Drought forces Oz upmarket

06 April, 2007

Wine surplus disappears and lack of bulk wine creates issues for UK buyers

Australia is coming to terms with the ≠reality that its wines may no longer be competitive at the price-fighting end of the market, experts say.

The 2007 vintage may be as much as 45†per cent down on the norm thanks to drought, frost and bush fires - and even phylloxera in the Yarra Valley.

With future vintages also expected to be low, retailers will struggle to find fruit for some of their bargain brands, meaning Australia could struggle to maintain its market share in the UK off-trade, where it outsells France and California.

According to analyst Jeremy Oliver, "the Australian wine surplus has immediately become a thing of the past" with an estimated deficiency this vintage of 400 million litres. He added: "The total stockholding of the Australian wine industry is 2 billion litres, of which a conservative 460 million litres are considered above requirements. Even at current rates of export growth - 11 per cent by volume for the year ended February 2007 - Australia has been trading out of its surplus."

He added: "For the year ending February 2007, the price per litre of Australian wine exports was A$3.69, well below the average of A$4.76 for the year 2000-2001. Clearly, with a short vintage in 2007 and the likelihood of subsequent short vintages, it is no longer viable for Australian wine to compete at the lower levels of the market. It has never been clearer that the only future direction is to add more value to its product and move upmarket. Australian wine has to become a price setter, not a price taker."

UK consultant Allan Cheesman said: "Stocks in cellars are not high. There are stocks of grade-three fruit wines suitable for domestic cask and maybe export to China but no self-respecting wine buyer would look at them.

"Prices for grapes at the moment are surprisingly stable, due in the main to contracts being agreed before the seriousness of the problems became apparent. But there are going to be pressures as the 2007 wines hit the marketplace - whites mid-2008 and reds early 2009."

De Bortoli is one of the suppliers to scale back its bulk wine sales. "The shortfall affects where we would find a lot of our commercial production in Australia, the £5-and-below Riverina fruit," said Mark Wilson, UK general manager for national accounts. "Buyer's own-brand production and that sort of thing has been strongly rationalised. A lot of retailers now deal in bulk wine, bringing it over and bottling it themselves. I would imagine retailers would start looking at tenders because prices will be firming up with existing suppliers."

Wilson added that the shortfall was also affecting wines from Coonawarra and Yarra. "There are a number of products at the higher end that are being allocated out now and there is a lot of pressure on regional producers - and there is a question mark over whether they can get enough fruit to continue with a regional name, such as Victoria."

Cheesman added: "I do not think there are many buyers in the UK who have ever worked in an environment of shortage and maybe rationing. In the past there has always been that supplier who will do the deal with that seemingly never -ending supply of BOGOF or bulk wine.

"This is an ideal opportunity to break out of the price point mania and boring log jam in so many ranges. 2007 is not a disaster but a great opportunity for Australia to confirm its place as one of the world's leading quality wine nations."

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