Glass Half Full…

You would have to be a resolutely ‘glass-half-full’ kind of Australian to remember 2011 with any real fondness – a wet, stop-start vintage that plagued many regions to the point of abandonment; a schism within the industry ranks over Wine Equalisation Tax (WET); a media-fuelled spat over export compliance process (now retrenched); and an irrepressible harvest result of 1.62M tonnes (which clearly signaled that some operators were more than happy to take slippery-skinned, disease-effected fruit that many others had already declared ‘not fit for purpose’).

To put in clear perspective, market analysts had consistently signaled that a ‘sustainable’ Australian production scale was currently around 100M 9-litre cases (in terms of annual stocks needed to meet projected demand), and here we were stubbornly clinging to a 150M 9-litre case capacity with fruit that might yet struggle to find a home anywhere outside of sub $1/litre bulk. Pretty unedifying…

In respect of the last five years, the gross value for wine grapes has dropped from $881 a tonne in 2006-07 to forecast $412 a tonne in 2011-12, resulting in the falling value of the national crop from $1.24 billion in 2006-07 to $678 million forecast for 2011-12. And while hectares under vine have declined from 163,000 to an estimated 154,000, tonnes per hectare have also increased from 8.7 to 10.7, thereby doing little to release the suffocating ‘heat’ in the supply chain.

In terms of export markets, the stand-out performer was China, now Australia’s third by value behind US and UK. Impressively, it was also the leading market for FOB >$10/litre, tracking at an enviable average FOB bottled price close to $5.50/litre, and hence going some way to dispel the concern that it would become a dumping ground for excess – if ultimately anonymous – Australian bulk.

But China’s diminishing economic growth figures (albeit still at a relatively robust 8%, compared to 1% for US and 0% for UK) should give us pause for thought, as well as a recognition that the size of the challenge is potentially resource-sapping: more than 20 cities with populations above 6 million, and a disparate infrastructure that currently offers little or no transparency between shipments and depletions. That said, it can still be argued that China remains the one international market where Australia could establish itself – from the outset – as a wine producer of true, regional character and distinction. This seems a laudable ambition to which appropriate resources should be made.

The December-published WSTA report on UK wine market made for very grim reading, with no positive growth for retail, and the on-premise showing the inevitable volume decline that comes with a beleaguered national economy. The festive cheer around an overall average retail wine price rise was hollow – really only reflecting the impost of VAT and excise duty – and the concluding, general impression was a British consumer increasingly indifferent to any kind of brand engagement or activity beyond price promotion. I don’t see from where the requisite change might come…

With this as a backdrop, an obvious question has to be asked: will Australia’s export profile have to rely on China alone to compensate for inevitable and ongoing declines in established markets? If you consider that over the past 5 years nearly 65% of all export value growth has come from Asia, I wouldn’t bet against China growing by a net factor of four over the next four years, and eclipsing the US and the UK by bottled value by the end of 2015. I would however question whether the requisite investment will ever be redirected from maturing, defend markets in order to accelerate such an outcome. The commercial rationale is obvious and real, but the Australian industry framework makes the decision difficult. Collaborative platforms are effective when a clear path lies ahead, but when choices have to be made in terms of market and investment priorities, then the gravitational pull of consensus tends to deliver status quo directives rather than change.

The real inconvenient truth for Australia is that if the industry is going to achieve a more sustainable – for which read, ‘profitable, but rationalized’ – supply-base, as well as a more strategic demand focus, then a revenue model based on volume is never going to deliver either the necessary funding or the required direction. It sounds like economics, but in reality its politics: how do you explain to a multi-market franchise that the smart horses to back are Australia and China (Canada, too, if you are looking for a trifector…)?

And yet as the year turned, there were genuine good news stories emerging, if not quite yet the green shoots of recovery. Chardonnay reinvented itself from a staid, mainstream dullard to a newly-styled signature of place and high-tensile precision; Yarra Valley sparked with disruptive efforts of its next generation of winegrowers – Bicknell; Bridgeman; Downie; Mills and co – mainly post-graduates of the illustrious de Bortoli school of ‘detail, charm and interest’; Hunter Valley continued to surprise and delight with both Semillon and Shiraz, particularly under Chris Tyrrell and Andrew Thomas; Barossa wrote itself a new chapter with old varieties, older oak, and the convincing patchwork of its sub-regional ‘parishes’; McLaren Vale crowned a thrillingly Mediterranean Bushing King in the guise of a Tempranillo Touriga blend, thereby ending Shiraz’ and/or Cabernet’s perennial reign as monarch; and the noble houses of Brown Brothers and Shaw & Smith committed significant investment and resources into the deeply cool climes of Tasmania.

Perhaps most importantly, however, favourable critical commentary from markets, retailers, gatekeepers and media was returned throughout 2011, and across a far more diverse range of styles, regions and price-points than has been the case in recent years.

There is no doubt that whole category still needs to perform in 2012, but this softening of almost a decade of international ‘cold war’ may well just incubate the self-belief needed to put Australia not back where it once was, but rather up where it has yet to be.

[A longer version of this article appears in the 2012 Harpers Australian Supplement]

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