12 February 2004
Despite an unfavourable exchange rate and a fiercely competitive global market environment, Australian wine exports continue to exhibit relatively strong growth, according to agribusiness specialist Rabobank.
Reetica Rekhy, Rabobank senior manager, Food and Agribusiness Research, says the wine industry is currently facing challenging times as a result of several factors including the appreciating Australian dollar, global wine surplus, increasing dominance of retailers and reduced profit margins.
"As a result, the short term is likely to see some realignment which is needed to bring supply and demand back into balance," she says. "Nevertheless, in the medium to longer-term, prospects for the Australian industry are bright, as the fundamentals supporting its point of difference still remain secure."
Although Australia's share of global wine production is less than 5%, it now occupies fourth place in terms of exports behind France, Italy and Spain. Exports, constituting more than 50% of total sales of Australian wine, continue to drive growth in the Australian wine industry.
Australian brands also featured in the list of top five brands for still wines in 2002 in the United Kingdom in both the "off-license" and "on-license" categories.
Ms Rekhy attributes much of the success achieved by Australian wine to industry innovation and the co-operative spirit and collaboration between its members.
With the principal goal of increasing their market shares, new world wine producers (such as the United States and Australia) are expanding production volumes, adopting aggressive promotion programs, and, in certain cases, supporting this by heavy price discounting.
"And while these trends are creating a highly competitive global market environment, Australian wine remains popular," she says.
Ms Rekhy says the global wine industry is continuing to consolidate and evolve into a structure that will ultimately consist of global wine companies holding strategic portfolios of international brands of the scope and size needed to be viable in the long-term. This will be supplemented with an established and efficient distribution network worldwide.
"In order to sustain growth, the Australian wine industry needs to diversify its markets by reducing its dependence on the UK and US and providing greater focus on its efforts in Germany and the rest of Continental Europe," she says.
The Australian Bureau of Agriculture and Resource Economics (ABARE) projects Australian wine grape bearing area to reach 180,000 hectares in 2007/08, a growth of 13% over current levels.
But research by Australian Wine and Brandy Corporation indicates that projected growth for domestic Australian wine sales by 2010 will fall to 2% per annum unless demand and consumption is stimulated by product innovation, targeted product positioning for specific market and consumer segments and spurring greater interest among low involvement customers and infrequent wine drinkers.
"Therefore, while vineyards and the industry as a whole will expand, wine sales locally will grow at a much slower rate unless interest is stimulated throughout the market," Ms Rekhy says.
The level for wine grape production (crush) in 2002/03 is estimated to be 1,420,000 tonnes, a fall of 13% over the previous year, mainly attributed to the drought across most of Australia, combined with reduced irrigation water allocations. However, the lack of moisture during the drought also decreased the propensity for pest and disease incidences, leading to improved fruit quality, which has placed the industry on a stronger footing in international markets.
The grape harvest in 2004 is forecast to rise by about 28% compared to the previous year.
Ms Rekhy says this record intake will impose further pressure on grape growers and wine producers in a market still recovering from a global grape glut and the rising Australian dollar.
"The industry can, however, enhance its global competitive edge by leveraging off its superior image in off-shore markets, developing a greater understanding of consumer needs across targeted market segments and supporting this by increased cost/operational efficiency across the industry value chain," she says.
Winegrowers throughout NSW have shown considerable resilience despite the difficult seasonal conditions experienced in 2003.
Mudgee reported its best vintage in three years, while in Orange the red quality was also very high. Rainfall in late February 2003 gave local red varieties the water they needed, however the same rain coincided with the white harvest, resulting in a reduction in quality of chardonnay and semillon.
Paul Hopkins, rural manager at Rabobank Orange branch, says that despite the drought's impact on local winemakers, they are greeting the new season with restored confidence.
"The current sentiment of winemakers in the Orange-Cowra-Mudgee area is one of cautious optimism. They know they produce a world class product but realise there are challenges ahead for the wine industry," he says.
"There has been some good rainfall in early 2004 that has improved farm water storage levels and improved the prospects for this year's vintage. This has provided some confidence. More good rainfall is desperately required after this harvest to fill storages and provide long term confidence."
Rabobank is demonstrating support of the local Mudgee wine industry through sponsorship of the Rabobank Viticulturalist of the Year Award.
Rabobank Australia is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world's safest bank by Global Finance magazine. The bank operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1900 offices and branches.
Rabobank Australia is one of Australia's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 40 branches through Australia.
Contact
For further information please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8233 8744) or email on sydney.mediarelations@rabobank.com.