WET, DRY, WHATEVER - OZ WINE HITS WALL

CHINA UNDERSTANDS WHAT HAPPENS WHEN A BULL MARKET HITS THE WALL: PEOPLE GET SPLATTERED ... BEIJING SCULPTURE WHAT YOU SEE MAY NOT BE REAL BY CHEN WEN LING

Oz Wine: New Terms Of Trade
Entire Business Out To 90 Days
Bully Boom Done And Dusted
by PHILIP WHITE

Roger Pike, of Marius Wines, has new terms of trade.

“When they ring me to ask for some wine,” he says of certain corners of the retail world, “I say, ‘Sure, I’ll just explain my new terms of trade.’

“You send me the money, and start ringing me in thirty days to ask when I’ll deliver. You can keep ringing, and after ninety days or so I might start to consider sending you the wine’.”

There are many thousands of wine industry folk who wish they could risk being so prickly. Australia’s wine world has never looked in such financial disarray. Growers have not found buyers. When they have, they’re being paid a pittance, late ... less money than they paid to grow the crop.

Harvesting contractors, local tractor repair works, water dealers, honest middle men and industry suppliers of everything from chemicals through cardboard boxes to oak chips are hanging out for money they can only hope will some day trickle in.

James Hook, viticultural agronomist at the ever-busy DJ’s Grower Services and Supplies, says “We’re all part of the supply chain. We’re out to ninety days with many clients who are just hanging in there. It goes through the entire client base, right down the line.”

Processing wineries are itching to be paid by speculators who have hired them to make cheap wine from mouldy 2011 fruit which should never have been picked. They are also beginning to wonder whether they’ll ever find a market for the wine they made from crops they themselves speculated on.

It adds to the swilling wine lake, which has not diminished in size, but is certainly taking a dive in quality, in spite of hopeful comments like the respected industry writer Tony Keys (left) offers in the current edition of his Key Report:

“The industry is sorting out its issues, the main point being that money is being lost and there is only so much in any company funds that can be lost.”

Meaning, to this sceptic, that those limited funds have already been lost, and there’s no likely source of more funding for anything.

When you see Constellation, the world’s biggest wine company, after only six years, accept $290 million for 80% of the Australian wine conglomerate that cost it $1.6 billion, I begin to think the money is all gone.

Pity help the little guys.

HAVING MADE JOHN REYNELL'S LIFE WORK THEIR HEADQUARTERS, CONSTELLATION TOOK A $1.3 BILLION DUMP, PULLED HIS OLD VINEYARD OUT, MADE $6 MILLION SUBDIVIDING IT, AND WENT BACK TO NEW YORK, photo KATE ELMES

“The main issue for the whole industry,” James Hook says, “is not so much what wasn’t picked, but the amount of bad fruit that was picked that is now sitting in tanks everywhere as wine. People are beginning to wonder what they’ll do with it. They seem to think China is the solution. That’s very dangerous. Australia will have to be very careful with its quality image.”

If the Chinese, who now pay more money than any other lot for extremely expensive French wine, are wise enough to refuse any inferior plonk which happens to be approved for export by the Wine Australia Export Approval system, there’s another huge stack of money which will not be there.


SLOW BOAT TO CHINA?

There’s another issue. 2011 was the second wettest vintage in the history of Australian wine. It was the La Niña that sent the wet that saw mildews and botrytis moulds explode across the vineyards of South-eastern Australia, right at a time when money was as scarce as the fungicides required to sort the problem. Borderline vineyards big and small were caught with their pants down: rain and flood were the last things they needed.

Most respected sky doctors suggest the usual pattern for such climatic errantry will see a slightly less damp cycle hit us next vintage. If the weather stays damp in the interim, many of the vineyards left unpicked because of mould, and unpruned because of poverty, will work as efficient incubators for the spores still active from 2011, and there’ll be another demand for fungicide in huge volumes, and no money to pay for it.

One of the huge problems of 2011 was the shortage, pure and simple, of the right chemicals. Given the poverty of growers, the chemical suppliers had punted on the drought continuing and the year being dry, and stocked less fungicide anyway, to decrease their own financial risk. There simply wasn’t enough spray in the country, whether one had the money or not.

If the drought now settling on central New South Wales is an indicator of things returning to normal drought conditions across the rest of the south-east vignobles, the mould spores will probably not survive.

IF THE SEASON IS DRY ENOUGH TO KILL LAST YEAR'S MOULD SPORES, WE MAY WELL BE STRAIGHT BACK IN DROUGHT, MEANING THERE WON'T BE SUFFICIENT WATER TO KEEP IRRIGATING THE INLAND VINEYARDS AT THE SAME OLD RATE

Another of the tricky, infernally complex conundrums facing this punch drunk business is the matter of the Wine Equalisation Tax. This was introduced at the beginning of the GST to offer a rebate to smaller producers who found it difficult to compete with cheap wines, which are taxed at much lower rates than premium ones.

This is now being rorted to an enormous degree. 2011 saw growers who had no buyer, and no money to pick, “lend” their crops to opportunist speculators who had them picked, and then vinified by contract wineries, from where they hope to sell them through the bulk “grey” market in cleanskins, like to Woollies or Coles, or invent a temporary brand and dump them via the internet. They offer to pay the grower the profits, less the cost of picking and production, and of course, a handling fee. So without any investment in vineyard, land, winery or cellar, these opportunists can then pocket the WET rebate, add even more swill to the wine lake, and disappear. If this plonk does indeed find a buyer, the grower then sits back waiting to see whether there’s enough money left for them to be paid anything.

AUSTRALIAN DESERT FARMERS SHOULD NEVER FORGET THAT MOST TIMES, THE DESERT WINS


This was discussed at length at a forum in the Federal Parliament House last week, at the launch of a report, Alcohol Taxation Reform – Starting With The Wine Equalisation Tax .

This was compiled by The Allen Consulting Group for The Alcohol Education & Rehabilitation Foundation, an alliance of health bodies established as “an independent, charitable organisation working to prevent the harmful use of alcohol in Australia”.

In the last decade, this Foundation has “invested over $115 million in research and community projects to minimise the impact of alcohol misuse on Australians” ... which, through its national grants program and commissioned research, “has established itself as a leading voice on alcohol and other drugs issues” working with “community groups, all levels of government, police, emergency workers, research institutions and the private sector to address alcohol-related problems”.

The AER Foundation is demanding urgent reform of the Wine Equalisation Tax, claiming it “makes no sense for the economy, the Australian wine industry or the health of Australians”.

IT'S NOT UNCOMMON FOR HUMANS TO GET VERY BIG THINGS WRONG

The report concludes “that the current tax structure contributes to the Australian wine glut by rewarding producers of cheap, poor-quality wines and propping up inefficient producers.

“The WET and the WET rebate are costing Australian tax payers at least $250 million a year, of which the Wine Federation of Australia estimates $50 million is being rorted by retailers, who are exploiting WET loopholes.”

Dr Richard Denniss, Executive Director of The Australia Institute, and adjunct professor at the Crawford School of Economics and Government at the Australian National University, was moderator of a forum involving Kerry Barwise, economic and policy advisor from The Allen Consulting Group; international expert in health economics, Professor Chris Doran of the University of Newcastle, and this writer.

While the forum was confronting and ground-breaking on many levels, the infernal complexity and illogical nature of the WET will take many commentators a long time to unwind. The event gained considerable press, but much of the analysis was too vague and erroneous to have immediate sway.

However, this forensic report is out there now with the policy wonks and economics and business editors, and available for the wine industry to absorb in the fullness of time.

My contribution was the suggestion, that at this time of incurable financial constipation in the wine industry, the WET not only contributes significantly to Australia’s annual $15 billion plus bill for alcohol-related harm (as in the bed of the Todd River in Alice Springs), but also adds to the financial, economic, social and environmental woes currently infesting the source of the most destructive plonk, the Murray-Darling Basin.

THE TODD TAVERN, ALICE SPRINGS: HOME OF THE ORIGINAL 'ANIMAL BAR'

In the simplest metaphorical sense, we destroy one river system making the stuff, and the inhabitants of another when we take profits from the stuff we have made.

A large percentage of the extra money raised by the tax regime proposed by former Treasury boss, Ken Henry, should be divided between the likes of the Todd alcoholics and the Murray-Darling: the broke growers are going to require lots of assistance and rebuilding, just like the out-of-control drunks at the consumption end of the chain.

I can’t see the current wine industry councils ever managing to sort this mess fairly.

As The Key Report concludes, “this is a battle that wine will lose. It may take time but it will be lost. The damage that cask wine is doing to the industry is huge – probably bigger then it is actually doing to those that use it as a means of getting drunk quickly.”

Meanwhile, makers of sublime wine, like the stubborn Pike, continue to have little problem selling their product. They don’t even need China.



Click here to read of banks foreclosing on Murray Valley vignerons.

Click here to read of wine grapes hitting rock bottom up the Murray-Darling.

Click here to read of Shiraz collapsing in the US because it got too fat, dumb, and cheap. Take a bow for The Wall Street Journal, Yellowtail.