AUS: Australian wine industry "at a crossroads"
The Australian wine industry cannot afford to return to a business-as-usual approach, according to a recent report.
The Rabobank Global Focus report, entitled 'Australian wine - The easiest growth comes first', said this week that, with Australian oversupply diminishing in the next season, the industry must consider if it can spring back to how things used to be, or whether the global market has changed too much.
Australian wine has seen three years of record high production, resulting in considerable oversupply which could not be absorbed by international wine markets, said the report.
"However, recent drought, disease, frost, fire and hail has seen a 30% reduction in Australian grape production for 2007, with 2008 production also forecast to be down," the report said. "On this basis, oversupply is likely to be evaporated in the next season, the key issue is whether the successful Australian export machine can regain its momentum and increase exports of branded premium wines again at higher prices and what can it do to achieve this."
The report's author, Netherlands-based Rabobank International industry specialist on wine and spirits Arend Heijbroek said: "If it fails to do so, there is significant risk that the industry will return to difficulty when production is back to average yields in 2009 and beyond. The Australian wine industry exists in an increasingly competitive world market, where supply of wine can easily shift from one source to another, depending on consumer preferences, price/quality ratios, exchange rates and image to name just a few elements."
The Rabobank report described how, despite Australia having had success both at home and internationally with its 'sunshine-in-a-bottle' image, it was now facing the risk of being locked into the 'cheap-and-cheerful' segment without hope of sustained profitable growth for suppliers of premium-branded wines.
Heijbroek said: "While this positioning is well supported by the friendly and relaxed Australian image, it is clearly not a comfortable fit for an industry which is not a real cost leader, and as a consequence has the ambitions of being a world-renowned supplier of premium-branded wines. Without changes there is even a risk that Australian wines will come to be viewed as a commodity, and consequently become caught in a downward spiral of declining prices and quality."
The report went on to illustrate the industry's position in facing uncertainties in future water supply, and the impact this may have on production, yields, quality and ultimately, cost price. "The influence on the long-term outlook of the industry is still very unclear, but should strengthen the position of higher quality, cool climate wines, an area where Australia has been less successful so far."
Heijbroek added: "The future is going to be more competitive, and profitable growth has to be gained in more complex overseas markets. Knowledge, marketing and sales will become increasingly important, requiring careful management and more financial resources. A crucial question for each company to consider is where it can best compete: grape and/or wine production, and what quality segment? What brand personality? Most companies are strongest when they focus on what they do best."
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