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Killed by the Kiwis

Wine

As forecast for many years, Australia's obsession with exporting bargain basement plonk flounders big-time in one of our greatest export markets, writes Philip White.

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We did it folks. After all those years of reports and analyses, papers and plans and macho presumptions about the quality of Australian wine, we let New Zealand topple us in the value of our wine sales to the United States of America.

Last year, as the US market continued to move away from our critter labels and cheap irrigated wine, the volume of Australian wine sold to the US fell by 11 per cent, while the volume of imports shipped from New Zealand rose by 14 per cent.

At the same time, after years of clear warning as it trended the wrong way, the dollars went even more sicko: the 7.3 million cases New Zealand shipped to the US brought it $US399.8 million ($A530.3), while Australia’s 16.7 million cases returned only $US351.7 million, according to Marc Soccio, wine business analyst at Rabobank.

In its latest Wine Quarterly report, Rabobank reports: “The trends for each country couldn’t be more different, and while the US still imports more than twice the volume of Australian wine, New Zealand wine on average commands over two-and- a-half times the price of Australian wine at the border.”

“It is a David and Goliath situation just because of the size of the New Zealand industry,” Soccio said.

“It’s roughly 20 per cent the size in terms of production. New Zealand has been experiencing very rapid growth over the last four or five years into that market, and by contrast the Australian industry has struggled to a large extent to build on the foundation it established some time ago …

“Post-GFC there was a big move down-market by consumers just for pure economic reasons, but that stabilised and since then there has been a shift up-market for various reasons in the US.

“Consumers are consuming more premium wines and that has certainly played into the hands of the New Zealand industry.”

Apart from some fluffing about how China will save us, there has been little word of reassurance from the confounding collection of representative bodies and councils our wine industry has managed to assemble and feed – with taxpayers’ help – for decades.

Having come to the wine world from an early life in rocks and mining, this writer has always contentiously compared the mentalities of these two disparate industries. Just as we sell our gas to foreign rivals at a discount we don’t afford ourselves, so we insist on using water we don’t have to make oceans of unprofitable wine by mining the Mallee for sugar: in essence, we’re exporting our water by disguising it as wine, and guess what? Our US friends prefer the more expensive offerings from the Kiwis. Not to mention the French or the Italians.

It’s a long time since Prime Minister John Howard convinced us that the sale of Telstra would supply billions to fix and rehabilitate the Murray-Darling Basin. Fix? Rehabilitate? The billions are spent but the Basin is still only barely managed as politicians desperately slush water rights back and forth between their swinging electorates.

If you’ve got any, water is one thing: growing profitable wine grapes is another.

The jaundiced observer should be forgiven for suggesting that if the US market is any guide,  the more water we give our ever-thirsty inland irrigators, the more their monetary returns diminish. Is that a business plan?

Rabobank reports that in 2016, the US continued to import about one third of the wines it drank, but while it imported an extra 1 per cent in volume, that increment represented a 3 per cent hike in value.

As it learns more about wine, America is ready to pay more for it if it’s better quality.

“Wine imports [into the US] reflect the ongoing premiumisation trend, as the lion’s share of the growth is being driven by more expensive wines, while imports of lower-priced wines continue to fall,” Rabobank reports.

Reiterating that the US is one of the “most attractive wine markets in the world”, the report hammers the fact that: “The most profitable wines, priced above $US8 per bottle, have been steadily rising [while] wines priced above $US11/bottle are growing by double-digits. The US market offers scale, growth and attractive margins for those that can effectively penetrate it.”

Effective market penetration? Bacchus only knows how much worse our US export numbers would look if you removed the Penfolds’ contribution. Take out those expensive premiums Peter Gago tirelessly promotes and things will look a damn lot worse. One bloke. One brand.

Gago sees the increasing thirst the US shows the Old World, with Italian sales up 4 per cent in volume in 2016 (driven by a 29 per cent hike in sparkling sales and, wait for it, a 17 per cent surge in vermouth!).

France, too, surged in the US, with volume up 9 per cent overall, led by still bottled wine (10 per cent) and sparkling wine (6 per cent).

And on and on it goes: “This is not a new phenomenon,” the report states, “but the rebound in the value of the US dollar, as well as increasing challenges in other markets (eg the weakness of the British pound and uncertainty around future trade agreements with the UK in the wake of Brexit), make the US wine market increasingly more attractive by comparison.”

So the US has the money, the thirst and the curiosity. Can Australia produce the quality? Can we start afresh?

Should we replace all those wine industry councils with Rabobank?

Now we’re officially besties, again, it will be interesting to see whether the two great buddies, their President and our Prime Minister, can ensure this newfound brotherhood extends beyond treacherous nuke games with that nutter in Korea.

When the moment comes next week to chink those toasts, surely even the Donald would prefer a mature Grange to a glass of Trump?

Knowing Peter Gago, the bottle is probably already on the way. But is anybody else keen to join? More importantly, are they capable?

drinkster.blogspot.com

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