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Grape growers look to sell amid “vicious cycle”

Jul 30, 2015
Barossa Valley Shiraz is among the few regional varieties turning a significant profit for SA growers.

Barossa Valley Shiraz is among the few regional varieties turning a significant profit for SA growers.

A high proportion of grape growers are looking to sell long-held family vineyards, say industry insiders, amid continuing poor profitability for some South Australian operations.

The Winemakers Federation 2015 vintage report shows that on average just one per cent of the crop from South Australia’s Riverland was sold at profit this year.

The vast majority of the crush – 92 per cent – was sold below the average cost of production, four per cent broke even and three per cent turned a “low profit”.

The Riverland figures are in stark contrast to those for growers in other SA regions. More than half of the Barossa vintage – 57 per cent – was sold at a profit this year. Growers in MacLaren Vale achieved 49 per cent profitability on average this year.

Across Australia, on average, 85 per cent of the vintage was sold at a loss this year. In Tasmania, which focuses on the premium end of the market, 99 per cent of the vintage was sold at a profit.

Bruce Bassham has been a grapegrower for more than 40 years, and is one of the handful of growers turning a profit in the Riverland.

“Most would move if they could get a reasonable price for their properties; they’d all like to get out,” he told InDaily.

“Growers are resilient. The ones that are left have been hanging in for years.

“Most have sold off water to keep going, but there is a limit.

“Everybody thought that things would improve this year with the dollar dropping, but the buyers know the situation, and they sort of take that extra bit of cake rather than pass it on to our local wineries.

“They all felt that it would just last a few years but then come out of it, but it’s not coming out of it.

“(For) at least seven years … they’ve been under the cost of production all that time.”

Bassham said the reason his business was doing better than most was that he had moved into more exotic wine varieties, and found a niche market in certified organic grapes which make up much of his acreage.

“We’d be with the rest of them if we hadn’t have made that move,” he said.

The figures from this year’s vintage are slightly better than the figures from last year, when 94 per cent of the vintage was sold at a loss.

Will Taylor is an Adelaide lawyer with Finlaysons who has specialised in the wine industry for more than 20 years.

He says that now is “decision time” for many grape growers across Australia.

“We have done a lot of succession-related work for family wine businesses over the last five years and it seems to be getting more, and more prevalent,” said Taylor.

“Some of it’s driven by years of financial stress, which is soul-destroying.

“We’ve had eight years of recession in the wine industry. It’s been a horrible decade … after a period of extraordinary growth.

“I think that wears people down.

“In terms of number of wine businesses, I would say quite a high proportion is either formally or informally on the market, in the sense that if they were offered the right price they would take it.

“A lot of guys got into the industry during the 1990s, during the boom; often as a second career … 20 years on, they’re getting to the stage where they would like to retire.”

Taylor said many grape growing families were either looking to sell or looking for investors to expand the business as a new generation of grape growers steps in.

A McLaren Vale vineyard.

A McLaren Vale vineyard.

Winemakers Federation CEO Paul Evans said growers in warmer climes, such as the Riverland, who were producing grapes for wines at the lower end of the price scale were in the grips of a “vicious cycle”.

He said demand for Australian wine was not keeping up with supply and that, to compensate, individual growers were increasing their yields and their acreage.

“You would have thought after this amount of time (with low profits) you would have seen a decline in the bearing area, as supply adjusted, but what we have seen is a decapitalisation.

“Vineyards have been sold by unprofitable producers exiting the industry (but)  instead of the supply exiting the industry altogether, it’s simply being sold onto the next owner.

“Often that new owner has purchased the asset for a cheaper price, and continues to produce away, rather than that production exiting the industry.

“It’s very understandable why individual businesses have made that decision, but collectively it does create a vicious cycle.

He said the industry had focused for too long on the high levels of supply in the market, rather than focusing on attracting new consumers.

“We’d like to think that it’s an under demand problem rather than an oversupply problem,” he said.

“It’s only an oversupply if you can’t sell it at profitable price points, so our focus needs to be on improving markets.

“The need to continually grow demand and produce wines … which are appealing to the consumer has been somewhat de-emphacised.

“The more positive way to approach these issues it to grow demand for our wine, and there’s enormous opportunity to do that at the moment, with lower exchange rates, and free trade agreements, and some strengthening consumer demands in some of our key markets.”

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