with an established winery. ‘The schemes generally target high income earners, promising official Australian Taxation Office ‘Product Ruling’ approvals as a way of guaranteeing exemptions for a lower personal income tax bill’, the journal says. ‘In the last six weeks of the 1998-99 financial year the ATO approved ‘Product Rulings’ for 18 projects. Combined, the developments propose 2,403 new hectares. Only four of the projects have any form of contract with an established wine company. Nine of the schemes claimed in their prospectus to have a grape contract. But on further investigation, the Journal found it was a ‘contract’ with themselves.’ In my examination, many of the prospectuses are short on detail concerning issues such as the return on investment and the expertise and track record of the operators. Many operators have no wine industry experience, grossly over-state establishment costs and offer ridiculous estimations of projected cropping levels and future grape prices and clearly have absolutely no knowledge of Australia’s place in the global wine market. The amazing thing is that this doesn’t seem to matter to the endless supply of wealthy would-be Collins St farmers keen to capitalise on the accelerated depreciation schedules available to primary producers. The overriding incentive of the schemes is more frequently tax minimisation rather than the provision of a required product to an established market. Already, as 1999 draws towards a close, winemakers can choose from a smorgasbord of quality fruit from a number of high-profile regions. In short, they simply don’t need what the schemes are destined to produce, certainly not in the short or medium terms. The extraordinary extent of recent plantings and the likely rapid transition from under-supply to over-supply of fruit will certainly cause domestic grape prices to fall. Industry estimates suggest declines in the order of 50%. The Australian & New Zealand Wine Industry Journal suggests that if all the schemes approved last year by the ATO a total of 2,975 hectares fully are fully subscribed and meet their expected yield Australia will get an extra 37,187 tonnes of winegrapes. ‘That’s an ‘unwanted’ grape crop larger than the current harvest from Coonawarra’, it suggests. Somebody is going to have to buy all this fruit if the schemes are not to go belly-up. Wine business analyst Stuart McGrath-Kerr says that ‘the losers in any domestic shake-out will be those investors who rely on a maintenance of the current high domestic returns to stay viable at a time when the market will only deliver an export return’.
