In a very bleak assessment of the current state of the Australian wine industry, Tony Battaglene, CEO of Australian Grape & Wine, says growers and winemakers are in for a very difficult couple of years.
“With this potential oversupply situation we have, it is not just a blip that we will ride through with better prospects in 2023,” he said during the first session of the 18th Australian Wine Industry Technical Conference today.
“The reality is starkly different.
“The ability to diversify markets and take market share from our competitors… while we’re doing it, it’s going to be difficult and in the short term, extremely challenging.
“Next year is going to be very, very difficult.
“Clearly price impacts will continue for some time.
“It’s a pretty sobering thought.”
Battaglene, who has just announced his resignation from Australian Grape & Wine and will leave later this year, predicted 2022 would be a slightly below long-term average crush.
“So we’re still going to have those very high supplies,” he said.
“There were grapes left on the vine this year – probably less than we predicted – and the reason for that is that towards the end of harvest, there was a lot of speculative buying at low prices.
“Those grapes unfortunately have gone into tank and have not actually gone through into the marketplace.
“It’s exacerbating the oversupply situation.
“There is a significant supply of red fruit this year and there will be next year and the year after.
“At commercial levels we’re seeing the bulk prices for Australian wine remaining low compared to that premium we used to hold over our international competitors.
“And of course the bulk market price is what determines grape prices down the track.
“One thing that’s important to recognise with this next vintage coming is that processing capacity is limited and also storage capacity.
“We simply do not have enough tanks to pick an average 2023 vintage.
“We cannot clear our tanks quick enough, given the freight disruptions and the fact we’re working very hard to open new markets but it’s tricky and takes time.
“If you have uncontracted fruit, you are not going to be able to find a market for it.”
Battaglene said it wasn’t just an Australian oversupply problem, it was worldwide.
“We’re also seeing our European competitors increase their exports,” he said.
“We’re not, we’re not matching them.
“It’s not just product going to China.
“They are recovering much more quickly than we are and there are a couple of reasons for that.
“The European system has major domestic support – this has been distorting the international markets and undercutting our competitiveness.
“It’s a really significant issue.
“The Covid support and the subsidies directed at the promotion of European wines, is aimed particularly on those export markets.
“Over a thousand million euros a year is earmarked for promotion measures.
“You look at the budget of Wine Australia, we’re nowhere near that.
“The support measures in Europe have been increased and extended until at least October, and those measures are targeted particularly at exports.”
Battaglene said China was not coming back any time soon despite thawing diplomatic relations between Australia and China.
“China will not be back in the near future,” he said.
“We know that, so we need to look at some of those other markets and a lot of work is going on there.
“The other thing about China is that market has been in decline as well, so since 2018-2019 the China market has actually been declining for wine, so while we’re out of it, it also means that the product that our competitors are putting in there, doesn’t leave as big a space internationally.”
Shipping chaos was also exacerbating our problems.
“It’s very important that we understand that the current freight problems we are facing are also impacting our ability to trade our way out of this,” Battaglene said.
“It’s also likely that this is adding to the pressure for companies to move product at lower price points which will potentially add to this oversupply situation.
“There are clearly another 12 to 24 months before we are back to where we need to be.”
Battaglene said some growers need to think about mothballing vineyards, but there has been no discussion about a vine pull scheme.
“What I will say is that we have had very good discussions with (Agriculture Minister) Murray Watt already,” he said.
“The issue has been clearly outlined to him.
“There is no easy solution to this.
“His main priority is to obviously try to overcome some of those labour and freight issues which are adding costs and creating difficulties.
“I think we must not overestimate what government can do for us.
“This is our problem and we need to fix it.
“There will be discussions about what we can do to help growers and structural adjustment, so we’ve started to have those discussions with him.
“Where we end up, I don’t know.”
Battaglene said industry structure needed to be talked about.
“The broad theme is the structure of the industry,” he said.
“Seventy percent of our production is in those big inland regions.
“Is that the direction we’re all going with climate change?”
Battaglene said some grapegrowers and regions were doing better than others.
“If you’ve got Pinot Noir and Prosecco, it’s been a great time,” he said.
“And those small domestic focused producers have also done very well.
“But an oversupply will create download price pressure in all regions, even in those regions that are not exposed to the international marketplace.”
Battaglene said relationships between growers and winemakers would be tested over coming years.
“We need each other,” he said.
“The whole supply chain must work together.”
To top off a gloomy start to the Tech C0nference, there was no good news from economist Saul Eslake either.
“The outlook is going to be very tough,” he said.