31/01/2006 - 21:00

Tim Treadgold: Briefcase - Weather adds to winemakers’ woes

31/01/2006 - 21:00

Bookmark

Save articles for future reference.
Tim Treadgold: Briefcase - Weather adds to winemakers’ woes

Australia’s great grape glut is causing wine producers no end of pain. But in Western Australia there seems to be a variation emerging on that theme – the great grape shortage. Unseasonably wet and cold weather over the first half of summer is doing its wicked work in the vineyard by lowering grape yields in this part of the world, which could turn out to be the final setback that sends more of the financially less robust wineries to the wall.

Briefcase claims no special knowledge of events in Margaret River and the Swan Valley, preferring to study grapes in the bottle rather than in the paddock. But it has been listening to the distant rumbling of a few prominent wine producers about what an appalling year it has been, so far.

The irony of what’s happening is that most winemakers have been praying for a slowdown in the rate at which we’re producing grapes. The glut has even become a political issue, with grower representatives calling for a national summit, describing the wine business as being in crisis.

Sadly for WA’s winemakers our wet summer means that they are suffering a double-whammy. Their vintage will be down (and poor quality to boot) while the rest of Australia trundles along, producing more and more wine.

According to the latest numbers from the Australian Bureau of Statistics, the nation’s winemakers are floating on a lake of two billion litres of wine in storage. This is said to be 50 per cent more than in 2001 and 11 per cent up on last year.

The upshot of the surplus is that wine drinkers will continue to have a marvellous time if they shop wisely because prices will stay low.

Even some of the best-known brands are being lured into the dead-end trap of discounting, a step which ultimately destroys the value in their name.

There is another side to this emerging second tragedy for WA’s wine industry. If the vintage is as poor as Briefcase is led to believe, what hope for the survival of some local leaders, and how are some of the ‘bottom fishers’ feeling about their investments?

Canada’s Vincorp, and the family interests of east coast agricultural chemical maker, Doug Rathbone, have been leading players in the game of acquiring west coast wineries. Vincorp owns Goundrey and Amberley, while Mr Rathbone is the new owner of Xanadu, which is being integrated into his other vineyard interests.

Both of these new investors made their moves because they believe prices are close to the bottom, and the next move for wine is up. That may be the case, but Briefcase is yet to see any evidence, as shown in the deep lake of wine in storage (which is probably destined for conversion to ethanol) and the wet summer, which is lowering west coast grape yields and leaving the local market wide open to east coast imports.

Vincorp and Mr Rathbone also have the protection of being private, with no prying eyes on their affairs courtesy of a stock exchange listing. It’s far less private for shareholders in Evans & Tate and WA’s other leading listed wine producer, Palandri.

On the local stock market, Evans & Tate has been a spectacular (and well-publicised) under-performer, dropping from $1.10 at this time last year to recent trades around 24 cents (a 78 per cent fall).

On Palandri’s home exchange in London the fall has been less impressive, but painful nevertheless, with the stock down from 16 pence last July to recent trades at eight pence, a 50 per cent fall in seven months.

Those two falls in asset value tell a casual observer a lot about an industry, and while they both might be reflecting exceptional circumstances, they are a valuation window on the rest of the industry (even the most private of vineyards). The share prices of Evans & Tate and Palandri are saying that wine remains a dramatic under-performer as an investment, a situation likely to be extended in this part of the world by the weather.

•••

On the subject of the South West and changing market conditions, there was a bittersweet flavour to the news that Axiom Properties had been bowled over in the stampede for blocks of land at its Port Geographe development, selling all 92 lots on offer over a weekend and generating $41.7 million in revenue.

Obviously, this is terrific news for the vendor, and exciting news for the proud new owners of their little piece of heaven on Geographe Bay.

But for the state and local governments, and for everyone else struggling to squeeze into the already stretched South West corner, the Axiom sales success was a wake-up call.

Those 92 new owners represent the tip of an iceberg that is rapidly engulfing small coastal communities from Perth to Augusta.

Traffic jams on the old coast road are just one symptom of the pressures being placed on the South West. Shortages of skilled tradesmen to do the most menial job around a house (let alone actually try and build a house) are another.

The South West boom is stretching every service in the region and will become one of the most significant tests for the government of Alan Carpenter, which is also facing similar pressures to allocate scarce capital for better roads and other services in the north-west where the mining boom is showing no sign of easing.

•••

Speaking of our new premier it must be almost time for a decision on the Shovelanna iron ore claim, which send Cazaly Resources into orbit last year, and which means the stock remains a speculator’s favourite.

Recent sales at $1.48 mean that Cazaly is being valued on the market at $68 million, which is a lot for a business that really has the one asset – a disputed mineral claim.

The issue for Premier Carpenter is quite simple. If he refuses Cazalay’s claim on Shovelanna the issue dies because the minister’s decision under WA mining law is final. If he grants Shovelanna to Cazaly he risks the WA Government being joined to a legal brawl that could last a decade – a small case of principal over practicality, and a valuable insight into how the new boy will perform.

•••

“A woman who takes her husband about with her everywhere is like a cat that goes on playing with a mouse long after she’s killed it.” Saki.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options