Great Southern Ltd has rejected claims from the Wine Grape Growers’ Australia that the grape glut that crippled many players in the industry during 2005 and 2006 would return to haunt the sector within five years.
Great Southern Ltd has rejected claims from the Wine Grape Growers’ Australia that the grape glut that crippled many players in the industry during 2005 and 2006 would return to haunt the sector within five years.
WGGA predicts there will be a number of new managed investment schemes launched this year, which will raise money to fund fresh vineyard plantings after the Australian Tax Office allowed the schemes to classify for tax deductions for a further 12 months.
The schemes have been attractive for investors, who claim a tax deduction on their investment in vineyard plantations.
But from July 2008 the schemes are likely to lose their appeal with investors.
WGGA executive director Mark McKenzie said the Australian wine industry had sufficient vineyard capacity to meet its domestic and export market requirements for the medium to long term, and any additional vineyards were not needed, especially in WA.
He said some promoters may be taking advantage of unusual vintage conditions in 2007 that left many wineries scrambling to source fruit after drought and frost devastated vineyards on the east coast.
“Wine grape growers are experiencing severe financial crisis, with a large percentage of growers not making their costs of production in the last two or three years,” Mr McKenzie said.
“Even when we recover from the drought, the outlook is for oversupply of all major varieties in cool and temperate producing regions by 2011 – just as new vineyards will come into bearing.”
Mr McKenzie recommended against planting vines in the next few years.
“There is sufficient capacity in the system to meet our medium to long-term requirements,” he said.
“We are not anti MIS, but new plantings need to be linked to market demand. By the time these plantings come in the industry will be back to an imbalance, and that includes pinot noir and sauvignon blanc.”
But Great Southern Ltd public relations manager David Ikin disagrees.
Mr Ikin said research undertaken by Great Southern ahead of its 2007 MIS vineyard project showed the industry faced grape shortages in the medium to long term.
“While there is a short-term issue of an oversupply of some varieties in some regions, as part of our due diligence our research showed the problem for Australia in the medium term and beyond was a shortage of grapes,” he said.
“A glut sees planting levels fall; as a result in three to four years it becomes a hassle to get grapes.”
Mr Ikin said managed investment scheme promoters were a small component of the wine sector and often took the blame for the industry’s oversupply problems.
“Over the past 30 years about 15 per cent of vine plantings have been by MIS companies,” Mr Ikin told WA Business News.
Great Southern is aiming to raise a minimum of $30 million for the development and purchase of 400 hectares of vines.
Mr Ikin said 65 per cent of the project would fund existing vineyards, with only about 140ha of the planned 400ha to be new plantings.
“Our project does not rely on new plantings because the vast majority is established vines,” he said.
Mr McKenzie said WGGA had produced a checklist for investors to assess the viability of any new vineyard investment.
That includes whether the costs of establishing and managing the vineyard was more than the upper limit of $65,000/ha, and whether there were any confirmed long-term supply contracts in place.
Mr Ikin said all of Great Southern’s MIS vineyard projects had contracts for the sale of grapes.
Last month, it was reported that Palandri was planning to raise $33 million through MIS schemes this year, more than double what the company told WA Business News in February.
Palandri managing director Darrel Jarvis told WA Business News in February that he believed there was a shortage of grapes in WA, particularly for sauvignon and semillon varieties.
“We better get off our butts and plant some grapes because we have to look forward,” Mr Jarvis said.
Last year, Palandri planted 50ha of grapes and it plans to plant a further 100ha this year, while Watershed Premium Wines intends to plan 60ha of vines after raising $7.5 million from investors earlier this year. It plans to raise a further $4.9 million via a managed investment scheme, which will be used to help fund the 60ha planting.
