The competiveness of Australian wine exports and the sustainability of exports to key markets like the US is threatened by the seemingly unavoidable parity with the US dollar. The US is currently Australia’s largest export market for wine by value, and Treasury Wine Estates, Foster’s Group’s wine division, recently blamed movement in currency for a 27% drop in earnings before interest, tax and special items in the fiscal year to the end of June. Australian Vintage’s CEO Neil McGuigan blames the strong AUD as one of three main challenges faced by the industry, alongside oversupply and growing competition in the UK and US. The company is to withhold an annual dividend in order to conserve cash to cope with currency swings. The Australian Treasurer, Wayne Swan, expects the Australian dollar to be valued around parity with the USD well into 2011. David Dearie, head of Treasury Wine Estates, recognises the urgent need for Australian wine producers to sell higher-value wine into the US, saying recently that ‘Higher value sales offer some protection against a stronger Australian dollar’. Encouraging signs come from Constellation Brands, who recently observed double-digit growth in US sales of wines priced between $10-$25. With increased expectations on half-year profits rising by 32% to $140m for the six months to the end of August, Constellation’s share price has received something of a boost of late. Constellation does however predict heavy discounting on premium wines in the US, expecting a continuation of a ‘high level of promotion’ (read discounting) in the second half of their financial year. The company’s CEO, Rob Sands, still anticipates the need to ‘aggressively restructure our business in these (the European and Australian) markets’.
