Friday, November 21, 2008/
The drought, a glut of grapes and poor prices have left Australia’s grape growing sector punch drunk in recent years. But IBISWorld general manager ROBERT BRYANT reports the conditions are set to take a turn for the better.
By Robert Bryant
The drought, a glut of grapes and poor prices have left Australia’s grape growing sector punch drunk in recent years. But conditions are set to take a turn for the better.
Grab a glass and let’s drink a toast – things might be finally looking up for Australia’s grape growing sector.
Grape growers have experienced difficult conditions over the last few years, as grape prices have fluctuated widely in response to changing production levels. IBISWorld expects that revenue of the grape growing industry will have declined over the five year period to 2008-09 at an annualised rate of 4.4%.
But things appear to be set to take a turn for the better. As the global over-supply of grapes continues to fall, prices should improve and Australia’s grape growers will finally get something to drink to.
Despite challenges such as drought, frost, and smoke taint, the biggest problems facing grape growers in the last few years have been their relationships with wine makers and conditions of oversupply, both of which have been reflected in falling grape prices.
This year saw the industry’s greatest ever harvest, and major wine makers were able extract low prices from vignerons based on better information about national market conditions and greater bargaining power. But even as the grape glut grew bigger, new wine grape acreage was coming into production, exacerbating oversupply conditions.
Despite all these challenges, industry profitability fluctuated from year to year but increased overall during the current analysis period, and is estimated to have increased with the introduction of new technology, and some increase in average farm size. Exports fluctuate considerably with seasonal conditions and exchange rates.
The future performance of this industry in Australia will be primarily affected by climatic conditions, and continued mismatches between demand and supply for a number of varieties of grapes.
IBISWorld forecasts that in the period to 2013-14, revenue will grow at an annualised rate of 4.4%. Revenue growth will be a result of tighter demand and supply conditions, with prices increasing but growth constrained by difficult growing conditions. Wine grape prices are expected to increase due to increased wine export prices as the global oversupply of wine is expected to be redressed by European policies. These policies include a move away from export subsidies and crisis distillation of excess wine.
Low wine inventories will also lead to an increase in wine grape prices. Government policy in relation to water rights and the pricing policy for irrigation water will affect grape growers as the cost of irrigation water will continue to increase and environmental concerns will also force more efficient use of water better use of farm chemicals.
Future profitability in the wine grape industry depends on growers achieving economies of scale. Production yields are forecast to fluctuate over the outlook period, with a tendency towards growth. This is due to better root stock, upgraded trellising, more efficient irrigation and better management practices.
Key success factors for operators in the industry
- Supply contracts in place for key inputs. Contracts will ensure a steady market for the grapes grown.
- Economies of scale. Larger scale operations will assist in gaining permanent supply contracts with major wine producers.
- Appropriate climatic conditions. Location is critical to ensuring yield success. That is, whether a traditional growing area or a newer, cool-climate location is chosen.
- Use of specialist equipment or facilities. The level of technology employed, with respect to the type of irrigation system, trellising, and control of chemical usage is important to productivity and product quality.
- Planting of premium, disease-resistant crops. The type of vines grown, whether they are premium wine varieties resistant to disease etc, will largely determine success with respect to product quality and yield.
Products and service segmentation
Major market segments
IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports.www.ibisworld.com.au