Then 2008 now 2017 comparison Australian wine exports

Then and now

Total Australian wine exports to the end of March 2017 amounted to $2.3 billion, a 10 per cent increase on the previous 12 months. The average price (bottled and bulk) also grew, by 4 per cent, to $2.98 a litre: the fourth successive year of growth. The volume was 769 million litres, up 5 per cent.

In comparison, in the year ending March 2008 the volume of Australian wine exported amounted to 737 million litres. The value was $2.85 billion, with an average FOB price of $3.86 per litre. Putting aside soft packs, flagons and sparkling, the split was:

• 546 million litres of bottled
• 72 million litres of bulk

In 2017 the mix had changed:

• 340 million litres of bottled
• 420 million litres of bulk

There is nothing inferior in shipping wine in bulk containers and bottling at destination. But the FOB price per litre is important. In 2008 it was $1.16 a litre. In 2017 it was 97 cents a litre. The average price per litre of bottled wine in 2008 was $4.67. In 2017 it had risen to $5.47 a litre.

In 2007-08 the showboat market was the US. China, the star of 2017, was seventh in 2008, importing about 8 million litres of Australian wine worth $44.6 million. In 2017 it had leapt to first place, taking 108.4 million litres worth $568 million.

It’s a story of caution, which highlights the vulnerability of Australian wine in a global context. Where would the industry be if China hadn’t taken such a liking to Australian wine? Indeed, where would the global industry be? We suspect production would be outstripping consumption by far more then it is now, and the race to the lowest retail price would be the guiding factor.

The UK market once held top spot for Australian wine exports, but is in decline. In 2008 it was worth $936 million; the latest report puts it at $342 million. What is interesting is that the volume hasn’t fallen as dramatically as the value: in 2008 volume was 278 million litres; in 2017 it amounted to 224 million litres. What twists the figures is the huge amount of wine now shipped in bulk containers to the UK.

TKR’s view is that the UK market is not about what can be built; it’s what can be saved. The latest report shows bulk shipments are down and bottled shipments are up. The figures for bottled exports make interesting reading. The worrying aspect is the under $2.49 a litre ($22.41 a case) sector showing an increase of 208 per cent to 18.5 million litres. Was this connected to a 12 per cent reduction in the $2.50-$4.99 sector? From there upwards it’s very good reading:

• $5-$7.49 a litre: up 12 per cent
• $7.50-$9.99: up 14 per cent
• $10-$19.99: up 44 per cent
• $20-$49.99 litre: up 19 per cent
• Over $50: up 7 per cent

In total, bottled wine exports were up 8 per cent in value to $174.5 million.

The bulk wine sector was down 11 per cent in total volume to 182.4 million litres, and 20 per cent in value to $167.6 million. Again, there were some worrying aspects: 93.4 million litres were price-wise scraping the barrel in the 50 cents to $1 sector. There were a further 395,000 litres under 50 cents a litre. The wine shipped in the $1-$1.50 sector totalled 41.5 million litres; unfortunately, it was down 27 per cent. The next sector, $1.50-$2, was up 12 per cent, but was a small amount: 18.8 million litres. Bulk above this point was all down.

Radio star

Cooking shows have taken over TV and unfortunately television has taken over radio. Being honest, the odd part of any cooking show that TKR has seen has never been enough to encourage continued watching.
Wine has never made it as a TV subject. It’s understandable that a presenter standing or striding through a vineyard, talking about soil, sun and grape varieties, has never sparked our interest, no matter the knowledge or personality of the presenter.

Cellars, barrels, stacks of bottles or tank farms also lack interest. And men or women with nose in glass or spitting wine and drivelling on about its characteristics score high on the boredom scale.
TKR approached a radio program put out by Macquarie Media’s new radio network, Talking Lifestyle (Sydney 954AM, Melbourne 1278AM, Brisbane 882AM, Fridays, 7.30 pm), with low expectations.

We were surprised and delighted. It’s light but not weak, with no sign of pomposity. True, it’s a big advertisement for Dan Murphy’s, with all the products mentioned available from Dan’s, but, what the heck, there was enough basic information got across in an easy and entertaining way to stop us sneering.

The radio stars are host Nick Bennett, Dan Murphy’s national fine wine manager Peter Nixon, and, representing craft beer, Kirrily Waldhorn. According to the stats, the show is attracting more than half a million listeners.

Challenge over

Nick Gill the CEO of Belvino Investments is moving on after a decade of running the listed Challenger Wine Trust, which morphed into being Belvino Investment Trust at privatisation from the Australian Stock Exchange.

At its height Challenger/Belvino with sister company QWIL Investments owned nearly 7,000 hectares of vines in Australia and New Zealand producing 21,000 tonnes of grapes across NSW and Victoria.

Gill told TKR, “During the downturn I calculated about $4 billion of equity was lost in the vineyard sector with surprisingly little government support in comparison to say the dairy industry reforms of the 90’s. Unfortunately the mystical and naive view that the increase in plantings was solely due to tax based investment likely impacted any opportunity for assistance. I believe still there should have been a package to assist struggling small wine grape growers to exit with dignity and some capital to re-deploy.”

We will miss Gill who has been honest and open with TKR on occasion giving information but asking us not to publish but use it to understand the bigger picture. We not only appreciated this but have always kept our side of the agreement, more CEOs could learn from this.

TKR was never easy with the idea of a trust arrangement as there simply isn’t enough money in wine for lots of people to have a slice of the cake. Flogging off the land on a leaseback agreement only works if those who have bought it via investors are getting a profit to keep those investors happy. This is only achievable if grape prices are high enough which in turn means the wine on the shelf is also priced accordingly.

It often amused us when in company accounts of Fosters wine diversion Southcorp and more so in the accounts of Australian Vintage the words ‘onerous grape contracts’ appeared. They were onerous because trusts such as Belvino had drawn up contracts to ensure it got its return. One cannot really blame the trust as the fault sits squarely with the wine companies.

In a farewell note Gill says, “I have thoroughly enjoyed reading TKR, which keeps us all humoured and grounded in such a vibrant, egocentric and challenging sector. As I joke with wine companies on regular phone calls discussing another quality downgrade from another 2 inches of unexpected April rain “who would be foolish enough to grow wine grapes” and of course we laugh and get back to business, only because we enjoy the people and the industry.”

TKR wishes Nick the very best in his next job and beyond.

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