Storm damage to vineyards brings tears

Storm damage

2-wmoVineyard damage along the Murray River due to storms this past week will wreak havoc for all the industry in 2017.

It’s part of a bigger picture, according to the World Meteorological Organisation (WMO). It’s likely 2016 will be the hottest year on record, with global temperatures even higher than the record-breaking temperatures of 2015.

WMO secretary-general Petteri Taalas: “Because of climate change, the occurrence and impact of extreme events has risen. ‘Once in a generation’ heatwaves and flooding are becoming more regular. Sea level rise has increased exposure to storm surges associated with tropical cyclones.”

The report is grim reading, more so when it concludes:

“According to United Nations High Commissioner for Refugees, in 2015 there were 19.2 million new displacements associated with weather, water, climate and geophysical hazards in 113 countries, more than twice as many as for conflict and violence. Of these, weather-related hazards triggered 14.7 million displacements. South and East Asia dominated in terms of the highest absolute figures, but no region of the world was unaffected.”

3-global_temp_2016The recent extreme weather inflicted severe damage on vines in the Riverland and Murray Valley.

The extent is not yet clear. Australian Vignerons (formerly Wine Grape Growers Australia) CEO Andrew Weeks told TKR:

“The distribution of damage is very variable, with one vineyard facing total wipe-out and another a kilometre away relatively untouched. Hail typically has this variable pattern. The growers that are badly affected estimate total crop loss, but the full impact will not be evident for some days.”

It’s an especially bad time as the vines are in the vulnerable state of flowering and fruit set. What fruit has been spared may not survive. Some growers have lost everything, others various amounts.

“Unless there is a significant increase in the value of fruit it will not be worth harvesting. If there is only 10 or 20 per cent of crop remaining, it is doubtful that the value of that crop would cover the harvest and transport costs, so a grower would be better off to cut their losses. To this end, an 80 per cent loss is effectively 100 per cent loss.” 

This is the time for the big producers to step up and protect the source of their brands. Shareholders should forego dividends if they wish to keep their wine investment going to the 2018 vintage.

The WFA 2016 vintage report said the average grape price was $526 a tonne nationwide, including all cool climate fruit and the warm inland regions affected by the storms. But the figures for the two most storm affected warm regions were:

Murray Darling-Swan Hill: Total purchased 237,435 tonnes; 43 per cent of crop below $300 a tonne; 56 per cent of crop between $300 and $600

South Australia Riverland: Total purchased 368,747 tonnes; 42 per cent of crop below $300 a tonne; 58 per cent of crop between $300 and $600

Clearly the base price has to increase to over $300, if not $400, if any grower is to survive 2017. Also there needs to be a fund to help those who were wiped out.

Weeks: “There is also grave concern about the mental health of people who have battled for so long, and who could see an improvement in fruit value looming, and hoping to be able to get back in the black after so many years of struggle, only to see it taken away in the space of 20 minutes.

It is soul-destroying for some, and I have heard of a number of pretty taciturn blokes reduced to tears when walking into their vineyards the next day.”

Mike Stone, executive officer, Murray Valley Winegrowers, called a special meeting on Tuesday to discuss storm aid.

Stone has called for growers to get estimated damage to him ASAP. He said:

“Just from reports to date, more than 400 hectares of wine grapes have been shredded and won’t be producing a crop next year. That number will increase in coming days as growers become more aware of the scale of the damage.”

At the meeting winegrape growers were urged to continue to lodge damage reports to trigger additional support under Natural Disaster Relief and Recovery Arrangements (NDRRA).

From damage reports lodged and as at Wednesday afternoon (16 November), damage to wine grapes covered more than 1100 hectares, with probable losses of around 25,000 tonnes.

Damage to winegrape properties occurred mainly in Lake Cullulleraine, Pomona, Red Cliffs and Cardross. In Victoria, damage assessment and reporting to government is the responsibility of the Agriculture Victoria Incident Agency Commander, while in NSW similar work is being done by the Department of Primary Industries and Local Land Services.

Under NDRRA arrangements, a state government can ask the Commonwealth to involve Category C assistance, which would deliver clean-up and recovery grants for primary producers. Category C is for severe impact events only.

Stone: “It’s clear to all that Friday’s night’s storm was a ‘severe impact event’, but the evidence must be produced before a formal declaration is made. This is why it’s so important for all producers, winegrape or otherwise, to continue to lodge damage reports,”

Chris Byrne is CEO of Riverland Wine he told TKR Primary Industries and Regions South Australia (PIRSA) has assembled resources to provide an intelligent ‘Response’ capability. But warned the data gathering will be tedious and time consuming.

“The path of impact stretches in a fairly straight line from Cadell, Markaranka (including Penfolds big vineyard , Taylorville, Qualco, Woolpunda, Kingston, Barmera, Monash, Glossop, Lyrup, Pike River and Yamba. It seems to have been about 6 kilometres wide.”

4-riverland-map

“Many of the region’s largest vineyards were right in the path and estimates of 50-60 per cent loss are common. At those levels, it begs the question of whether or not it’s worth the further inputs, harvesting and transport costs. Tomorrows (Thursday 17 November) forecast of 37 degrees centigrade will help draw the line!

“We will have a number in a week or two, after the PIRSA assessors have completed the initial calculations. Given the lack of Riverland bulk wine in tanks and the commitments wineries have on the books, the next month will be interesting. Our primary focus is back to where it’s been, too often, over the recent decade our members health and wellbeing.

New Zealand wines may be competition to Australian wines in many markets but in times of crisis there is a need to think of them as fellow wine producers. The recent earthquake resulted in two deaths and has caused extensive damage to several wineries. There could be shortages in 2017 but more of a worry will be replacing tanks before the next vintage. At the time of writing, various news has come our way. It hasn’t been confirmed, so may not be exact:

The large contract producer Indevin is slightly concerned regarding possible glycol contamination to product and is looking at testing for this before any dispatches.

Yealands winery has experienced significant damage to its export volume production – it’s estimated that well over 1 million litres has been lost. There is also major infrastructure damage to tanks.

Wither Hills has had major damage and significant wine loss.

Villa Maria has lost two 225,000-litre tanks of sauvignon blanc and more than a dozen 25,000-litre tanks with significant infrastructure damage and wine loss.

Giesen has had both tanks and barrel halls hit hard.

Pernod Ricard has potentially lost up to 2 million litres of product with significant damage. When TKR asked if this was true, Pernod Ricard replied,

“We’ve commenced a detailed inspection of the Pernod Ricard New Zealand Marlborough winery and our South Island vineyards. The winery site has been secured as safety is our first priority and until we have had a careful assessment and investigation, which has commenced, we are at this stage unable to determine the extent of any damage, however we can confirm that we do have some wine loss and damage to some tanks.”

Wishing on a star

One of the local papers in the Northern Rivers region of NSW is The Northern Star. It recently posted consumer feedback on its Facebook page after running an article in its November 10 issue

“Foreign supermarket giant Aldi could kill off the traditional Coles, Woolworths and IGA supermarkets, according to entrepreneur Dick Smith, and he puts the blame squarely on the customer.”

Unlike the majority of Northern Star readers, Mr Smith is a millionaire many times over. He can afford to shop where he wants. A few of the responses backed Coles and Woolworths but most backed Aldi.

An article in The Sydney Morning Herald on November 10 said the German Schwarz Group was taking steps to set up in Australia. This is interesting, as Schwarz owns the Lidl chain of supermarkets and has stated it has no interest in Australia because of small population and stiff competition. The SMH article says Schwarz has trademarked the name Kaufland. Kaufland is more hypermarket in style, selling everything from food and drink to auto parts. It will be fascinating to see who they tilt their lance at.

Aldi is forcing Coles and Woolworths to change their trading patterns and reduce pricing. “Good,” the consumer shouts, but for the big two to compete the change may well be a reduction of SKUs and staff.

Consumers may not be that happy going to their local Dan’s or 1st Choice and finding it reduced in size to a single shop unit, two staff on duty, and no more than 150 wines, including sparkling, red, white, fortified and imported. Spirits and beers would also be reduced.

True, independents would emerge, but their prices would be higher. At a guess, it costs well over $1 million to open and operate each Dan Murphy’s store, probably the same for 1st Choice. That is a big investment. There are 210 Dan Murphy’s, so stockholding is at least $210 million, perhaps closer to $420 million.

Consumers and wine producers need to be very careful what they wish for. If Kaufland pitches in, the scrap will be fierce and the consumer may win on price but not necessarily on selection. Many suppliers will be caught in the crossfire.

There are also reports of Aldi entering the Chinese market next year, first via online than possibly with stores. Some of the SKUs will be Australian, but it’s worth remembering that Aldi sources a lot of its product locally and it would be diplomatic to source in China.

The high standing of Australian wine in China could make it an exception, so it may be worth keeping on Aldi’s good side.

Happy Treasury

Treasury Wine Estates (TWE) is happy with its performance, as should shareholders be, with chairman Paul Rayner confirming at last week’s AGM a full year dividend of 20 cents per share, up 6 cents per share on the previous year.

He also asked shareholders to vote on the grant of performance rights under the company’s long-term incentive plan to CEO Mike Clarke. More cream for the fat cats was offered via asking shareholders to approve an increase of $300,000 to the non-executive director annual fee pool, from $2.2 million to $2.5 million per annum.

Was Rayner aware of the irony in his request for further free trade agreements (FTA), “that help level the playing field for Australian wine in highly competitive export markets”?   

It’s a very Australian approach: the idea that “level playing field” means level to Australia’s advantage. Level means level, which means it’s open to the benefit of both or all countries involved in the FTA.

Rayner also welcomed the Australian Government’s decision to reform the wine equalisation tax and strengthen the integrity of the rebate. It’s a wait and see on that one.

Clarke reiterated his plan to “transition TWE from an agricultural, order-taking company to a truly brand-led, marketing organisation”.

He’s confident of increasing profits, forecasting a high-teens EBITS margin within the next two years, which is, “two years ahead of previous guidance. In summary, fiscal 16 was a strong year for our company, but our journey of growth is really just beginning.”

He’s sure he can deliver higher price points and margin. It appears one way will be “by purchasing more commercial wine on the bulk market on an ‘as needs’ basis”.

Will this be good for the wider market? If some of TWE’s savings on production are passed on to those that make the wine, yes. If not, no. It’s also worth remembering that Clarke made this statement before storm damage.

The other aspect being: can TWE retain quality consistency for the commercial brands?

Clarke: “In fact, TWE is on a journey to deliver a group margin that is towards our Asia region EBITS margin of 30 per cent plus. Where we land – between our current margin of 15 and 30 per cent – will be through continued margin accretion and how much commercial wine TWE maintains in its portfolio. In addition to our organic growth, I believe we have the team, the brands, the regional business models, and the balance sheet to drive incremental growth and margin accretion by securing increased access to luxury and masstige fruit.”

“Securing” has to mean buying or entering into contracts with growers. TWE is on a roll. Let’s hope it continues.

Happy retirement

Granite Belt-based Robert Channon Wines is for sale. The reason: retirement for the Channons.

The asking price is $2.45 million. For that, one gets 40 hectares, of which eight hectares are vineyard. The vines are mature and Mr Channon produces many good wines, the verdelho being a standout.

As well as sheds and winery there is also a residence, cellar door and café, and room for expansion.

TKR wishes the Channons well in both sale and retirement.

Full details here

Leave a Reply

Your email address will not be published. Required fields are marked *