Production and inventory
The Australian wine: Production sales and inventory 2015-16 report released this month is chock full of information. The 2016 vintage was 1.81 million tonnes, up 6 per cent. Apparently it’s the largest vintage since 2008. Of this increased crop, 1.3 billion litres of wine were produced, up 10 per cent. That’s 174.4 billion bottles.
As of June 2014 (latest figures available) there was 15.6 million people in Australia of working age (15-65) and 3.5 million over 65. That’s 68 litres of wine per head, including those naughty under 18s who are drinking illegally. Thankfully, there is a thriving export market, but is it as thriving as needed?
The other question being: is a big vintage good or bad at this moment in time? Wine Australia (WA) put a positive spin on it:
- Domestic and export markets are both in growth
- An additional 15 million litres of Australian wine were sold in 2015-16, compared with the year before
- That’s worth an additional $408 million
Not negative but less positive:
- Inventory increased by 115 million litres, with a greater increase in white wines
- Inventory-to-sales ratios at the end of 2015-16 were above long-term averages for red and white
- Inventory was well below the 2005-06 level of nearly 2 billion litres
- The long-term trend for production, sales and inventory is positive, with continuing sales growth expected, especially in export markets, and production unlikely to increase due to a stable national vineyard base
WA figures show that export sales volume was 727 million litres, up 0.5 per cent. Domestic sales were 468 million litres, up 6.9 per cent. The increased 2016 production means that since August/September 2016, an extra 105 million litres, or 140 million bottles, or 11.7 million cases, have gone on sale. Will this be absorbed by the domestic market or will the export market step up and take extra? Or will it go into inventory?
WA is confident the extra amount will not cause any issues, but does offer the quote below, which TKR thinks is worth noting if you look beyond the positive waffle that is being using as camouflage.
“On a cautionary note, inventory levels have been creeping higher over the last five years. Despite declining vineyard area, the 2016 crush was the highest since 2006. Higher inventory levels can be a mixed blessing as they allow for more sales but also require careful management to maintain pricing momentum. A return to average yields in 2017 would reduce the inventory-to-sales ratio.”
WA places a lot of faith in the vineyard area remaining stable. TKR agrees but would still like to see it reduced further. Inventory can be controlled by selling more or producing less. Selling more is good, but only good if what is being sold is returning a profit. Dumping wine at cost or below will balance inventory but is not a good result.
When compiling year-on-year figures the truth is only in the past. What the average may be after the 2017 vintage is completed and tallied could alter the whole matrix.
The report says the increase in the total crush came primarily from the cool and temperate regions. The warm inland regions (Riverina, Murray Darling-Swan Hill and Riverland) decreased by about 7000 tonnes (0.6 per cent).
The issue here is pricing. When, in the past, the cool/temperate regions have dropped their prices to offload excess fruit, this has had an impact on pricing in the inland regions. Fortunately, pricing looks to be better in the inland regions in 2016 than in recent years. But comparing 2016 with 2006 in the Murray Valley, it has a way to go:
|Murray Darling / Swan Hill regions production – tonnes||416,000||368,000|
|Value total crush||$155 million||$118 million|
|Value grower fruit||$134 million||$74 million|
|Cabernet sauvignon tonnes
|Pinot gris tonnes
|Sauvignon blanc tonnes
Shiraz price $/tonne
|Growers on database||Apx. 1000||390|
|National crush||1.9m tonnes||1.8m tonnes|
Large producers must be sharing WA’s confidence in either domestic or export growth as the 2017 prices have increased on 2016, though they are not yet back to 2006 levels, especially if increased cost of production and inflation are taken into account. The following information is from Mike Stone, CEO, Murray Valley Winegrowers:
- Key reds this vintage are fetching about $400 a tonne
- Chardonnay about $300
- Pinot gris $500 and sauvignon blanc a little less
Worth noting is the decline in growers on the database and the increase in winery-grown tonnes.
“Increased sales were driven by the ‘premiumisation’ trend in the domestic market and strong demand from Asian markets for premium Australian wine.”
Below is a table of value and added value prices per sector of exports to the end of December 2016.
The figures are looking good from $10 a litre upwards. The percentage increase in value is fantastic. But total wine sold below $10 a litre accounted for $1.65 billion; wine above the magic $10 figure was worth $572.7 million. Is WA that confident that all those extra 11.7 million cases are going to leave these shores for $90 a case or more?
Or the domestic front, will the consumer be paying more or getting greater bargains? TKR can visualise buyers rubbing their hands, knowing the ball is very much in their court.
It’s the season of reports. The Australian Liquor Stores Association (ALSA), in association with data company IRI, was at Parliament House on 29 March to release its annual State of the Industry Report.
This report includes:
- Information on Australia’s retail packaged liquor sector in 2016
- Details of growth in various sectors
- Alcohol consumption trends
- Regulatory issues
According to the summary, the Australian retail liquor sector generated sales of nearly $17 billion in 2016, an increase of 3.3 per cent. Volume was up 1.5 per cent. An estimated $5.1 billion was collected from indirect alcohol taxes and GST revenues.
Beer accounted for $6.3 billion in sales, an increase of 3.4 per cent. Craft beer is making inroads, accounting for almost 8 per cent of the total beer sales, up from 5.5 per cent in 2015.
The wine figures are as reported by Wine Australia: the domestic market was worth $4.3 billion at retail, with 2016 showing an increase of $182 million.
Spirits are still showing growth, with the annual growth of 4.2 per cent slightly up on 2015.
The RTD category is flat at $2.3 billion (down 0.7 per cent).
Cider is doing well, recording a dollar growth of 6.5 per cent in 2016.
From the ALSA report to a report that Wine Australia is to release to government in April. It will outline how the $50 million export and regional stimulus package will be spent.
In a recent interview, WA general manager, marketing, Stuart Barclay, said: “The $50 million was originally spread over four years and now it will be spread over three years because it has taken a year to put the plan together.”
It’s all very democratic, with all and sundry including the winery cat being consulted on what’s best for the industry. Roadshows have been organised, this body is co-opting with that body, and all are moving as one force.
Well, that is the plan. It’s export driven, including tourism, so which markets will be focused on? Is it worth flogging the UK and US any harder? Or shall they be left to the big players to spend their money as they see fit: Accolade and McGuigan are still doing knock-down reductions, such as those now on offer and upcoming in Waitrose in the UK, and Treasury Wine Estates, which says it is going to push the Americans upscale in their appreciation of Australian wine.
TKR reckons China will play a prominent role, the danger there being: will the Australian wine industry and its masters screw it up as they did in the UK and US?
Barclay said tourism was not part of Wine Australia’s DNA. TKR remembers when WA was trying hard with tourism, but funding cuts knocked it on the head. The point being: tourism is a big part of wine in Australia and Barclay and co had better get a handle on it very quickly. To say it’s not part of WA’s DNA is admitting WA has been woefully neglectful these past few years.
A lot of Barclay’s interview was a waste of his time, media space and the effort TKR took to read it. We hope when action is required there is more substance.