13/11/2012 - 09:00

Analysis: China (and Europe) may boost Aussie wine exports

13/11/2012 - 09:00

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Analysis: China (and Europe) may boost Aussie wine exports

It’s been a long time between drinks for the Australian wine industry, but if indications in Europe and China are translated into action then local vineyards could start an overdue recovery after years of tough times.

China, as always, is the key to what might become the next mega-trend for Australian business as it adds a domestic consumption leg to its well-oiled export engine.

Changing Chinese shopping habits by adding luxury items to the daily buying of essentials should be good news for a number of Australian export industries struggling under the weight of the high dollar – with wine leading the way.

Europe, somewhat oddly, is the reason why Australian wine is shaping as the early winner from what’s happening in China – a process that requires an observer to connect a series of dots to see the bigger picture.

Last week, two separate events pointed to the change taking place.

The first was an interview carried by the Bloomberg news service with Nils Smedegaard Andersen, chief executive of Denmark’s Moeller-Maersk, the world’s biggest operator of container ships.

After decades of sending empty containers to China to have them filled with exports he is planning to start shipping in full containers of goods from the rest of the world for Chinese consumers.

“It will be very, very positive for us, and probably for the rest of the world if China succeeds with this development,” Andersen said. “We can already register the trend as we’re seeing rising Chinese imports.

“It’s already happening.”

Wine, one of the few luxury items exported by Australia, should be high on the Chinese import list, not just because of demand pull, but also because of a remarkable worldwide trend in wine production – it’s falling.

The person who noted that the wine-world had been turned upside down, with a shortage replacing the traditional glut, is one of the industry’s icons, British wine writer, Jancis Robinson.

Best known for her groundbreaking television programs on wine, Robinson also writes a weekly column in London’s Financial Times newspaper.

Last Friday, she surprised everyone with a global review of what has been a dreadful year for wine.

“Vintage 2012 will go down in history as quite extraordinary for all the wrong reasons, and for the first time in half-a-century, the world may have a shortage rather than a surplus of wine.”

Europe, Robinson wrote, has suffered a “horrible growing season”. Argentina, the biggest southern hemisphere producer, has produced a crop 22% lower than last year. Australian vineyards have had a poor year, overall. South Africa and the U.S. have had good years, but the worldwide vintage was poor.

The International Organisation of Vine and Wine (known as OIV using the French spelling of its name) reported at the end of last month that global wine production this year would be the lowest since 1975.

The numbers released by OIV mean little to outsiders. It’s the trend which is the story because since a peak in 2004 world wine production has been in decline, dropping from more than 290 million hectolitres  to a mid-range forecast for 2012 of 248.2m/hl.

“This is a very low wine production level, not seen since at least 1975,” OIV said in a statement published in Paris.

For Australia, there is a chance that the thoroughly-trashed wine export industry might get a second chance to succeed, focussing this time on premium production and not the “two-buck chuck” rubbish that damaged the reputation of every producer in the first wine-export flush of a decade ago.

Treasury Wine Estates, the once-failing business spun-out of Foster’s Brewing with ownership of many well-known Australian wine labels (Penfolds, Seppelt, Wolf Blass and Rosemount to name a few) has been in recovery mode on the stock exchange over the past year, rising from a low of $3.40 to recent sales at $5, perhaps because of takeover speculation, but a notable rise when stocks in other sectors, such as mining, have been falling.

Unknown in the trends observed, China’s changing buying habits and the worldwide wine shortage, is whether it will continue and whether Australian wine makers have the drive left after many setbacks to take advantage of what’s happening.

If they can, wine might be back on the menu for investors.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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