Tourism, good for wine, figures not good enough

Tourism translates to wine

The latest International Visitor Survey, to the end of March, shows positive results in the tourism sector. That translates to good news for the Australian wine industry, both domestically and hopefully when overseas visitors return to their home countries.

Total spend from visitors amounted to $37.9 billion in the year to end of March, an increase of 17 per cent ($5.4 billion) on the previous year.

Visitors aged 15 or over increased 9 per cent to 7.1 million. China is not only important as a market for Australian wine; Chinese visitors were up 23 per cent, with their spending up 38 per cent to $8.9 billion.

Australia still attracts UK and US visitors, who, between them, spent $7.5 billion. The UK and US visitor numbers increased 5 per cent and 12 per cent respectively. The main point of difference being 54 per cent of UK and 42 per cent of US visitors dispersed to regional areas, compared to 23 per cent of those from Asia.

China, the UK and US accounted for 54 per cent of total tourist spend, and coincidentally are the top three wine export destinations for Australia.

Visits to wineries were up 28 per cent. Apparently, 52 per cent of visitors rated Australia as having a high quality food and wine culture. More information with greater detail is needed, such as how many went to which regions. We know the Hunter and Barossa valleys do well, but how do others fare? We asked Geoff Turner, manager research, Tourism Australia:

“Unfortunately, the question around specific wine regions was removed early last year from the International Visitor Survey, so we can only track whether they have visited a winery in general (that is the 28 per cent figure).”

International visitor numbers and spend by state, year to the end of March 2016:

Intrenational vistores by state to March 2016

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On Monday, May 9, the share price of Treasury Wine Estates (TWE) moved into the $10-plus range and has remained there since. It hit a high of $10.51 towards the end of the month; at the time of writing it was $10.34. It’s a good performance and a long way from the 52-week low of $4.78.

On the last day of March the Australian Vintage (AVG) share price moved over the 50 cent mark. On May 26 it went above 60 cents. At the time of writing it was 64 cents. Again, a long way from the 52-week low of 30 cents.

Two of Australia’s largest wine companies are doing well with their share prices on the stock exchange. Of course, the share price is not controlled by the company, but this shows a confidence in wine that we haven’t seen for some time.

However, caution comes in an article by Eva Brocklehurst, on FNArena News:

“FNArena’s database has four Hold and three Sell ratings for Treasury Wine. The consensus target is $9.03, suggesting 11.2% downside to the last share price. Targets range from $8.70 (Citi) to $10.00 (Morgan Stanley).”

Towards the end of May AVG announced revenue was up 8 per cent but the 2016 crush was down 15,000 tonnes to 99,000 tonnes.

The 2016 net profit is expected to be up 10 to 15 per cent, before one-off items, on last year’s $7.1 million net profit. The company also adds the rider of exchange rates remaining stable.

AVG appears to be following the less-is-more principle in wine trading. Last year sales of bottled wine into the UK/Europe were up 19 per cent on the previous year, but bulk sales were down 77 per cent. On the WET issue AVG says:

“On 3 May 2016, the Federal Government announced plans to reduce the Wine Equalisation Tax (WET) rebate and tighten eligibility rules. We believe that the measures introduced will improve the integrity of this rebate and that the proposal by the Wine Federation (WFA) to immediately remove the WET rebate from bulk wine sales should be adopted by the Government immediately. Rebates on bulk wine transactions within Australia are distorting the true cost base of bulk wine.”

“True cost”. If we could get to a true cost it would help. In fact, it would rank with the second coming. WET manipulation is an issue, but if the true cost of grape growing and the return on investment is not forthcoming, any way of turning a profit will be considered.

Who is telling the truth? Is it grape growers, producers, or retailers on and off trade? Maybe it’s regional organisations or national bodies representing various sections of growers, producers or retailers.

Truth, as all are aware, is rarely absolute. Each of the above tells the truth in as far as it suits their argument, organisation or just safeguarding a job.

The following table and graphics tell a story. McLaren Vale can be considered as producing high-value wine. The Riverland is noted as a producer of value wine, wine shipped out in bulk containers or wine that goes into bag in box.

McLaren Vale 2005 2015
Bearing area hectares 6092 6000
Total tonnes 60,401 35,590
Yield per hectare (tonne) 9.91 5.93
Average price per tonne $1256 $1510
Riverland 2005 2015
Bearing area hectares 21,141 20,621
Total tonnes 432,789 364,326
Yield per hectare (tonne) 22.81 22.03
Average price per tonne $479 $283

The table above was put together by TKR from various sources, including Wine Australia and Riverland Wine. It shows, in an 11-vintage period from 2005 to 2015, that McLaren Vale has roughly kept the same amount of vineyard land while yield per hectare has decreased, yet price per tonne has only marginally increased.

The Riverland has lost more than 500 hectares of vineyard. The apparent large drop in vintage is due to a very large 2005 crop, with the normal average being about 350,000 tonnes. The yield is about the same, though it’s worth pointing out that for the first five years it declined, bottoming out at 15.76 in 2010. For the past five it has been increasing. Most notable is the decline in price per tonne, which properly explains why the yield has increased over the past five years.

The graphics below are from the SA Winegrape Crush Surveys 2000‐2015, PGIBSA & Wine Australia; graphs by Riverland Wine.

Riverland grower, vineyard, income

McLaren Vale, grower, vineyard, income

They show in McLaren Vale vineyard hectares have remained much the same, but in the Riverland it has increased since 2002 reaching a high of 22,157 hectares in 2009. Numbers of growers in the Vale are much the same but have declined in the Riverland. The most surprising is income per hectare, which is much the same in both regions. Find the truth in all this and surely it would qualify the seeker with a gong next honours day.

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