Tax boost for small wineries

Tax relief may have been just that – a relief – for small wineries, according a new survey by Deloitte.

The annual vintage benchmarking survey found that wineries with revenue below $1 million had improved their profitability, potentially being given a lift from difficult market conditions by federal tax changes.

The 2005 survey by Deloitte and the Winemakers’ Federation of Australia shows that profitability among small wineries improved significantly in the 2004-05 financial year, although 10 per cent still ran at a loss.

The survey said very small wineries generated earnings before tax margins of 8.1 per cent, notably assisted by revenue not directly linked to wine production.

Wine Equalisation Tax Commonwealth Producer rebate, or WET rebate, of up to $290,000 was included in that other revenue.

“Tax relief is particularly important for small wineries with less than $1 million of revenue as generally they have higher grape costs, wine costs, overhead cost per litre and packaging costs than larger wineries,” a Deloitte spokesman said.

The survey showed that income was being affected by higher general and administration costs, interest expenses, higher selling costs and inventory write-downs in wineries of all sizes. The survey also concluded that contract processing for others had become a significant activity for smaller wineries.

“Smaller wineries appear to be acting as contract processors as they do not have sufficient grapes to fully utilise their production facilities,” the report says.

Larger wineries tend to own premium/strategic vineyards and contract purchase a higher proportion of grapes, whereas contract processing has become a major activity for all wineries with less than $10 million of revenue.

“This follows the trend of other larger Australian wineries that have sold vineyards and sourced fruit from other suppliers. This change could be a possible factor in the improved financial performance of wineries in these categories,” the report says.

The oversupply of wine has also affected grape prices down in the marketplace.

“This is evident in the survey results when we compare the cost of grapes per tonne, particularly for larger wineries to that of the 2004 survey results.”

The report found that the cost of grapes per tonne is lowest for large wineries.

“The larger wineries are able to negotiate more competitive prices through stronger bargaining power and they also tend to purchase a higher proportion of fruit destined for their cask and popular premium wine products” it says.

The bulk wine cost per litre is generally lower for large wineries as they acquire a higher proportion of commercial wine.