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21/11/2008

Friday Forum: Will you pull out your vines? DWN readers respond.

In Daily Wine News on Wednesday, we posed the question to Australian readers: “Are you prepared to pull out your vines?” This came from coverage of last week’s Australian Wine Industry Outlook Conference sponsored by Winetitles, where delegates heard views that Australia has as much as “one in five” vine rows too many. One thing is certain, none of our readers are in a hurry to pull out vines: Here’s the response.

Comparison with ’70s vine pull ‘pointless’

Paul Clancy Chairman Wine Grape Council SA

“In DWN you have asked who will pull out their vines in the light of the revelations of the Outlook Conference where the industry has conceded that it has a potential over-supply of 500,000t of winegrapes. You also quote Brian Simpson of the Wine Grapes Marketing Board at Griffith who says that less than 1% of grapes have been left on the vine in his region in recent vintages. Of course, the Griffith region is not in over-supply. Lawrie Stanford of the AWBC graphically showed the Outlook Conference that the over-supply is not in the so-called warm inland irrigated regions but in all the other regions outside those areas. Lawrie could not have been more clear or emphatic in his message that any industry over-supply of winegrapes is everywhere BUT the warm inland irrigated regions. The potential 500,000t over-supply is in regions from Coonawarra, to Margaret River to the Yarra Valley to Orange and all points in between. It is in all regions except SA's Riverland, Victoria's Murray Valley and the MIA around Griffith in NSW. It is pointless to compare the current situation with the vine pull of the mid 1980s. That vine pull scheme removed only 2500ac of vines — a fraction of the 50,000ha being touted as surplus today. As this crisis unravels over the next vintage or two, it will be market forces (i.e. collapsed prices and contracts not renewed) that will be the motivation for growers to consider exiting the industry. Unfortunately, market forces will force growers to make removal and exit decisions. What the Wine Grape Council of SA has been urging for more than two years now is that what is about to happen is inevitable, has been visible for some time, and that it is time for both sectors of the industry to come together to develop some strategies to at least soften the impacts — social, economic and environmental — as well as to take some control over these market forces which will be indiscriminate. Unmanaged market forces have the potential to cause the wrong people to exit the industry and for vines to be removed from the wrong regions. Wine Grape Council SA is working diligently on behalf of its constituency to facilitate a whole-of-industry approach to this crisis.”

Wineries will want more grapes next

John Saleh Banderra Estate Forbes

“Historically, vine pulls have been closely followed by requests from wineries to plant more grapes. Check it out.”

MIS is core of problem

Neil Howard Whicher Ridge Geographe

“My view would be to start at the core where most of the problem has originated from and that is the managed investment schemes (MIS) set up purely for tax reasons and these vineyards should be the first to go, these schemes are going to pull down other primary industries also such as almonds, avocados, olives, etc ruining the lives of the real primary producers, in the industry for the right reasons.”

Aussie growers should consider cooperatives

Laurie Martin Ancient River Vineyard Goulburn Valley

“As a grower currently without either a winery or a supply contract with a winery, I might be tempted to pull my vines out, but there are a few things I need to consider first. When the dust settled after the international vine pull scheme of the 1980s, the Australian Government decided to “support” the Australian wine industry in the 1990s with incentives to plant more vines. Now there is an apparent over-supply of fruit (with growers left holding the baby), the industry is saying the Government should not get involved with vine pull schemes as it would distort the market. Excuse me, wasn’t the market distorted by the Government in the 1990s? Would not a vine pull scheme funded by the Government now (accompanied by a promise never to interfere again!) merely redress the damage done by their earlier intervention? The industry also points to the loss of precious old vines during the last vine pull scheme underscoring the need for any reduction in vine plantings to be done with discrimination. Apart from vine age, has the industry come to any conclusions when it comes to varieties or regions that should bear the brunt of reductions? So far I am aware of claims that we are vastly over-supplied with cool climate fruit while plantings in the warm inland regions should be reduced. Does anyone else see the contradiction here? As for references to the average size of vineyard and winery operations needing to increase, maybe it’s time for Australian growers to consider developing co-operatives. If enough growers were able to form co-operative winemaking ventures, perhaps the required critical mass for profitability could be achieved with the benefits of both settled supply chains and cost efficiencies being enjoyed by growers. So, if someone can tell me I’m growing the wrong grapes in the wrong area, I’d be very likely to pull them out. But then again, maybe we should just plant more to become really big and profitable!”

We’re planting more, we’re not pulling out

Judy Gifford Winemaker Darling Park

“We are in Red Hill on the Mornington Peninsula and are planting more premium Pinot Noir. Some grafting over to Pinot Gris from poorer-sited Pinot Noir and other varieties but no pulling out.”

Look at shoot-thinning, crop-thinning and incentives for answer

James Tilbrook Vigneron — Winemaker — Sales & Marketing Tilbrook Estate Adelaide Hills

“I am taken aback by the article "Big wineries call for market prune" [Daily Wine News 19.11.08]. It's just typical that the biggest producers want even more for themselves. Their greed knows no bounds. Instead of putting all the heat on the smaller producers, which by the way are making their life more difficult in the domestic market, maybe they could look at ways of trimming their intake by giving incentives for growers to shoot-thin or crop-thin? In one fell swoop they could erase the over-supply, which they tell us is costing them vast sums in storage costs, AND increase quality which would make Aussie wines even better value for money for export, which Deloitte tell us is where 70% of their distribution goes. Also the 2007 Deloitte survey said wineries less than $1m were making EBT of 2%, with the best performers making close to 50%. NOT a loss like it was reported in the Herald Sun. I suspect this category accounts for well over half all Australian wine producers. It was reported that "to be sustainable, the industry should have between 1000 and 1500 producers." The question is sustainable for who — the biggest producers or the smallest? In answer to the question of whether we would pull out 20% of our vines, I don't think we have to. There are other ways to achieve the same thing which is to ease the over-supply. As stated above the big wineries, who let's face it account for most of the annual intake, could (copied from above): "look at ways of trimming their intake by giving incentives for growers to shoot-thin or crop-thin. In one fell swoop they could erase the over-supply, which they tell us is costing them vast sums in storage costs, AND increase quality which would make Aussie wines even better value for money for export, which Deloitte tell us is where 70% of their distribution goes." Basically the over-supply is in the order of 0.5MT or 25% of the total. If the big wineries were to pay modest incentives (which they could channel from what they are paying for storage costs) to shoot-thin and/or bunch-thin, then there only needs to be a 25% reduction in the crop for supply and demand to be in balance. Shoot-thinning is cheap, bunch-thinning is more expensive to do but can drop yields drastically. I am sure there must be studies to show whether shoot-thinning would be enough to reduce the crop by 25%. Another way to drop yield but cheaper to implement than bunch-thinning is by use of the kicker cane, which can be cut off before veraison allowing an easy reduction in yield.

Responsibility of corporates

Lindsay Whaling Sandalyn Estate Wines Rothbury

“The responsibility of handling the over-supply is a matter for those large corporate organisations who caused the problem in the first place. Eighty percent of the producers being responsible for 20% of the harvest could not reasonably be expected to bear the brunt of the problem caused by the majors who have done such damage to the industry in terms of price and quality. In the Hunter we produce approximately 4% of Australia's grape yield and do not have a serious over-supply problem, although the market trends in grape price to the grower reflect the national over-supply. Although the majors would like the game to themselves, there will always be a significant boutique industry representing a major sector at the premium end. We will not be pulling our vines.”

Let the market decide

Murray Paterson Vinifera Services Blenheim New Zealand

Much of the over expansion of the planting in Australia has been due to the tax regime favouring this sort of investment. The ‘investor farmers’, taking advantage of a favourable tax regime. Put another way, the taxpayer subsidised expansion of the planted area to a significant extent. Now, if there is a voluntary wrenching of vines there will be political pressure to get a subsidy for this too. It might be termed ‘double-dipping’. Why not simply let the market decide? Market conditions and slumps in prices are part of business – all business carries such risk. So either accept that risk or don’t come into that business.

Would we pull out vines? Emphatically ‘yes’

Ed Turner Frog Rock Mudgee

“I am responding to the question, “would you pull out vines”… my short answer to this is emphatically, yes. If I cannot make money from them then they will go, albeit in a staged pull as I have begun this year, starting with the lowest quality vines. We are located in Mudgee, NSW, and run our own brand, Frog Rock. We have also grown grapes for the supply of large corporations since the 1970s (my father talks of the previous downturns and subsequent vine pulling programs). Frog Rock produces around 5000 cases per annum and we had plantings in the vicinity of 48ha at the start of last vintage. Since this time we have pulled 7.5ha (16%) and plan to pull a further 4ha this season, following the devastating frosts in October. We will asses the conditions again before bud burst next year and have another 4ha that is earmarked to come out, mainly due to the health and resulting productivity of these vines, but the decision is related to the economics of the industry and the need for rational decisions to be made on unproductive and lower quality areas of our vineyards. This will bring us far closer to a level of self sufficiency in our production and label requirements and allow us to focus more on increasing the quality of our fruit through sustainable viticultural practices, including biodynamics. We feel that in order to differentiate ourselves from the mainstream and meet the demand from not only our existing customers but from the consumer in general, this is the direction we need to be heading and this is not an area that large scale commercial corporations can converge on. I also feel that the Australian wine industry’s foundations for the success it has enjoyed since the 1990s begun from smaller family operations that grew and eventually became part of large corporate portfolios which then became disconnected from the very source of their success, passionate people producing a passionate product. Note the rise and fall of Rosemount in the hands of people only searching to maximise shareholder returns, and in turn, note the sustained success of brands retained in family hands such as Yalumba. Indeed, you only have to go back to 2002 to the Boutique Wines of Australia guide to see Casella wines listed as a member. We all know for a thriving industry and brand the Australian wine industry needs a good mix of both large and small to provide a wider appeal internationally across all pricepoints. Brand Australia has copped a fair pummelling from its Southern Hemisphere rivals of late in lower pricepoints. We need to re-invent ourselves and it needs to come from the higher pricepoints if we are going to survive and prosper into the future…I’m sure like all industry rationalisations, only the committed will be left standing before the next cycle begins again in our great industry.”

It needs to get ugly

Craig Markby

“It's all well and good for industry to suggest what should happen when something hits the fan — what was the industry doing when all the MIS started rolling out hysterically ridiculous-sized plantings with other people's money — charging very high establishment fees per hectare and squeezing the water resource even harder to put the national grape crush into over-supply? I think this needs to get a little ugly — some fingerpointing, some bloody noses, and once the dust settles — some planning by the industry to better manage the national crush to prevent irresponsible investment-driven plantings driven by 'accounting greed' to create the over-supply in the first place. Remember — private growers didn't create this problem on the scale we now see — so it's a bit rich to ask the same growers – ‘who will pull their vines’ — to alleviate a problem they did not create. These MIS were not planted speculatively — they had contracts — so who signed them up? The wineries — which ones? These are the sorts of ugly questions that need to be asked. It's not so much a grower supply problem as a winery buyer issue that encouraged the over-planting in the first place. Perhaps the question should be asked – ‘which wineries are prepared to create new labels/marketing/infrastructure to clear the surplus?’”

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