Glut On The Vine

Sydney Morning Herald

Saturday February 11, 2006

John Huxley

It looks like it's going to be a fine harvest, but with cellars already full growers are unlikely to reap a good price, writes John Huxley.

IT WAS not until just after 4am on Wednesday that winegrower Glenden Howard finished harvesting the last of the white semillon grapes at his Hunter Valley vineyard.

After a couple of hours sleep he was up and about again, delivering bins, preparing for another night session, helping to pick on one of the neighbouring properties. Next week, he will back home bringing in his own red shiraz grapes.

"We've been going through a hot, dry period," he says, as he hits the halfway mark in the annual harvest. "Very little rain since the start of December. But the quality is excellent. It looks like being another outstanding year, especially for the reds."

Nevertheless, it will be a bittersweet crop for Howard and other members of Australia's $5.6 billion-a-year industry. For it comes at a time when many are already swimming, some drowning, in a market awash with grapes and wine.

Lawrie Stanford, an Australian Wine and Brandy Corporation analyst, estimates that an unprecedented mismatch of supply and demand has left makers sitting on about 900 million litres of excess stock.

"That's the equivalent of about 11 months' sales," says Stanford, whose forecasts are used by the industry. "Thankfully, there's no shooting the messenger, because I've had to deliver some pretty bad news in recent times."

At the big end, corporate profits are being squeezed, prices cut, jobs lost. Australia's biggest winemaker, Foster's, has ordered an urgent review of its winemaking operations, which now include Southcorp.

McGuigan Simeon's market value has dropped by about $300 million over the past 12 months. Evans & Tate this week sacked 20 staff and warned of further cost-cutting.

At the bottom end, many small growers, unable to find a viable price for their fruit - shiraz, for example, has dropped from $3000 a tonne to about $1000 over the past two years - are struggling to survive. One award-winning vineyard, Brokenback Estate, was recently put up for sale by receivers.

"Growers are hurting and I'm sure some will go out of business," says Chris Barnes, the past president of the NSW Wine Industry Association. "Running a vineyard is not the romantic life it is often painted."

Howard, whose great-great-grandfather came to Pokolbin in 1863, and whose family planted the first grapes in the 1880s, is not complaining. While it is a sign of tougher times that his grapes are being sold in smaller lots to more buyers - 17 as opposed to six two years ago - his grapes, especially the shiraz, are in demand.

He, his father, Ivan, and son Jason will battle through, just as they have done before during more than 40 years in the industry. But he concedes, "Things are about as bad as they've ever been." And they could be about to get worse.

As the crunch crush time approaches again, the industry is, predictably, divided over the size of this year's likely harvest.

While big winemakers such as Brian McGuigan have been accused of talking the crop up - and thereby pushing the price down - many growers have been warning that thousands of hectares of grapes will simply not be worth picking.

The reality is somewhere in between, Stanford suggests, after an extensive industry ring-around this week. He believes the crop will be smaller than last year but still one of the biggest on record.

Whatever its size, few dispute that in the short term this year's crop can only aggravate the problems faced by an industry which, after becoming one of Australia's biggestinternational success stories, is now suffering one hell of a hangover.

Quite how the industry, which is cyclical even at the best of times, arrived in this parlous state - of "poverty in a time of plenty", as one grower put it - is also a contentious issue.

Some blame the influx of "grape escape", lifestyle or hobby growers, encouraged by government tax incentives. Paradoxically, say long-time growers, such recent entrants are more likely to survive because they have other income sources.

Others point to global factors - such as worldwide oversupply, the emergence of new international rivals and the relative strength of the Australian dollar in key markets - which may force the industry to redefine its "cheap and cheerful image".

Elsewhere, there is no shortage of suggestions about how the industry can both tough out the next few years and lay the foundation for a prosperous future.

In Australia, there are new moves to heal the widening rift between makers and disgruntled growers, some of whom are threatening legal action against McGuigan Simeon over contracts.

Overseas, where some 60 per cent of Australian wine goes, makers such as Beelgara Estate in the Riverina, encouraged by the wine and brandy corporation, have been pushing into new markets, in Asia and India.

As he prepares for another series of late-night picking sessions, Glenden Howard also has some bright ideas for selling more wine, trading out the glut. He favours a national levy, of so-much per tonne, to support a campaign aimed at increasing domestic sales in the under-30s market. "Right now they're being bombarded by ads for beer and Bundy rum."

Meanwhile, the wine glut is good news for one group of Australians: consumers.

An industry analyst, Nick Stevens, of financial services company Deloitte, says they will be "spoiled for choice, with great wine offered at low prices".

Possibly for several years.

© 2006 Sydney Morning Herald

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