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26/02/2010

Market share loss is the basic problem: Smart

In an article in the recently released January/February issue of The Australian and New Zealand Wine Industry Journal, Dr Richard Smart questioned if over-supply of winegrapes is the real issue facing the industry at present.

He wrote, “…The problem is not ‘over-supply ’, but rather ‘under-selling’ or loss of market share”.

Smart used data presented in the Wine Restructuring Action Agenda to show that over-supply could be predicted as early as 1993, a trend that was evident when Strategy 2025 was released in 1996.

Since 2004, the size of desirable stocks has shrunk, suggesting that Australia’s share of export markets is decreasing.

Smart quotes independent studies that show that other New World producers have been significantly increasing exports, including Chile, Argentina, South Africa, USA and New Zealand.

The situation can then be described as Australia ‘losing competitive edge’ rather than ‘over-supply’.

In the article, Smart showed that had the market growth rate from 1996 to 2005 continued, there would have been a grape shortage since 2006.

“If the true problem is loss of international competitiveness, then the remedial strategy may well be different than a simple vine-pull,” Smart said.

Dr Smart was critical of the Australian wine sector, especially at the corporate level, for adopting strategies of ‘vineyard cost minimisation’, rather than ‘quality maximisation’, or even ‘profit maximisation’.

This prevailing strategy has meant that Australia was competing in production of bulk wines with countries with inherently lower costs of production, and in the instance of Chile, with better potential wine quality.

He warned that China may well dominate this market in the future.

To purchase a copy of the January/February 2010 Wine Industry Journal, or order a PDF of Dr Smart’s article, telephone Winetitles subscriptions manager Nola Brigante on +618 8369 9500, email or visit www.winebiz.com.au

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