Good news snippets
The Hon Peter Dutton is MP, member for Dickson, Queensland, and Minister for Sport and Health. He has recently been quoted as saying he supports tobacco taxation, even increasing it, but doesn't think increased alcohol taxation works. This looks very good but I'm not sure he wasn't having a dig at the previous government's alcopops tax and its failure to stop the increase in sales, and therefore consumption, of spirits. Time will tell, but let's take it as a good omen for the moment.
Peter Lehmann Wines is back on track. After the company posted an after-tax loss of $0.52 million on revenue of $40.8 million for the full year ended 30 June 2012, reports say it has made $0.43 million on sales of $42.5 million for the year ending 30 June 2013. There is still a way to go. As for FY 2011, Lehmann made an after-tax profit of $1 million on sales of $45.6 million.
Worrying news snippets
Apparently, research has revealed consumers in the south of England enjoy New Zealand sauvignon blanc, whereas consumers in the north of England are more into Australian wine. TKR is not sure what this means, but, coming from the south, it's a worry my compatriots have such taste.
Dear old Wolfie, he continues to stir the pot. There was a lovely piece in The Australian over the weekend on Mr Blass calling for South Australia “to forge a new identity in the world and become known exclusively as the wine state”.
The article was confusing, as Blass said: "Gourmet wine and food is what we do best and what we should be offering to the world."
Yet the article also reported him saying: He was "very disappointed with several aspects of the recent Savour Festival, held in Adelaide."
As the focus of Savour was on taking Australian food and wine to the world, what is he complaining about?
Its true South Australian wine regions and Adelaide have a lot to offer, but so do regions in other states and cities. Petty interstate squabbles damage the whole and benefit no one.
If the dollar is going to fall, as many predict, it's not showing signs of doing so. On the last day of October it closed at 94.90 to the US dollar, 69.23 to the euro and 59.24 to the UK pound. For the majority of Australian wine to do well in the US the exchange rate needs to be about 70 cents to the US dollar, and in the UK about 40 cents to the pound. It has a very long way to go.
Treasury Wine Estates held its AGM this week Speaking on TWE's trading performance to date and fiscal 2014 outlook, CEO Warwick Every-Burns said "The priorities for the current financial year are underpinned by four key strategic platforms: building exceptional brands, increasing the supply and production of luxury and masstige wine, maintaining the scale and efficiency of TWE's commercial portfolio, and expanding globally."
Was this not David Dearie's objective? Good to see Every-Burns is original. An EBITS range of between $230m-$250 million is forecast for fiscal 2014. It looks as if TWE is getting nervous of China it may not be as easy pickings as they thought a year ago.
Recently Doug Rathbone, the managing director of Nufarm, warned that farmers should embrace foreign investment. At the time Rathbone was commenting on the Coalition’s dithering whether to approve the $3 billion bid for GrainCorp from [US-based] Archer Daniels Midland. Many Australian farmers fear higher costs and restricted access.
The Rathbone family also owns the Rathbone Wine Group, owner of Yering Station in the Yarra Valley, Mount Langi Ghiran in the Grampians and Xanadu in Margaret River. The Rathbone's disposed of Coonawarra-based Parker Estate to the Hesketh family towards the end of last year.
There is a fear of foreign investment, especially Chinese. Why this is the case is confusing, as investment is investment. It shows insecurity on the part of Australians and a lack of understanding the global nature of business nowadays.
Recently a TKR reader sent this: "Three Rutherglen wineries sold to Chinese this month?" That was all. Nothing said for or against. Yet I sensed the sender wasn't impressed. TKR asked which wineries, and receiving the following reply: "Rutherglen Estates and Vintara are two and awaiting confirmation from my source on who was the third. Rutherglen Estates is an ex tax scheme but pretty large and has I think been in receivership and for sale for some time."
TKR covered the sale of Rutherglen Estates (RE) some time ago. It's worth getting investment in proportion. As the reader said, RE was up for sale for some time. No Australian company came forward. RE was closing down vineyards and running on minimum staff. After the Chinese investment the staff was tripled, vineyards were re-established and wines were being sold in China via the investors.
The final profit may go overseas but the employment and the company's contribution to the local economy is extremely important. The alternative appears to be a dust bowl of paddocks and withered vines. In the town there would be empty shops, businesses going broke and high unemployment. Does the reader want that or a thriving local community? TKR prefers the latter to the former and suggests the wine industry gets its paranoia in check.
The Australia-China free trade agreement is fast going nowhere. China is asking for the same deal as the US, which is a business investment threshold of $1 billion, not the current $248 million on transactions that brings Foreign Investment Review Board intervention.
The website of the China News Service, ecns.cn, ran a story: "China National Cereals, Oils and Foodstuffs Corp, known as COFCO, will focus its overseas acquisition drive in the wine and sugar sectors to meet growing demand at home, a senior company official has said."
COFCO already owns the Australian producer Tully Sugar, but has lost out on other Australian acquisitions. It has wine interests in France and Chile, owns the Great Wall brand in China and no doubt will be looking in Australia. Are we going to accept Chinese investment and prosper or are we going to wither and wallow in self-righteous indignation?
The Wine Australia Export Report for the year to end of September has been released. It shows a small decline in volume of 3 per cent to 684 million litres. The value of all wine exported, either bulk or bottled, totalled $1.78 million.
The report covering the year to the end of September 2012 was full of optimism, with Wine Australia proclaiming "green shoots". The figures then were 708 million litres with a value of $1.8 billion. The next report, to the end of December 2012, showed 721 million litres going out with a value of $1.85 million. The following March 2013 report remained stable, with 719 million litres worth the same $1.85 billion. Unfortunately, the green shoots withered, because to the end of June 2013 the volume had dropped to 698 million litres with a value of $1.82 billion.
Before looking through the report for the individual good or bad points, consider this. Australia had a 1.83 million tonne vintage in 2013 on top of 1.66 million tonnes in 2012. The question being: can the wine resulting from the 2013 vintage be sold in any format, either at home or on the export market, at a profit that gives an adequate return for grower and producer?
TKR thinks the report is quite clear in the way it reports bottled and bulk exports but after listening to the painful, misinformed and boring presentation that Tim Wildman MW gave at Savour, perhaps the layout needs revisiting.
Ignoring the average export price, bottled exports were $4.54 a litre FOB, which is very good, the best since 2008. The average for red shipped in bulk was $1.15 a litre, which was also good, but white was just $0.88 a litre, which is not so good, but not a disaster. Bottled wine export segments are doing well:
$5 to $7.49 per litre: up 2 per cent to 38.4 million litres.
$7.50 to $9.99 per litre: up 3 per cent to 13.7 million litres
$10 and above: up 2 per cent to 15.7 million litres
The total of 67.8 million litres across the three segments is good news and should be in the profitable sector.
The question on profitably can be raised on the 215.8 million litres exported in the $2.50 to $4.99 a litre bracket, which equates to $22.50 to $44.91 per case FOB. It's a huge bracket and a lot depends on how much is over $40 a case and how much is close to the $22 mark. Wine below $22 a case amounted to 21.7 million litres or 2.41 million cases. If at all profitable it would be a thin margin.
There is a great deal of talk about moving up the quality ladder and focusing on the premium end of the market, which in theory makes sense. But as the figures above demonstrate, if this were to happen the industry could well shrink 75 per cent. One has to consider if the talk about premium is of any practical use or is a lot of waffle and hot air.
After a lot of recent positive news re the US market increasing recognition of premium Australian wine it's disturbing to see that almost 16 million cases of wine went to Uncle Sam at $2.50 a litre ($22.50 a case) or below. This cannot be good in the long run. We seem to be taking a tiny step forwards and a huge stride backwards. A Rabobank report says that Argentina wineries selling cases of wine to the US at less than US$30 ($31) are losing money. If so, what does that say for Australian exports? The good American news is in the $7.50 to $9.99 sector, which showed a 29 per cent increase but only accounts for 2.4 million litres out of total shipments of 113.9 million litres.
The WA figures for the US are disappointing, but there is optimism there as Treasury Wine Estates has announced it is going to launch Pepperjack Shiraz there, with an initial offering of 10,000 cases. The expected retail is expected to be around US$24 a bottle.
The UK is the big market for Australian wine shipped in bulk containers, and it's worth taking the time to delve deeper.
The good news is there were no shipments at less than 50 cents a litre. The next bracket, 50 cents to $1, has declined 8 per cent but is still the largest sector at 105.3 million litres. It's an often repeated statement from TKR, but we need better information on this sector, even if it's split at 75 cents on the assumption that 75 cents and above can be profitable whereas at 74 cents and below profit is less likely.
The $1 to $1.50 per litre sector showed a 12 per cent increase, the $1.50 to $2 a 15 per cent increase, $2 to $2.50 a 204 per cent increase (off a small base), and the $2.50 and above a 3 per cent increase.
Looking at the totals, 196 million litres went to the UK via bulk shipments. From the figures supplied, 90.7 million litres were profitable but 105.3 million litres is either one way or the other. It would be good to get this grey area clarified.
Bottled shipments to the UK are still in decline, down 8 per cent to just under 46 million litres. It's disappointing to see 41 million of those litres are $4.99 litre or below. The call for a move to premium production is looking farcical in our leading export market. It would be good if Wine Australia, the WFA and the various commentators could put real detail into how to achieve premium, rather than issue hollow statements.
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