Thursday, April 22, 2010

Rabobank: The Good News, The Bad News

Rabobank Australia and New Zealand is a part of the international Rabobank group, the world’s leading specialist in food and agribusiness banking. It has kept a close watch on the Australian wine industry for several decades, and its comments are always worth taking on board. In its most recent quarterly report, Mark Soccio (below) makes the following points:

  • After Australia’s initial success in the global wine market, the industry has had to deal with a range of challenges including rapid supply growth, increased competition, drought, the global recession and unfavourable exchange rates.
  • The Australian wine industry’s value proposition has been steadily diluted over time in global consumer markets.
  • The dramatic increase in local wine production, combined with growing competition from other countries pursuing the Australian export-oriented model ... has made it nearly impossible for ‘Brand Australia’ to transition to higher value price-points.
  • The growing commoditisation of popular premium wines pitches Australian suppliers directly against lower cost foreign companies, with margins heavily exposed to currency movements.
  • As only growers with access to irrigation in the warm inland regions can profitably grow grapes for commodity bulk wines, Australia must seek to limit its long-term participation in bulk commodity markets to opportunistic occasions.
  • While an expected 2010 vintage of below 1.5 million tonnes will take pressure off bulk wine trade flows in 2010-11, average export values will continue to be pressured by sluggish consumer, discretionary spending and a high Australian dollar in key markets.
  • While the removal of vineyards is necessary, this will not solve all of the wine sector’s woes.
  • The need for sustained investment in brand building in the industry is paramount. New market opportunities are being explored with greater purpose and going forward, marketing can provide an avenue for renewed industry growth.
  • Australia may have its problems, but 2009 was equally difficult for France and Spain. The good news is that right across the New World wine producers in the southern hemisphere, crop levels in 2010 have been lower than usual.
  • This comes at a time when there are signs of initial life at the higher price points in the US.

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