ENVIRONMENTAL ANALYSIS

Environmental Analysis

Environmental Analysis

Introduction

The Australian wine industry developed an enviable aura from the eighties to early-nineties. It seemed, all of a sudden, that everything to do with wine was fashionable. Be that producing it, selling it, or drinking it. Wine consumption in Australia has grown strongly, while beer consumption has been flat. The Australian drinker, who started out by having the odd glass of cask-Chardonnay every now and again, was suddenly head-over-heels for Shiraz, Pinot or Sauvignon Blanc. Wine's share of Australia's bar-tab lifted from 17% from 37% between 1974/75 to 2009/10. Beer's share dropped from 70% to 44%. Increasing cultural diversity, a changing drinking culture (i.e. fewer 5pm pub-stops), wine's perceived health benefits, and rising household incomes help explain the rise of wine and the demise of beer. Although wine consumption in Australia has been strong over the past few decades, domestic wine production growth has been exceptional, and surplus to local requirements. Australia's wine grape area exploded during the nineties, aided by high grape prices and the corporation of the Australian industry. Between 1994 and 2004, Australia's wine grape production surged 2.5-times to 1.92 million tonnes, equating to a staggering average annual growth of nearly 10%. Australia's growth in wine production outstripped local consumption needs, driving an export industry that grew by 11% per annum in the past decade alone. Exports now account for 63% of total disposals of Australian wine, and 42% of the industries total revenue (Frederick, 2009).

Australia's wine grape vine area is now recognised as excess to requirements. In 2009, local wine industry bodies indicated that 20%, or 30,000 hectares, of Australia's vine area exceeded requirements, and that Australia is producing 20 to 40 million more cases of wine than it is selling. Wine grape prices are under significant pressure. Over the past 10 years, local warm-climate red grape prices have fallen by an average 67% in inflation-adjusted terms. Australia's grape producers responded to declining grape prices by removing estimated 8,000 hectares from production in 2009/10. More vine removals are still needed to bring the market back into balance. Yet, according to ABARES, Australia's wine grape output will lift 11% from 2010/11 to 2012/13 because of an increase in bearing vine area, and an improvised improvement in seasonal conditions. Increased production will exacerbate the industry's structural oversupply and keep grape prices under pressure.

In addition to rationing supply, the outlook for the Australian wine industry will depend on its ability to produce, and market, products that are desired both globally and domestically. The industry's ability to do this, in an environment of increasing exportable supplies in other new-world producers, combined with an elevated Australian dollar, will, to say the least, prove challenging. That enviable aura of the past few decades, at least from a producer's perspective, is currently a mere memory (Thompson, 2005).

Wine Importers

The premier wine importers are those countries that have only relatively recently adopted a wine drinking culture. This includes those countries that have traditionally consumed other alcoholic beverages, or those that have only relatively ...