A MAJOR marketing campaign launched last week by Foster’s Group for 31 vineyards and two wineries across three States is evidence of an industry undergoing a serious shake-out.
Once the darling of the Australian agricultural export scene, the wine industry is now the victim of its own runaway growth and is taking drastic measures to ensure survival.
Foster’s is scaling back its total planted vineyard area by more than a third, by offering 31 Australian vineyards and five in California for sale.
Several factors have combined to bring the industry to this crossroads: mounting competition in export markets from lower-cost producers, a rising exchange rate, high input costs (especially water) and market shrinkage due to the global financial crisis.
In Australia, a surge of optimistic investment boosted the area of bearing vines from 74,000 hectares to 165,000ha in the past decade.
Production peaked in 2005 when 1.93 million tonnes was harvested.
This year’s production is expected to come in at about 1.6mt, reflecting water shortages, non-harvesting of uneconomic fruit, and Victorian bushfire damage.
Industry growth was fuelled by good year-on-year growth in export sales, which soared from $1 billion in 1999 to $2.7b five years later, and was projected to top $3b by 2010.
Instead, sales growth stalled, prices dropped, and Australia now produces some 20 per cent more winegrapes than its domestic and export wine markets can now absorb.
And no single producer is feeling this turnaround more than Foster’s, Australia’s biggest winemaker since entering the field in 1996 with the acquisition of Mildara Blass.
That was followed by its merger with the US-based Beringer Wine Estates in 2001 and its ill-timed (as it turned out) takeover of Southcorp in 2005.
The group’s decision to offload “non-core” vineyards and wineries was taken in response to the findings of a February review of the company’s underperforming wine division.
It is just one of a list of strategies being adopted as a result of the review, aimed at cutting costs, trimming production, and repositioning the company’s wine product range.
The 31 Australian vineyards to be sold make up about 4000ha of the total 5000ha of planted vine area Foster’s intends to divest – the five in California make up the balance.
All told, the 36 vineyards now earmarked for sale had a book value to Foster’s of $243 million as at December 2008, subject to asset writedowns.
Domestic marketing of the Australian vineyards has been entrusted to Landmark, while Colliers International has been appointed to handle offshore inquiries.
The local offering – by far the largest single portfolio of operational vineyards to hit the market – contains representatives of some of Australia’s most respected wine regions.
More than half are located in South Australia, four in Victoria, and nine in NSW; the latter spread between the Hunter Valley, Mudgee, Sunraysia, and the Southern Slopes.
Landmark’s general manager client services, David Johnson, said the vineyards ranged from “boutique” to commercial-scale; some were fully developed and others offered scope for expansion or subdivision, while many came with grape sale agreements.
Foster’s director of wine production for Australia and New Zealand, Stuart McNab, said grape prices might be lacklustre now, but the industry had a history of moving in cycles – normally of six to eight years – and a period of consolidation was overdue.
And Mr Johnson said there had probably never been a better time to get into the market, before the cycle “rebalances upwards”.
The Winemakers’ Federation of Australia remains bullish: Chief executive, Stephen Strachan, said the industry would re-emerge in coming years as a strong global competitor.
Most of the vineyards on offer have high levels of mechanisation for efficient operation, secure water access or entitlements, and advanced water management systems.
Formal registrations of interest are being sought by Landmark by July 22, after which a tender process will be conducted.
Full details of vineyard locations on www.landmark.com.au, or contact Phil Rourke, (0418) 667 659.
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