2017 WFA Industry Briefing

Transcription

1 2017 WFA Industry Briefing The Winemakers Federation of Australia (WFA) held an Industry Briefing on Thursday 20 July in Adelaide. With a limited capacity for 60 industry stakeholders, the briefing provided an opportunity for industry leaders to collaborate and deliver updates and forecasts on their respective areas in the sector. For those in attendance it was an opportunity to hear firsthand what the outlook for the Australian Wine industry will look like over the short to medium term. Guest Speakers: Deloitte - Stephen Harvey: A brief History Lesson Wine Australia - Andreas Clark: Export Market Opportunities & Outlook Australian Vignerons - Andrew Weeks: What is in it for Growers Australian Wine Research Institute (AWRI) Dr Dan Johnson & Peter Godden: How R&D is shaping the international view of Australian wine Winemakers Federation of Australia - Tony Battaglene: Policy & Regulatory Environment, Threats, Opportunities & Outlook Wine Australia - Peter Bailey: 2017 Vintage Report Preview Q&A Panel Session Tony Battaglene, Andreas Clark, Stephen Harvey, Peter Bailey, Andrew Weeks and Dan Johnson Stephen Harvey, Deloitte Partner delivered a scene setting presentation on Sustaining a successful wine business. The History Lesson. He discussed the key issues the wine sector has faced in the past from both a demand and supply perspective, and the challenges that the sector is facing now and into the future. He highlighted the real challenges that now face the Australian Wine Industry, being global oversupply, global credit crisis, climate change, the anti-alcohol lobby, Gen X & Y meet global recession, Baby boomers to retire at age 100, Product pricing and Exchange rates. Keeping with the theme of understanding the past to navigate the future, Stephen reminded the audience of the following historical events in the Australian wine industry: 1986 Oversupply and Vine Pull 1989 Pernod buys Orlando The Export Boom 1995 Huge undersupply import bulk from Chile 1996 Tax incentive driven planting boom ,8,9 Massive vintages oversupply rears its head 2005 NZ Sauvignon Blanc 2008 GFC - US Market collapses Mining Boom - AUD goes into orbit

2 One of the biggest impacts to the Australian Wine Industry is what Stephen referred to as the China Syndrome. From the demand for Australian wine has changed the way we operate, and export growth to China has been highly celebrated. In the short term we will benefit from their massive population, increasing export litres & $, Australia is now a first tier wine import (on par with France), we have a strong brand proposition, and can demonstrate local relationships and an understanding of their culture. However, we must be cautious. Looking at China in the medium to long term, they have significant good soil and water, already grow more grapes than we do, have low labour costs, they are state owned businesses, and they have significant potential to be a global commercial wine supplier. If they can do Gucci they can do wine! We live in interesting times. Those who respect history can use this information to make good decisions for the future. Innovation is mandatory! The customer is the punter who buys and consumes. Andreas Clark, Wine Australia CEO followed the History lesson with an overview of the latest Export Report for Australian wine, and an overview of Wine Australia s marketing activities Export Report For the period , exports grew by $201 million to $2.31 billion dollars and average value increased to $2.97 per litre FOB. Australia is the world s fifth biggest exporter, behind France, Italy, Spain and Chile. We outperformed each of the four larger exporters in our rate of export growth over the year. There was growth across all price points, except at $ per litre. The growth was particularly strong in exports from wines at $10 per litre and above, up 19 per cent to $594 million. Red wine continues to be the dominant category with 73% of export value ahead of white wine with 23% and other wines with 4%. Red wine was the standout growth category for table wine up 12% to $1.7 billion. Exports of white wine grew but at the much slower rate of 1% to $540 million. There were a record 1997 active exporters during the period, up 349 from Some 36 per cent were wine grape levy payers and 64 per cent were not wine producers. Australian wine exports were destined for 125 countries and value increased to 80 of these. The top five markets account for 74 per cent of the value of Australian exports: Mainland China 26 % United States 20 % United Kingdom 15 % Canada 8% Hong Kong 5% By volume, the top markets are: UK 28% US 23% Mainland China 15% Canada 8% Germany 5% 2

3 China: Australian wine exports grew by 44 per cent in value to $607m. Volume growth was stronger, up 55 per cent to 117 million litres (ML). Bulk wine exports more than doubled to $37 million but the bulk share of exports is low at 6 per cent. Bottled wine exports also grew strongly, up 41 per cent to $568m, a 94 per cent share. There were 1512 companies exporting to mainland China in , an increase of 337 exporters on the previous year. The 10 biggest exporters to mainland China grew by a combined rate of 81 per cent, while the rest grew at a combined rate of 28 per cent. USA Exports increased by 3 per cent to $464m, while volume increased by 14 per cent to 179 ML. Value to the USA is at its highest level since Bulk wine exports up 55 per cent to $84m while bottled exports declined by 4 per cent to $379m as more brands now shipping in bulk and bottling in-market. Bottled exports $ /L fell10 per cent. Exports $10/L and over increased by 21 per cent to $43m. Off trade sales show growth most at premium price points, with sales at the sweet spot of US$ up 70 per cent. UK Number one destination for Australian exports by volume. Value of exports declined by 7 per cent to $341m and volume decreased by 10 per cent to 220 ML. Very strong growth in exports at $ per litre (up 19 per cent $14m) and at $10 per litre or more (up 13 per cent to $28m). Exports below $2.50 per litre declined by 7 per cent to $183m and at $ per litre by 19 per cent to $89m. The decline at the lower-end reflects the appreciation of the Australian dollar (AUD) against the pound sterling (GBP) since the Brexit announcement. Canada Value declined 5 per cent to $186m and volume declined by 3 per cent to 61 ML. The volume is still the second highest on record for a financial year and, while value is lower than , it is higher than A 9 per cent increase in bulk exports to $31m was more than offset by an 8 per cent decline in bottled exports to $153m. Exports below $2.50 per litre increased 18 per cent to $33m while at $10 per litre or more grew by 3 per cent to $25m. Five provinces account for 98 per cent of the exports: exports declined to Ontario (6 per cent) and British Columbia (13 per cent), but increased to Quebec (5 per cent) and Alberta and Nova Scotia (each 1 per cent). Hong Kong Exports declined by 8 per cent to $114m and volume declined by 15 per cent to 8ML, while the average value of exports increased by 8 per cent to $13.88 per litre FOB. Highest average value in the top 50 destinations and 77 per cent of exports are valued at $10 or more per litre FOB. A vital trading hub with important distribution links to mainland China, although with ChAFTA some exports are now going direct to mainland China. Australian wine will take centre stage at Vinexpo Hong Kong 2018 as the Country of Honour. Marketing Programs Fine Wine Focus Long-term strategy grounded in pragmatism and opportunity. We are promoting Australia s entire wine offering by sharpening the focus on, and understanding of, our more premium fine wine. In the USA 82% of consumers view Australian wine as good value for money, and only 28% see Australian wine as expensive/fine, behind key competitors France (89%), Italy (79%) and even Chile (38%). 3

4 Priority Markets Our priority markets: US and Canada Mainland China and Hong Kong UK, Ireland, Germany and the Nordic markets Japan, Singapore and South Korea Andrew Weeks, Australian Vignerons CEO enhanced the sector discussions from the growers perspective. Looking at the industry from a winegrape growers perspective, he reminded the audience of recent history when growers and makers of wine were profitable across the nation. The industry was characterized by long term business relationships between growers and wine companies in the form of long term contracts, with high levels of communication and trust. Many wine companies employed viticulturists, and there was regular feedback about the fruit supplied to wine companies. There was a heavy emphasis on wine value, often reflected in differential pricing for higher value fruit. The net under-supply of fruit was good news for growers. Unfortunately some came to believe that this was normal. However when demand began to reduce, this lead to more volatile wine markets and net oversupply. The industry began to be characterised by continual reduction in wine and in turn, the price for grapes decreased. The combination of all these factors brought on shorter term contracts, more fruit being purchased on the spot market, and more growers making bulk wine. Wine companies began reducing head counts, and communications were more confined to contractual issues and pre-harvest assessment. Growers who were not engaged with global trading conditions blamed wine companies for their failure to fairly share profits. A trust deficit between growers and wine companies followed. The main focus became cost control, rather than on maximizing profit for both growers and wine companies. Over the years and up to now, recent improvements from FTA s, exchange rate improvements, an expanding Chinese market, and improved marketing measures provide grounds for optimism. Growers have reported improvements in the demand for and price of grapes. The newly legislated WET rebate reforms, continued improvement in global markets and positive perceptions about Australian wine bode well for the future. Clearly the future prosperity of growers, makers and retailers of wine, along with that of wine suppliers is inextricably linked. However there is still deep skepticism among many in the grower community that improvements in profitability will be passed on. It is only when all segments of the supply chain have the ability to re-invest in their respective businesses, so that we can grow the best fruit possible and therefore make and profitably sell the best wine possible at all value categories, that the sector as a whole will be truly sustainable. Moving forward, there must be clear, regular communication and engagement between growers and buyers of wine grapes. It is a 2-way street. In particular, signals relating to fruit value should, as close as possible, reflect the inherent value of the resulting wine reward for results. Current pricing signals just before harvest is a negative influence. Growers will need to be efficient, business-focused and agile. Many such growers are currently exploring alternative business models such as making wine and using value chain arrangements. Dr Dan Johnson opened the presentation with an overview of the state of the art facilities at the Waite Precinct, which underpin the innovative R&D work carried out at the AWRI. 4

5 Much of the $270m+ worth of research infrastructure at the Waite Campus is shared by the various research institute s that reside at the Waite Campus. The AWRI collaborate with Wine Australia and WFA in many areas, undertaking strategic and applied research based on the priorities of Australia s grapegrowers and winemakers. In fact, the AWRI have been instrumental in the evolution of Australian wine being recognised globally as some of the finest produced wines in the world. Peter Godden used current examples of research, demonstrating how modern R&D is transforming the wine industry. Tony Battaglene, Chief Executive, WFA, discussed the current and emerging issues likely to shape the Australian wine industry over the next few years. He noted that Government regulation at all levels will continue to have a significant impact on profitability. These largely operational issues need to be viewed in the context of a complex political decision-making landscape of a federated system also experiencing some instability at the national level. In response, WFA has been working with all major and minor parties at the Federal level to ensure that all Parliamentarians clearly understand the impact of regulation and policy change on the Australian wine industry. He noted that the amendments to the WET legislation currently before Parliament would remove distortions to supply-demand and tighten eligibility for the rebate. The maintenance of the WET rebate, even at a lower level, has been a significant achievement for the industry in the current political and fiscal environment. On the horizon, broader alcohol taxation reviews will always have the potential to significantly impact the wine industry. WFA is involved in ongoing dialogue with Governments to ensure they clearly understand the operating environment of our agriculturally based industry and the impacts of any regulatory change on local jobs and growth. The industry now needs to focus on growing demand for long-term profitability growth. The $50 Export and Regional Tourism Support Package, the Cellar Door Grant, Free Trade Agreement negotiations and Wine Australia s ongoing market activities are key drivers of this growth. Industry members must position themselves to take advantage of these immediate opportunities. Regulatory creep is an ongoing concern at all levels of Governments. WFA is working with state wine industry associations to influence and monitor the implementation of Container Deposit Schemes in all states to ensure they continue to exclude wine containers. Restrictions around advertising, licensing and sales made in one jurisdiction have the potential to influence others with little policy consideration. The anti-alcohol lobby remains one, if not the biggest, threat to the long-term sustainability of the wine industry. They are extremely well-funded, active and refuse to partner with industry in any meaningful way. WFA and the broader alcohol beverage industry have clearly demonstrated we are prepared to act to promote responsible consumption and to target actions at specific problem areas including through DrinkWise, pregnancy warning labelling, the Responsible Winery Initiative, and new activities working with the Government on the national FASD strategy. National alcohol consumption is at its lowest in 50 years and we need to promote continually the evidence and facts about modern Australia s drinking culture that has significantly changed, especially over the last decade. Internationally, market access remains WFA s core strategic priority. 5

6 WFA is working with various industry and government agencies in the UK on Brexit; in China, closely working with officials on issues such as certification to ensure continued confidence in our systems and maintaining trade access; and in the US to seek to open more high-value market opportunities. We are also continually working to address non-tariff barriers in a range of markets. WFA continues to work with Governments in partnership with a range of stakeholders to ensure that Australian winemakers can have unimpeded, long-term access to all markets without unnecessary regulatory intervention. Our success relies largely on our ability to deliver clear, unified messaging to Government that is backed by each and every Australian winemaker. Peter Bailey provided a preview on the national vintage report. Wine Australia will release the 2017 National Vintage Report on August 2. Data is collected on behalf of the industry across all winegrowing regions in Australia. Over 2,000 wineries are surveyed and over 500 responded the best response rate to date this covers over 90% of the crush. Wine Australia thanks all wineries who completed the survey there would be no report without their cooperation. It is a truly a national report. It now combines the historical 4 different surveys into one the WFA National Vintage, the South Australian crush survey, the Murray Valley crush survey and Wine Australia s price dispersion survey. This year Wine Australia collaborated with Wine Tasmania, who conducted the Tasmanian component of the survey to ensure the best possible coverage and reduce duplication. The national report provides: an estimate of the total crush in tonnes by region and variety and an analysis of grape purchase value including price dispersion and average purchase prices The full National Vintage Report is now available and can be found on the WFA Website. For more information on any of the above presentations, please find the following contact details: Andreas Clark Wine Australia Andrew Weeks Australian Vignerons Tony Battaglene Winemakers Federation of Australia Dr Dan Johnson AWRI (please contact Natalie Burgan) Stephen Harvey Deloitte (please contact Sharyn Weiss) andreas.clark@wineaustralia.com andrew@australianvignerons.com.au tony@wfa.org.au natalie.burgan@awri.com.au shweiss@deloitte.com.au 6