Glamour of wineries fades

INVESTORS thinking of sinking money into the establishment of vineyards may find better investment opportunities elsewhere says the Australian Securities and Investment Commission (ASIC).

According to ASIC, many investment schemes, including viticulture, promise high returns and tax concessions, but investors should verify this information through independent advice before committing any money.

Viticultural schemes have become popular in recent years because they has been perceived as ‘stylish’ investments and because of a forecast shortage in quality wine grape production.

The industry contributes more than $2 billion to the Australian economy and, directly or indirectly, employs 60,000 people. In the past fifteen years exports have multiplied more than a hundredfold from $9 million in 1985 to $1 billion for the 1998-99 year.

The result of the subsequent boom, ASIC says, has been that the opposite is now true – grape supply is predicted to exceed demand soon, which will result in a fall in prices.

Figures released by the Australian Bureau of Agricultural and Resource Economics (ABARE) in April warned of the impending squeeze on grape growers and indicated the honeymoon period could be over.

ABARE reported that, while domestic production of wine was increasing dramatically, the demand for wine was not increasing at the same rate.

The production of wine grapes is forecast to increase by 13 per cent to 1.1 million tonnes in 1999-2000.

The rise in domestic wine sales is expected to be slower, so most of the expected increase will be directed toward exports. However, export markets are also drying up.

It has been forecast that wine grape prices may fall by 35 per cent for chardonnay and 42 per cent for cabernet sauvignon by 2003-04.

This may result in farms with high overhead costs and small bearing areas no longer being viable.”

ASIC regional commissioner, Greg Tanzer said agricultural schemes which forecast high returns on prices which can be affected by a drop in market demand are not good indicators of future returns.

“Often the product is not the problem, but a combination of fees that go into the pocket of the promoter or manager and a poor marketing strategy,” Mr Tanzer said.

“Investors must make sure a vineyard has an established forward contract that can absorb the changes in supply and demand – because if the vineyard can’t sell its grapes, investors obviously won’t get a good return,” he said.

Wine Industry Association of WA vice-president Bill Mackey agrees: “I think people planting vineyards now need to have a very clear picture of how they are going to make and market their wine.”

However, Mr Mackey says the industry players remain optimistic although some small players may struggle.

“The long-term view of the wine industry is sound, but I’m not convinced that some of the tax driven schemes are wise investments.

“The major producers are very optimistic, but the small producers coming in at the entry level have reason for concern,” he said.

ASIC suggests potential investors should research any schemes to ascertain whether the forecast returns are achievable, whether profitability is dependent on the maintenance of high prices and, finally, whether the scheme has locked in supply contracts for coming years to ensure a market.