Western Australia’s wine industry rests uncomfortably on the horns of a dilemma – more grapes than its wine production can use. The quest for new markets and better quality to soak up the excess is on.
Western Australia’s wine lake is getting bigger and unlikely to subside until into the next decade.
While that is good news for wine drinkers, it poses real concerns for even the short-term future of the state’s wine producers and growers.
The upcoming vintage, beginning in a few weeks and carrying the scars of a cold, wet ripening season, is expected to produce reduced volumes and quality, which will not help.
Wine Industry Association of WA (WIAWA) president John Griffiths told WA Business News the ripening season was “amazing in terms of the lack of heat”. There had also been more disease-affected grapes than usual.
Overall, he expected the crush to be down on the previous year and probably not exceed 80,000 tonnes.
But consultant and long-time winemaker in Western Australia, Brian Fletcher, told WA Business News the real issue was oversupply, with the upcoming quantity “well in excess of WA winemakers require-ments”.
Therein lies the rub. Overproduction of grapes and wine, which leads to greater pressure to sell into increasingly competitive local, national and international markets that are not being found or growing at anywhere near the same extent.
Far from diminishing, the WA crush has risen from 52,000t in 2003 to more than 82,200t last year, about 4 per cent of Australia’s crush. The overwhelming increase came from the Great Southern region, more than doubling to over 30,000t and Margaret River, up nearly 8,500t to more than 30,200t.
Back in 2003, the WIAWA predicted the state crush at 67,000t for 2005, 70,000t for this year, 71,400t for 2007 and 70,320t for 2008. Real growth has far outstripped such figures and Mr Fletcher predicts a state grape crush rising further to 88,000t in 2007.
The call is for better quality and more exports.
WA currently exports about 10 per cent of the wine it makes, worth about $50 million a year, a paltry figure when measured against Australia’s $2.7 billion in wine exports.
However, there is an important industry event occurring later this month with something of a ‘wow’ factor – five of the US’s top 20 wine writers and market influencers arrive for a week-long tour of the state.
But it could have been so much better.
The Way out West (WOW) tour is the industry’s first major marketing activity for the year and it is costing the WIAWA about $100,000. It could have been 10 of the US’s top writers, but the state government refused to back it.
The association, and many others in the new world wine industry, view the US as a natural market. WIAWA raised $300,000 from 28 of its members to attack this market last year and sought support funding on a two-for-one basis from the state, which was refused.
The WA wine industry is finding the critical ‘go it alone’ marketing route on a shoestring budget a tough one.
Mr Griffiths said that, while Australia had gained a reputation as a new world producer to markets in the UK, it was “seen generally as just a big wine bucket. It comes down to price and it’s very difficult for WA to compete at the value end of the market”, he said.
“Anything lower than $10 a bottle, we can’t compete.”
WA’s major overseas targets continue to be South-East Asia, mostly via Singapore and Malaysia, the UK and the US.
“It’s slow, hard work that we believe has to be done,” Mr Griffiths said.
The WA wine industry now includes 350 wineries and has grown 600 per cent in the past dozen years.
But Mr Fletcher believes the industry, borne partly on a magic carpet of optimism, lifestyle decisions and some tax-driven managed investment schemes, is now producing twice as much wine as demand can satisfy.
AC Nielsen figures, however, have shown that domestic sales for WA wines were up 5.4 per cent in 2005 compared with the previous year.
Problem is, production is running far ahead of that.
Costs across the whole grape growing and wine production spectrum are the big killers.
The cost of running a vineyard in the Margaret River region can be upwards of $11,000 a hectare a year, depending on location and yield. Because of the soil and climate conditions, yields are low, making these costs at least twice as much as those in the comparable cool-climate eastern states regions.
The oversupply problem in WA is made worse by the state’s compara-tively high wine inventory ratios.
Demand for WA grapes for branded WA bottles accounts for 40,000-50,000t/year, making oversupply 30,000-40,000t/year. This oversupply is then, hopefully, channelled into the bulk market and also into non-WA labelled production. WAIWA estimates up to 10,000t/year goes into non-WA product.
But WA’s geographic isolation puts the state at a huge disadvantage.
Bulk WA red wine is currently selling for about $1 a litre, with transport costs at between 20 cents and 30 cents a litre. Both Messrs Fletcher and Griffiths agree the WA product is not competitive.
There have also been calls for the subsidised pulling of vines, which neither Mr Fletcher nor Mr Griffiths regards as a possibility in the near future. The risk is that the land could be lost to the wine industry forever.
The cloning of one variety to another was an option already widely used, involving a switch mostly from oversupplied reds to white to supplement shortages of such ‘lifestyle wines’ as the semillon and sauvignon blanc.
Yet still they come. New vineyards, particularly in the Great Southern’s emerging Frankland River region, some of which are managed investment schemes.
At the end of the WA production chain is an Australian retail market 55 to 60 per cent controlled by Woolworths and Coles, with their increasingly limited, low budget ranges.
Along with bigger export markets, the WA industry believes its destiny remains at the premium, fine wine end of the market, wine with a definite and internationally recognised pedigree. “That’s the only way out of this overproduction. It’s just not easy to do,” Mr Fletcher said.
One way was to source new genetic material, better clones and make the WA quarantine system faster and more efficient to clear the new material for use, he said.
