AUSTRALIAN GROWERS THIRST FOR GRAPES
Until recently, the Australian wine industry’s biggest problem was getting rid of the excess grape surplus, reducing bulk export shipments and driving up prices. Now, worsening drought conditions and a surging Australian dollar are dramatically reducing wine exports and threatening growers.
To put things in perspective, Australia's 2008 crush will likely hit 900,000 tons as compared to 2 million tons in previous years. How will growers manage? One solution is to blend bulk imports with Australian wines for at-home consumption, which ironically is what the U.S. and other countries have done in the past with cheap Australian exports. In fact, wine companies have faced major competition problems in the U.K. as a result of retailers selling private label wines made from cheap Australian grapes for next to nothing. Grape-growers in the U.S. have also had trouble competing against cheap Aussie grapes when it came to striking deals with wineries.
Wineries that depend on the Murray Darling Basin in Australia are in particular danger of drying up. The Basin accounts for some 65% of the country’s winegrape production, with most growers operating on 16% of their water entitlements. The Wine Grape Growers Australia (WGGA) said the drought could force 1,000 winegrape growers to leave the industry. Already, many growers have sold their water rights and pruned their vines in an attempt to wait out the drought, according to ABC News. A majority plan to wait and see what the incoming federal government's attitude might be towards the water market, said the WGGA, before leaving.
“If some of these growers are to exit, a major part of their financial plan is going to be what they can expect to get in terms of retiring their water rights, and secondly, what the taxation treatment of that might be,” said Mark McKenzie, executive director of the WGGA.
Up until now, growers have been able to purchase a considerable amount of water as a result of wine companies moving quickly to set prices. However, said McKenzie, “at some point as we progress into the irrigation season there are going to be some limitations on the remaining availability of water that is able to be traded.”
Of course, not everyone sees this as an entirely bad thing. Wine companies such as Constellation that have struggled in recent years at the behest of the grape glut and U.K. retailers welcome a drought to the extent it could help drive prices. However, there’s a good chance that global competitiveness could prevent prices from growing too much. Impact reports that W.J. Deutsch and Sons don’t plan to raise prices on Yellow Tail in the U.S. and will reevaluate the situation with Casella in March 2008.
IMPORTS STRUGGLE WITH WEAKENED DOLLAR. Australian winegrowers aren’t the only U.S. imports with problems as foreign wineries continue to feel a pinch from the dragging dollar. Last week, the Australian dollar cost over 90 cents U.S. and the euro was at almost $1.50. To compensate, premium imports have been forced to raise prices, with super-premiums soon to follow if the dollar continues to slide. This should come as a bit of good news for domestic wineries that are likely benefiting from more expensive competition at home and abroad.
To put things in perspective, Australia's 2008 crush will likely hit 900,000 tons as compared to 2 million tons in previous years. How will growers manage? One solution is to blend bulk imports with Australian wines for at-home consumption, which ironically is what the U.S. and other countries have done in the past with cheap Australian exports. In fact, wine companies have faced major competition problems in the U.K. as a result of retailers selling private label wines made from cheap Australian grapes for next to nothing. Grape-growers in the U.S. have also had trouble competing against cheap Aussie grapes when it came to striking deals with wineries.
Wineries that depend on the Murray Darling Basin in Australia are in particular danger of drying up. The Basin accounts for some 65% of the country’s winegrape production, with most growers operating on 16% of their water entitlements. The Wine Grape Growers Australia (WGGA) said the drought could force 1,000 winegrape growers to leave the industry. Already, many growers have sold their water rights and pruned their vines in an attempt to wait out the drought, according to ABC News. A majority plan to wait and see what the incoming federal government's attitude might be towards the water market, said the WGGA, before leaving.
“If some of these growers are to exit, a major part of their financial plan is going to be what they can expect to get in terms of retiring their water rights, and secondly, what the taxation treatment of that might be,” said Mark McKenzie, executive director of the WGGA.
Up until now, growers have been able to purchase a considerable amount of water as a result of wine companies moving quickly to set prices. However, said McKenzie, “at some point as we progress into the irrigation season there are going to be some limitations on the remaining availability of water that is able to be traded.”
Of course, not everyone sees this as an entirely bad thing. Wine companies such as Constellation that have struggled in recent years at the behest of the grape glut and U.K. retailers welcome a drought to the extent it could help drive prices. However, there’s a good chance that global competitiveness could prevent prices from growing too much. Impact reports that W.J. Deutsch and Sons don’t plan to raise prices on Yellow Tail in the U.S. and will reevaluate the situation with Casella in March 2008.
IMPORTS STRUGGLE WITH WEAKENED DOLLAR. Australian winegrowers aren’t the only U.S. imports with problems as foreign wineries continue to feel a pinch from the dragging dollar. Last week, the Australian dollar cost over 90 cents U.S. and the euro was at almost $1.50. To compensate, premium imports have been forced to raise prices, with super-premiums soon to follow if the dollar continues to slide. This should come as a bit of good news for domestic wineries that are likely benefiting from more expensive competition at home and abroad.
posted at 1:42 PM
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