Looking for the "silver lining" from a terrible spring

By Ross Brown

The drought and associated spring frosts have taken the Australian wine industry into new territory. Previous droughts and frost in spring have generally been localised and regional, however this year the impact is across virtually all of the cool climate growing areas of NSW, Victoria and South Australia. This will have an enormous impact on production across Australia and the viability of a significant number of grape growers already weakened by low returns and an over produced industry.

Nature's hand moves in mysterious ways, as in one year, the industry could well come back into supply and demand balance, when some are predicting this could be years away.

The last two vintages have been generous crops and above average production of about 1.95 million tonnes, when an average year is estimated at 1.75 million tonnes. We have therefore had two vintages at more than 10% above the long term average and 15% above market demand, that is estimated at 1.65 million tonnes and growing at about 3% per year.

The market demand for domestic and export sales is therefore about 1.7 million tonnes and early estimates are that production nationally from the 2007 vintage will fall below l.5 million tonnes. This is more than 10% below total annual sales replacement.

The industry's other issue in understanding the supply demand balance is the level of stock held by wineries and how long it will take for this production bulge to be absorbed. On this front there are also significant changes. The sale of bulk wine to China in the year ended 2004 was less than 1 million litres, however year to date, this is 14 million litres and is expected to top 20 million litres by year end. While not significant against overall production it is important in reducing the 15% industry over stock position.

It is therefore conceivable that this time next year there will be shortages emerging for grapes and a stronger demand as supply and demand come into line. This will see the beginning of retail prices strengthening and the dumping of stock and clean skins reducing. This will hopefully signal a new cycle of growth for the industry.

(Reprinted from Brown Bros Grapevine - Edition 27 Number 23 - 23 November 2006)