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Bags buoyant, liquid runs downhill
It’s generally accepted that the global financial crisis is on the wane; However governments and financial houses are still warning ‘caution.’ Luxury goods manufacturer Louis Vuitton Moet Hennessy (LVMH) held their AGM on 15th April. Turnover for the financial year 2009 (which is also the calendar year) was €17,053 with a profit of €3,352 million.
LVMH also includes several Australian/NZ wine brands including Domain Chandon (Yarra Valley), Cape Mentelle (Margret River) and Marlborough based Cloudy Bay. Wine and spirits were dragging the profitability chain in 2009 How ironic it is, then, that in troubled times one of the most expensive global brands (Louis Vuitton) continues to grow yet wines and spirits struggled.
As the dust settles
Pre the UK election the three main combatants put out manifestos alcohol fetched in all of them. As in Australia health issues are to the fore now a coalition government has been formed between the Conservatives and Liberal Democrats what might be expected? The Conservatives appear in favour of strong arm tactics including allowing councils and the police to shut down permanently any shop or bar found persistently selling alcohol to children. They would also double the maximum fine, for under-age alcohol sales, to £20,000. The Liberal Democrats would use taxation as a means of tackling binge drinking. Being middle of the road they soften the blow with, ‘without unfairly penalising responsible drinkers, pubs and important local industries.’
The good news for wine producers is both parties agree on a ban on off-licences and supermarkets selling alcohol below cost price.
Whichever way the cake is cut, it looks as if both parties consider alcohol a danger to health, youth and civil disturbance. In order to deal with this issue, the general consensus is that money needs to be spent and that can only come from taxation. It looks as if the UK will become a tougher market to deal with in years to come.
More volume less money
In the year ended March 2010, Australian wine export volumes increased by 7 percent (773 million litres), worth $2.2 billion. Increased volume sounds good but a year ago the value of 723 million litres exported was $2.44 billion and in 2008 737 million litres of exported wine brought in $2.85 billion. Exporting in bulk partly explains the decline in value but there is still a loss to the economy box/bottle manufactures and transport companies as examples.
What goes where?
Around 85 percent of bulk wine goes to just five countries: UK, USA, Germany, China and Canada. The question is, are bulk wine shipments profitable? The year to end of March recorded 302 million litres shipped worth $298 million – averaging out at 99 cents a litre. Breaking it down: bulk red averaged $1.10 litre (down 14.7 percent on last year); and bulk white averaged 85 cents litre (down 19.6 percent on last year).
The pain continues
The 2010 Riverland vintage is in and estimated at 280,000 tonnes along with the drop in quantity. Prices are said to be the lowest in recent years with an average figure of $265 a tonne being quoted, which must be well below cost of production even for the most efficient vineyards. Further along the river in the Murray Valley region is the same story; crop and prices are way down.
Good but not good enough
The International Organisation of Vine and Wine latest report (‘Note on the World Situation) is based on provisional figures for the 2009 vintages in both southern and northern hemispheres. Looking as if the world is going in the right direction is the statistic that the global vineyard has reduced by 7.63 million hectares. However, the problem remains that wine production continues to exceed consumption with world wine consumption estimated at 236.6 million hectolitres (hl), but world production still ahead at 265 million hl.
Experts recycle the old
Rabobank, has put out its April edition of ‘Wine Quarterly Report’ Although it has a long look at the Australian wine industry it doesn’t (in my opinion) come up with anything that is original or, indeed, helpful. The Sydney Morning Herald ran an article (21st April) that portrayed Rabobank as an all-knowing, concerned benefactor, despite the fact that everything that Rabobank had been quoted as saying has been in general circulation for at least two years. The report goes on about France being successful in the past because it has fewer major regions to focus on. The author seems to miss the major point that France is not doing so well today.
Furthermore, the Rabobank report doesn’t question the fact that along with an oversupply of grapes there is an over-production of wine; and that as a consequence it is likely that in time one or two large players might have to exit the industry. The report doesn’t tackle the effect of what is already in oversupply and how this might affect the next three to five years, nor does it bring into play possible changes in taxation on the domestic market.
A report that reiterates what is common knowledge – with a few graphs thrown in to make it look pretty – is really no report at all.
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