Reading the Grape Leaves

The release by the Victorian Department of Industries of the 2010 Murray Valley Winegrape Crush Survey makes bad reading for grape growers in the region, although could not have come as a surprise. In essence

• Farm-gate value of grapes fell by $35 million to $80 million, a 31% fall in revenue from 2009
• Production fell by 13%, down to 328,000 tonnes (2009 375,000 tonnes)
• The average price per tonne fell 24% for red grapes to $311 and 28% down for white grapes to $283
• These prices are well below the average vineyard cost of $376 per tonne
• Since 2005 grower revenues have fallen from close to $200 million down to $80 million.

But that is only part of the story. Win, lose or draw, the water that makes grape growing possible in the Murray Valley is going to become more expensive. The water outlook for growers in the Riverina is better in the short term, but in the long run there may be little difference between the regions. So the cost of production will increase.

Continuing the bad news, the quality and price advantages that Australia once held over its New World and Old World competitors alike has all but disappeared. It matters not that Australia pointed the way for its competitors via its Flying Winemakers, by publishing its Vision 2025, and by achieving its 2025 goals in seven, not 30 years.

Yet there is hope that Australia may once again prove itself to be the 'Lucky Country'. Its extraordinary economic performance in the face of the GFC is but part of the broader trade ties it has with China, Japan and India (and with the smaller Asian economies). Wine is a global commodity these days, and will become more so in the years ahead, and Australia is not the major wine player in Asia: France occupies that role.

But China is already our fourth-largest export market, and — viewed from the Chinese side — has an imported wine share of 20%, second only to France with 40$, and a long way in front of Chile, California and South Africa with 7% each. At the present time, reports suggest up to 90% of all wine sold in China is domestically produced, but most agree a large proportion of this wine is made by blending a small percentage of (true) Chinese wine with imported bulk wine.

This in turn reflects the generally unsophisticated Chinese market, and is no surprise. Indeed, it is a positive, because the consumers of this wine are overwhelmingly Chinese, rather than expats or tourists. The rate of lifestyle change in China is phenomenal: for example, when I started Coldstream Hills in 1985, there was only one privately owned car in Beijing (all others were state owned).

As the number of Chinese with serious amounts of disposable income continues to soar, it is inevitable that sales of imported wine with a tangible pedigree will follow suit. Other positives are the suitability of the various Chinese cuisines to wine; the absence of religious barriers; the long history of alcohol consumption; and the physical proximity of China (compared to Europe or North America).

If Australia is to maintain its share of a rapidly growing wine market, it will need to provide wine across the full spectrum of price, from beverage (technically premium) wine at an equivalent of less than $AUD10, super-premium ($10-$15), ultra-premium ($15-$50) and icon (over $50).

Premium volume is greater than all other categories combined, and provides the essential entry point product. It is here that the Murray Valley and Riverina come into their own. Lest it be though this is inconsistent with my gloomy introduction, the contempt born of familiarity that pervades the UK market, less so but still a factor in the US, need not be an issue in China.

If the opening of Wine Australia offices in Beijing, Shanghai and Hong Kong achieves the anticipated success, the present surplus may turn to a shortage in a very short time, and a shortage at a critical time in the development of the Chinese market will have serious long-term consequences.