News
Whipping posts
As the Australian wine industry declines and reshapes, grape growers are laying blame on producers and both sectors are pointing fingers at the Australian Wine and Brandy Corporation, The Winemakers Federation of Australia and the federal government.
The Weekly Times, a ‘must read’ amongst farming communities, is taking the side of the grower and giving space for them to let rip at the organisations. According to fruit grower Mr Bill McClumpha:
‘Fact one is that overproduction was brought about by interventionist government policies at the behest of the industry.
‘Fact two is growers predicted the oversupply and repeatedly warned the industry and government but were ignored.
‘Fact three is industry and government have been in long-term denial regarding overproduction.’
No back up to the ‘facts’ are offered therefore it appears more McClumpha’s opinion. Fact one needs greater proof, fact two can be answered with a question; If grape growers so astutely ‘predicted the oversupply’, why didn’t many more of them take the sensible course of action and get out of growing grapes earlier? There is truth in fact three but grape growers need to be included. How many years does it take of selling grapes below cost of production before the penny drops?
Personal view
The time to give the official bodies a kick up the backside was 8-10 years ago when they were wallowing in smugness. A lot of what is now happening could be seen to be developing then. Moaning and bitching about who should carry the blame now is childish; all hold some responsibility for part of that blame. The more divided the industry becomes, the more it will result in pain being felt throughout the industry.
Who is driving the bus?
The news that Doug Lehmann is retiring as CEO of Peter Lehmann wines is unsettling. For the first time there will not be a Lehmann at the helm. The Swiss company Hess Family Estate AG who salvaged Lehmann from an aggressive takeover bid Allied-Domecq launched in 2003 have pretty much left Lehmann wines alone but times are tougher, returns are diminishing and with Lehmann’s retirement Donald Hess, Chairman of Hess Family Estate, and fellow director Lee Williams will join the current Hess director Martin Kronenberg on the Lehmann board. What direction the three Hess directors will take the company will be fascinating to watch.
The house didn’t fall down
Pre the UK Budget (24th March) Fosters, Constellation Brands, Diageo the Wine & Spirit Trade Association and many other drinks companies all huffed and puffed at Alistair Darling, Chancellor of the Exchequer, the united theme being ‘increase taxation and jobs will go.’ It’s roughly the same message that is lobed at the Chancellor of the Exchequer every budget. As appears to be the usual practice, the Chancellor took on board all submissions and increased taxation anyway.
Should we care?
According to UK HM Revenue and Customs: Overseas Trade Statistics shows for the year ending December, the UK imported Italian wine to the value of £394,398.200 and Australian wine to the value of £379,045.500. In the lead is France and some way behind are Australia, Spain and Chile. Italy has moved to over 17 percent share of UK trade and is rapidly closing in on Australia’s 21 percent. On the one hand, it doesn’t matter as Australia’s cost of production is preventing many brands falling within the desirable retail price sectors. However, Australia has a large surplus and falling market share doesn’t bode well for our industry and opens the gate for dumping wines at below cost of production to try and clear some of that surplus. It looks as if we will be dammed if we keep the surplus and dammed if we start dumping it on the UK market.
Never mind the fall in profit, it’s all good, really it is
In a parody of the Australian industry a decade ago, various aspects of the New Zealand wine industry (from growers, to producers, through to official bodies) are continuing to be up-beat about the country’s wine surplus. The line being touted is that it’s just a couple of freak good vintages that have resulted in over-production. Listed companies have to be more open with future expectations than they would like to be. No matter the assurances issuing from certain sectors of the NZ industry, the fact remains that Delegat’s maker of the Oyster Bay brand recorded a 12 percent drop in half year net profit against a sales increase of 10 percent. The company issued a warning that 2010 is going to be ‘challenging’, and although case sales are expected to increase by a further 11 percent, profit is predicted to be between 30 – 40 percent lower than that seen in 2009.
Termination – terminated
The termination of talks between Constellation Brands and Australian Vintage (AV) concerning the formation of a joint venture involving AV and parts of the Constellation Wine Australia and Constellation U.K. wine operations has to have repercussions.
If the two companies are not forming a joint venture, then they will be competitors, and as such it would seem only natural that Constellation would want the business that Australian Vintage has in the UK. The question is: can they get it? The answer is yes, and if they go for it then it could well mean ‘goodnight Australian Vintage.’
Tony Keys is author of the Key Report a weekly online-newsletter that provides incisive and comprehensive news on the Australian Wine Industry.
His full report can be found at www.thekeyreport.com.au
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