The 2007 harvest has been a welcome relief for grape producers in WA, with unexpected sales to east coast operators easing the burden of oversupply. But the glut is yet to be fully overcome.
Western Australian vineyard operators have been warned that better-than-expected grape sales this year will only temporarily ease the pain of an industry suffering under the weight of significant vineyard plantings in the late 1990s.
Wine Grape Growers’ Australia predicts the industry will slip back into oversupply in 2011, with WA’s unique position to sell fruit to producers on the east coast – who suffered the devastating effects of drought, frost and fires this vintage – providing a temporary buffer for the local industry.
Last week, WGGA revised its prediction for the nation’s 2007 harvest intake downwards, from 1.2 million tonnes to 1.15MT, or a little more than half that the 1.98 million tonnes harvested last year.
The figure would be the lowest recorded since the late 1970s and before the boom in vineyard plantings.
The devastation of vineyards on the east coast has provided a boost for WA growers, who have been able to sell fruit to big-name players such as Fosters and BRL Hardy.
But even WA’s crop levels are historically low.
Wine Industry Association of Western Australia president John Griffiths estimates the state’s vintage will be about 60,000t tonnes, or 30 per cent, lower than its average.
It follows a low-yielding 2006 vintage, where many grapes were left on the ground due to disease or poor ripening after an unusually cool and wet vintage.
Those conditions are, in part, responsible for WA’s vines bearing smaller grapes and fewer grape bunches.
Mr Griffiths said conditions on the east coast had provided WA with short-term relief from the grape glut.
He said the industry needed to grow export markets in order to boost profitability.
“The long term issue for us is growing our markets,” Mr Griffiths said.
“Until we do that, growers will not receive the prices they need to be profitable. We either pull out vines, grow grapes and be unprofitable or we grow our markets.”
WGGA executive director Mark McKenzie said once the Australian wine industry bounced back from the drought it would likely slip back into significant oversupply.
“The outlook is for oversupply of all varieties, including pinot noir and sauvignon blanc, by 2011,” Mr McKenzie said.
“We still have a structural imbalance. If it goes back to a normal production we will still have too much cool climate fruit.”
The Australian Wine and Brandy Corporation estimates that the industry is already oversupplied by about 500ML, which is enough to quench the thirst of Australian wine consumers for more than a year.
According to several players in the industry, the oversupply is likely be soaked up in the next two years due to 2007’s low intake and predictions of lower-than-expected Australian production for 2008 and 2009.
But Mr McKenzie sounded a warning this week for anyone in the local industry considering planting new crops to counter perceived short-term grape supply problems.
“The industry already has 20,000 to 30,000 hectares too much vineyard targeted at supplying premium and super-premium markets, and while the industry is stepping up promotion of these wines, the industry faces a very significant challenge to absorb the current production without adding more plantings,” Mr McKenzie said.
Mr Griffiths said while the mood of the industry was more positive than in recent years, many growers were still not achieving profitable prices for grapes despite the unprecedented demand from the east coast this year.
Industry sources also said the prices achieved from the bulk wine market were moving upwards from about 70 cents a litre 12 months ago to $1.50/L.
But the cost of production for most producers was above $2 a litre.
Several vineyard operators on the east coast ran the ruler over a number of WA vineyards in 2006 in a bid to diversify their holdings.
Listed player Cheviot Bridge Ltd was among those taking a look, while other east coast operators chose to buy additional fruit from WA growers.
Mr McKenzie said WA would continue to be a place east coast producers would look to source fruit from during the next two years because it would take that long before the national harvest would rebound.
“There will be renewed interest in 2008 and 2009,” he said.
According to Mr McKenzie, many growers, particularly those in cool climate regions such as Margaret River, would need to find other sources of income.
He said scale had become a big issue and many smaller vineyards, with about 10ha of vines or less, would struggle.
“About 60 per cent of smaller vineyards are in cool climate areas like Margaret River,” Mr McKenzie said.
“Some will have to exit the industry or join together to get economies of scale or source external income.
“We are not advocating a vine pull, but there are too many small vineyards. Even with significant growth in wine consumption, some vineyards may still not be able to hang on without some form of external income.”