Analysts are calling an end to the grape glut, with industry groups saying this means it’s time to fix the wine tax.
After a decade of oversupply in Australia’s wine industry, with grape growers forced to let grapes whither on the vine or plough vines back in, analysts have finally said the grape glut is over.
Merrill Lynch analyst David Errington wrote a briefing note to clients last week outlining four pieces of news which the investment bank says highlights the end of the grape glut.
“The Australian Bureau of Statistics figures show there has been a reduction in 9% of the land under vine over the last 12 months and the non-bearing acres fallen to its lowest level since 1999,” Errington says.
He says new markets for wine are increasing, with China coming out during the week and saying Australian wine exports to China increased by 25% in value of wine over a 12-month period to September 2012.
“The European Union farmers stated last week that France’s grape harvest this year is expected to slump by 20% and Italy by 7%, so they are having a shocking harvest this year,” he says.
“While in the United States the prices of wine is starting to increase after more than a year of decline.”
Errington says with new markets opening up and Australian supply struggling to meet demand it is positive news for the wine industry in Australia and, in Merrill Lynch’s view, the grape glut has bottomed.
“The Australian wine industry is now in a position where it may not be capable of producing enough fruit for future demand, particularly if demand from other markets continues to grow,” he says.
Michael Thorne, chief executive of the Foundation for Alcohol Research and Education, told SmartCompany he agrees that “on any objective measure the glut is over”.
Thorne says this means it is time to reform Australia’s Wine Equalisation Tax, as in 2010 the Henry Tax Review described Australia’s system of differently taxing beer, spirits and wine as “incoherent” and recommended, instead, a uniform rate of tax to apply across all forms of alcohol, set at the rate for full-strength beer of 39 cents per standard drink.
At the time, Treasurer Wayne Swan rejected the recommendation, saying he would not “change alcohol tax in the middle of a wine glut and where there is an industry restructure underway”.
Thorne says this “false excuse” for not reforming the Wine Equalisation Tax is now gone and it’s time for change.
A review by the foundation delivered to the Treasurer last week calls for the abolition of the Wine Equalisation Tax and its replacement with a volumetric system where wine is taxed according to alcohol content.
“It’s a bad tax as it taxes wine in a different way than other alcohol products are taxed, such as spirits and beer, and it provides the wrong incentives for producers and drinkers as it is taxed on wholesale price, so the cheaper the wine the less tax is paid,” he says.
“It is an incentive to produce cheap bulk wine.”
However, Errington says the way the wine industry is taxed is unlikely to make a significant difference.
“The industry is turning for fundamental reasons, the tax system is neither here nor there,” he says.