FEATURE Bulk wine prices reach a turning point

Bulk Wine Market

Bulk wine prices reach a turning point

Bulk red winegrape prices are likely to be at their lowest point in at least a decade, leaving many growers to assess their options moving forward. Harrison Davies investigates how the market – and producers – are likely to respond.

The disruptions caused by the closing of the China market to Australian wine exporters, and in tanks with nowhere to go and another vintage now visible on the horizon. Prices for new grapes are forecast to the prices for bulk whites have remained buoyant, growers are left with questions about what to do with existing vines on combined with post-pandemic supply chain problems, are continuing to have a substantial impact on the local grape and wine sector. The aftermath has left the industry with a massive glut of bulk red wine, especially Shiraz and Cabernet Sauvignon. As a consequence, wine producers have had to contend with a lack of storage as two years of vintage wine has been left be especially low and grower groups like CCW Cooperative Limited in the Riverland are asking hard questions: ‘what do I do with my grapes? How can I support my business? What is the future for the industry?’ Further complicating the matter is the price of bulk white wines, which has seen stabilisation and even growth. While there are many theories as to why their property. Questions about the industry, that were raised before the closing of the China market, remain hanging over the heads of growers and buyers alike with calls continuing for greater transparency of how the bulk wine market, and its pricing scheme, is run. Matt Tydeman, director and broker at Ciatti Australia, a bulk winegrape

brokerage firm, said that the global market has had a stressful couple of years, which has only further complicated the situation for growers and buyers in Australia.

“The wine market is slow with many companies being net sellers and the buying market is weak,” he said. “Logistics have caused a big concern with freight rates being very expensive but we are starting to see some relief in these costs. “We are long in red wines (as is the world with most countries having surpluses in red wines). However, the white market is balanced and demand has been good (which is also the same for other countries, the demand for white wines has been good). “The size of the 2023 harvest will have a big effect on bulk wine prices going forward, the unknown is how much fruit gets picked and how much fruit is lost due to disease pressure with the excessive rain currently falling. “We need a significantly smaller crush in 2023 to work through our surpluses. Expectations are that the bulk wine prices for reds will stay low until we start removing the surpluses from our inventory and buyer demand picks up.”

What’s happening with reds?

Simply put, red grape prices are very low. Inland regions like the Riverland, Riverina and Murray Darling, which previously relied on the massive amounts of Shiraz and Cabernet sent to China, are facing difficult circumstances ahead of the 2023 vintage. In an August meeting with the CCW growers’ coop, Accolade Wine chief supply chain officer Derek Nicol said, via a letter to the group, that the situation in the region was hardly rose coloured. “The last two years have brought significant challenges to the wine industry in Australia, ongoing supply chain challenges, increased cost of goods, change in consumer taste, tariffs and the pandemic have had a significant impact. “Australian Wine is still uncompetitive in the global bulk wine market. Shipping, inflation and on-costs continue to have a serious impact so this makes us uncompetitive against other key countries of origin like Chile and South Africa. Also overall global wine consumption is still in decline so we need to address the Australian surplus.” The result of the national surplus has meant red winegrape prices that are severely depressed. According to the Ciatti Australia New Zealand bulk wine report, released in October, prices for bulk red winegrapes have dipped as low as $0.50 per litre (Figure 1). Due to these bottom-of-the-barrel prices for bulk wines, anxiety about the upcoming vintage has lead producers to consider drastic action; some as simple as mothballing their vineyards or as drastic as walking away from their vines altogether. Growers in the Riverland are being encouraged to dump or mothball as much as 40 per cent of their grapes, potentially as much as 200,000 tonnes, from the 2023 vintage if yield is expected to be too high. “We will offer $1,000 per hectare to avoid V23 intake,” Nicol said. “There will be a 10% premium to the agreed V24 and V25 price for those mothballed/ postponed intakes and this can also help facilitate proposed crop changes (almonds, etc.) for year one.” CCW Co-Op CEO Jim Godden said the mood in the Riverland was low and that many growers were simply investigating what options they had left. “In 2022, red bulk wine prices stayed depressed, continue to stay depressed and certainly show a significant lack of buyers in the market,” he said. “There is significant concern from growers at the 2023 current [vintage] indications. In a time when we have the same cost pressures as most of the rest of society, to know bulk wine prices are down, that gives

Expectations are that the bulk wine prices for reds will stay low until we start removing the surpluses from our inventory and buyer demand picks up. Matt Tydeman Key Takeaways The inactivity of Australia’s red wine market and the continuing absence of Chinese business – not expected to change soon – raises the prospect of large quantities of uncontracted 2023 red grapes getting dumped. The white wine market, however, remains steady and there are discussions around grafting over to white wine grapes. La Niña, present for a third straight year, is likely to bring above-average spring/ summer rainfall, additional spraying costs potentially being another burden for growers on top of the red grape problem. La Niña is also present in New Zealand, bringing torrential downpours and flooding during the country’s warmest and wettest winter on record. Vintage 2022 Marlborough Sauvignon Blanc remains available, though container and vessel shortages have made shipping difficult.

Ciatti Contacts

Matt Tydeman

T. +61 8 8361 9600

E. matt@ciatti.com.au

Simone George

T. +61 8 8361 9600 E. simone@ciatti.com.au

Australia: Current Market Pricing (AUD/litre unless otherwise stated)

Vintage Variety Price Trend Vintage Variety Price Trend

NV Dry White 0.85 – 0.95 ↔ NV Dry Red 0.45 – 0.55 ↓

2022 Chardonnay 0.95 – 1.10 ↔ 2021/22 Cabernet Sauvignon 0.50 – 0.70 ↓

2022 Sauvignon Blanc 1.45 - 1.75 ↔ 2021/22 Merlot 0.50 – 0.70 ↓

2022 Pinot Gris 1.20 – 1.30 ↔ 2021/22 Shiraz 0.50 – 0.70 ↓

2022 NZ Marlborough SB NZD 5.50 - 6.00

2021/22 Muscat 0.90 – 1.00 ↔

Price stated are indicative only; all offers subject to prior sale and subject to volume, drawdown and terms

A massive glut of bulk red wines, especially Shiraz and Cabernet Sauvignon, is currently in storage.

an indication that pricing for grapes will be down in 2023.

“Overlay that with a wet year of La Niña, we are seeing a lot more rainfall which is then requiring more intervention and spraying by the growers. That just puts into our growers minds as to what the [vintage] will end up like, knowing that costs arising from their side or input costs are rising.” Godden continued to say that it was important for growers to be in communication with their winemakers so that everyone was on the same page about the state of the industry. “I would say it’s probably one of the quietest times I’ve seen in the industry,” he said. “I think everybody is just waiting and watching the weather within Australia. There are significant stocks of red still out there but we’re in a waiting phase.” Riverland based Byrne Vineyards winemaker Mark Robinson echoed Godden’s comments and said many growers were selling grapes below cost just to get them out the door. “Due to the global shipping issues it’s meant that there is a lot of wine without a home. And so there are a lot of people who have spent money on wine, and now they don’t have anywhere for it to go. “People are selling [wine] for below cost in order to make something back to pay as many people as they can. And there are some businesses closing up because they’re unable to continue.” Another suggestion has been to graft white varieties over the red vines, as the former market has remained relatively stable. maintained the prices across several varieties.

One need only dig into past reports, like that released in August 2022, to see that some white varieties, like Sauvignon Blanc and Chardonnay, have actually increased in value, however some forecasters see the price softening as New Zealand increases its presence in the market post-COVID. “Some of the more in demand varieties, like Sauvignon Blanc, have seen a little bit of softening and that’s indicative of New Zealand coming back into a more normal style of vintage,” Godden said. Robinson said the buoyancy of white

Shipping, inflation and on-costs continue to have a serious impact so this makes us uncompetitive against other key countries of origin like Chile and South Africa.

Derek Nicol

varieties was more reflective of the white varietal vines being pulled 10 years ago and the market beginning to re-stabilise since then.

“A lot of people pulled out white grapes in the irrigated districts and planted red,” Robinson said. “Sauvignon Blanc has gone up from a very low level because it was oversupplied a few years ago but now it’s coming more back into balance. “The prices for white wine, even on the bulk market are still at breakeven numbers. I don’t think it’s good at all. “We’re currently selling bulk wine for around a little over $1 per litre and other people were selling it for 80 cents a litre and that’s below cost price.”

Picking up the pieces

There is no silver bullet solution to the bulk wine sector’s challenges. Speakers at October’s Wine Industry Impact Conference in Bendigo explored the issues facing the industry and Michael Whitehead, head of Agribusiness at ANZ, said that even if the China market were to re-open, the wine industry would still face a $1 billion deficit due to the glut of red wine. An investigation conducted by the Australian Competition & Consumer Commission (ACCC) found that the market for bulk wines was not transparent and provided little grounds for winegrape growers to be competitive when selling their harvest each year. Their 2021 follow-up review identified several issues clouding the industry such as a lack of transparency and certainty over pricing and grape quality, as well as supply agreements that commonly did not provide price certainty or verifiable price benchmarks. “Australian warm climate grape prices are strongly correlated to wine export prices and growers have access to current and past prices in global wine markets. However, questions remain over the usefulness of historic prices to growers looking to make forward-looking strategic decisions,” the report stated. “Grape prices are dependent on expected future wine market conditions, which in turn depend on a broad range of factors including global wine inventory levels and movements in consumer trends.

“The ACCC heard that it was difficult for individual growers to assess these factors as they lack the resources and visibility over sales channels to determine how these factors will influence future prices and therefore, prices they will receive for their grapes.” Godden said that growers were awaiting the release of this year’s grape prices with anxiety and emphasised that open communication with buyers was the best way for individuals to make decisions about their own businesses.

“Early indications are they [prices] will follow the depressed state of bulk wine; there is a direct correlation between bulk wine and grapes. I would recommend that growers be talking to the wineries and having honest and open conversations,” Godden said.

“We are also certainly working on the discussions on the longer term. We acknowledge that depressed pricing on bulk wine, but how do we work through the medium term and keep those strategic alliances alive? “We need an industry still to be in place in ‘24 and ‘25. And so the discussions are around how do we manage a very out-of-balance ‘23, how do we manage a wet year, a high cost year? “Those are all the conversations that we’re having with our major customers and wineries.”

Accolade’s Nicol agreed with Godden and asked for open dialogue to be shared between growers and wineries ahead of the vintage as a way to ensure as many people make it through what is likely to be a tough year ahead. “You can see from the dialogue that this is a critical time in the Riverland and for the Australian Wine Industry in general,” Nicol said. “We need to work our way through this to ensure the viability of the wine trade. This offers the best chance to make sure the industry is viable going forward for growers, CCW and Accolade Wines.”

Some warm region producers have mothballed their vineyards or postponed intakes.

In a time when we have the same cost pressures as most of the rest of society, to know bulk wine prices are down, that gives an indication that pricing for grapes will be down in 2023.

Jim Godden