Tough Times for Wine

For years Australia, known around the world as a nation of sportsmen and drinkers, has been changing its profile. No longer do we dominate tennis, cricket and athletics as we used to – and our image as uncompromisingly hard drinkers, exemplified by the Darwin stubby and the big ‘F’, has taken a massive beating of late. If the statistics tell the truth, we are heading towards our own brand of mid-west American conservatism.

Until recently the wine industry believed it was exempt from the changes taking place around it. Beer consumption tottered and teetered around, emburdened by inflation-indexed price rises, thanks to a government keen to eke out every cent from any industry it felt could take it. Beer barons piled big money into lobbying politicians in a huge, costly and concerted effort to put wine aboard the same, leaking ship. But as Australians continued to drink less alcohol, they kept on buying more wine.

The breweries needn’t have worried. Australian wine is taking a caning, here and overseas. The honeymoon is over and there is a very real possibility of falling prices and hard times for the industry at large. If one compares the twelve months from December 1988 to November 1989, the latest figures available from the Australian Wine and Brandy Producers’ Association, total wine sales are down 8.6 on the previous twelve months. If we look at financial years, the domestic wine market declined by 6.8 on the previous year, a volume of 22.3 million litres. The last time domestic sales fell was back in 1971, by a mere 0.3.

Wine consumption per capita peaked in 1985/86 with 21.6 litres per head and in 1986/87 fell to 20.6 litres per head, in a continuing trend that presents a real concern to all individuals involved in wine.

What are the reasons for the changes? In no particular order, I present these considerations. People have listened to the many warnings related to drink-driving and are genuinely fearful of the consequences of being caught out. For most people, the penalties involved are a severe deterrent. It should, however, be stated that research in New Zealand and the United States have found very little correlation between wine consumption and road trauma. Wine represents a mere fraction of the threat imposed to the community by spirits and beer.

Many individuals are deeply concerned at the health-related aspects of eating and drinking. There is nothing wrong with this, but on a diet of misinformation fed by today’s underground movement of neo-prohibitionists, which the wine industry has yet to successfully counter, it’s little wonder people are running scared. There is only silence in response to the supposedly health-related coverage that condemns the drinking of wine as a dangerous, irresponsible, anti-social and subversive activity.

Health warnings are now to be found on all American wine labels. Warnings signs are posted in Californian restaurants, wine outlets and are required to be present whenever ten or more people gather to taste wine, even if none is for sale.

In Europe the movement is referred to as ‘health fascism’. English wine commentator Robert Joseph describes those involved as “people who want to control all our lives and make us healthy for our own good. In the US the wine industry cannot advertise now and cannot speak. You in Australia have not got to that situation yet, but that American influence is coming and many industries, not only the wine industry, will be sorely tested”, he says.

All this in face of accessible scientific evidence provided by eminent health academics such as Professor David Whitten, Assistant Professor of Physiology, University of California, San Francisco. Whitten’s presentation at the Wine 2000 Conference in Adelaide linked sensible wine consumption with a lower incidence of heart disease and a myriad of other health benefits.

Most of the decline in wine consumption is due to the decreasing popularity of the the wine cask or softpack. To the end of November last year, sales are down by 10.1 on the previous year, representing a massive quantity of unsold wine. This figure includes a huge decline in sweet white cask sales of 29.7 on the previous year. In comparison, bottled sweet white wines are down by 12.3. Australians are also beginning to drink drier, it appears.

Reasons for the decline in cask sales relative to bottles appear to be the improvement in packaging quality of cheaper bottled wines, including the appearance of back-labels on some $3.00 wines, genuinely poorer cask wine quality across the board and cheaper bottled wines, which are now almost direct price-competitors to cask wines.

The wine industry has acknowledged the unfashionability of the larger four and five-litre casks by introducing the smaller two-litre casks, but I have noticed an overall decline in their quality over the last two years. Perhaps they are only a short-term solution.

The bottled wine market has until recently grown steadily as wine-drinkers move up-market and drink less. Industry statistics reveal an irregular buying pattern with the figures for the current twelve month period oscillating above and below the previous levels. Until last September bottled wine sales had indeed fallen by 1, led by a 1.9 reduction in red wine in the twelve months between October 1988 to September 1989. However the numbers for the year ending in November 1989 reveal a revival in total bottled wine consumption to a level 2 above that of the preceding twelve months. The wine industry anxiously awaits December’s figures, which will include the sales for Christmas and the New Year.

These figures appear harmless until one considers that in the last financial year domestic bottled red wine sales grew by 3.5 and all bottled export sales improved by 3.0. I believe the growth in red wine consumption has much to do with the dramatic improvement seen in the quality of our local reds over the past decade. Before the decline the average Australian consumer was drinking four and a half times as much white as red in casks, but only twice the amount of bottled white as red.

Australians are drinking far less fortified wine than in previous years, although the consumption of port has remained stable, at the expense of other drinks like sherry and muscat. Sherry’s decline has contributed a whopping 81 to the overall drop in fortified consumption between 1983/84 and 1988/89 of 21.9. The reasons why are relatively simple. We prefer sparkling wine, which has been through a boom period itself, to sherry as an aperitif, but continue to accept port as a regular after-dinner beverage.

Last financial year and perhaps due in no small degree to the excitement generated by the Bicentenary, sparkling wine consumption in Australia went through the roof. Despite the Ashes win, there hasn’t been as much to celebrate recently and sparkling wine sales have since fallen by 4.9. However the public is now choosing more bottle-fermented sparkling wine ahead of bulk-fermented, of lesser quality, although most of the gains in the bottle-fermented area have been with the cheaper brands.

Another important reason for wine’s declining market is its increase in price, which has kept well ahead of the CPI in the last three years. Grape prices have risen astronomically and the federal government has imposed a 20 sales tax on wine, in the process breaking a promise to the wine industry not to do so. Australian wine is now the most heavily-taxed of the world’s wine products. The profitability of wineries has fallen to the point where Hardy’s Wines’ Group Managing Director, Wayne Jackson says that the wine companies would make more money by investing in bank savings accounts. Profits shrank by 86 between 1984 and 1986, when the tax was imposed.

There is concerning evidence that at the cheaper, bulk end of the market, consumers are switching back to beer as an alternate beverage, a move exacerbated by the fall in the price of beer after changes to the beer taxation practices announced in the 1988 federal budget. There appears to be a cross-elasticity of demand between beer and wine at the cheaper end of the market.

Australia’s worsening economic conditions have obviously played a role in wine’s decreasing consumption, for consumers have less spending power than in the past.

With a declining local market and faced by increasing production, it’s simple to see why the wine industry needs to export. But exports of Australian wine are in danger of stagnation. The volume of wine exported grew by 97 in the ’86/’87 financial year and 84 the year after. Last financial year it grew, but by only 3.3. The news is now far worse. In the ten months from January 1989 to October 1989, the total exports of Australian wine fell by 11.8 in volume and by 6.2 in value from the level achieved in the previous corresponding ten-month period, despite an increase in sparkling wine exports of around 10.

The fact remains that Australia should be able to do better. In an address to the National Press Club in 1988, Hardy’s Wayne Jackson said that Australia should pose a major threat to the European wine producers in the future, citing the following reasons. Australia has huge areas of arable land suitable for viticulture. We have clean air, water and soil; pollution is not an agricultural problem for wine. Unlike the European regions, he said, we are not hamstrung by traditions which can retard progress and innovation. Our winemaking technology is arguably the best in the world and our management, viticultural, winemaking and packaging skills are undoubtedly world-class.

For our wine industry to survive in a profitable form a correction to the imbalance between the supply and demand of grapes needs quickly to be found. If export continues its present shaky performance the wineries may be faced with chronic over-supply. Large plantings of the premium varieties of cabernet sauvignon and chardonnay will come ‘on stream’ in the next two years when their demand is expected to fall, thereby adding to the problem. The price of grapes must stabilise. In all probability it will fall dramatically in a couple of years. A future decline in domestic sales, especially in cask wine, must be anticipated and taken into consideration, although whether bottled wine sales increase or fall must remain uncertain.

Another spectre hanging over the wine industry is the possibility of an excise tax on wine, which would be likely to be imposed before the sales tax, leading to a tax-on-tax situation. Its introduction, according to Tony Crawford of the Australian Wine and Brandy Producers’ Association, “would have an adverse effect on the 70 of table wine sales which are still in the form of casks and flagons. The livelihood of thousands of independent growers is at stake, for they rely on these markets. Also put at risk would be the ability of Australian companies to maintain a competitive position overseas.”

Australian wine is clearly at the crossroads. Its future will depend, in part, on what you choose to drink this year. Please login to post comment