MEDIA RELEASE: Wine Grape Council of South Australia

16 March 2011

Wine grape growers facing another decade of oversupply?

The Wine Grape Council of South Australia is warning grape growers that there is a high risk of the current
downturn in the wine industry lasting for another decade. A recent survey by the Council indicates that
only one third of SA’s grape growers are likely to have made a profit in 2010 and it believes all sectors of
the industry need to begin a new era of cooperation to address the downturn before further damage
occurs.

WGCSA Executive Peter Hackworth argues that the current situation is not sustainable. ‘In 2010, two-thirds
of grapes harvested in South Australia were sold below the cost of production’. ‘2011 could be worse
because prices remain largely unchanged but the cost of production has soared as growers have worked to
stay on top of the much higher incidence of fungal diseases’.

The Council believes that growers and processors need to act now rather than waiting - in what may turn
out to be in vain - for the market to turn. It wants an end to grapes being bought by opportunistic
processors for at a loss to growers. ‘They are selling the wine from these grapes overseas knowing they can
only make a profit while grape growers continue to supply grapes at below the cost of production’. The
Council believes the practice is bad for growers who are losing money, bad for wineries trying to build
brands and bad for Australia’s reputation as a fine wine producer.

It argues that growers who are selling their grapes at prices below the cost of production won’t necessarily
be able to sell them for a profit in the future. Hackworth says that the export market for low-priced bottled
and bulk Australian wine is rapidly shrinking and may not return; those who are losing money would be
better to remove varieties that are not in demand rather than continue to sell for bottom of the barrel
prices. He recognises however that many growers are trapped. Unable to sell their vineyards and without
the capital to replace the vines with another income source they continue to work them and this only adds
to the oversupply. The Council’s survey found that only a quarter of growers now make their primary living
from grapes, the majority have been forced to find off-farm income.

The Australian wine industry has experienced downturns in the past but the Council believes that none
compare to the current position. In the boom that peaked at the end of the nineties, vine plantings grew at an
unprecedented level in response to an explosion in export demand. Australia went from exporting less than
5% of its production in the 1980’s to around two-thirds in 2009. When the ‘perfect storm’ of the GFC, rapidly
rising Australian dollar, competition from other countries hit volumes continued to rise but unit value fell
dramatically. The ability of the local market to absorb the falling demand was reduced by the parallel rapid
growth in imported wine, particularly whites from New Zealand.

The Council believes the impact of the appreciating $A should not be underestimated. The 80’s and 90’s was
in large part triggered by an $A falling to around UK 40 pence and US 60 cents. While no one can predict
currency movements, it is seems unlikely the $A will drop back to those levels while the Chinese demand for
Australian coal and iron ore continues.

The Council recognises the impact of the downturn on wineries. Not only are they battling an ever-increasing $A,
but the dominance of supermarkets here and in the UK - our largest export market- dominance is adding further
downward pressure on margins. Supermarket ‘own brands’ are growing rapidly and while consumers are
enjoying the lower prices, it risks turning wine from something special into merely another commodity.

The council has opened dialogue with the SA government asking it to do more in the policy arena, to ensure the
future of an industry that is worth over $2b annually to the SA economy and is the state’s second highest export
earner after mining. ‘We need to find a mechanism to accelerate the removal of unprofitable vines and to use
the vineyard land for complimentary horticultural production’, Hackworth said. “We also need to ensure that
any abandoned vines don’t pose a disease risk to adjoining, operational vineyards. The Council also wants to see
greater adoption of the industry code of conduct; currently only six wineries are signatories to it. ‘Growers have
recognised the importance of other best-practice programs like EntWine and we believe it’s reasonable that
more wineries support the code which is the best practice model for commercial arrangements.’

The Council also believes that in the current downturn it’s in the industry’s interest for grape growers to be given
an early indication of market conditions and the likely impact on future prices. ‘If a grower knows in June that
prices are likely to remain static they have the option to remove unprofitable vines before they invest in pruning,
buying chemicals and water and hiring labour’, Hackworth said. He believes it would stop more family vineyards
going further into debt and reduce the amount of available grapes to be sold below the cost of production.

The Council also wants to ensure that the industry continues to plan for future production improvement. It
supports more research, more trials and an improvement in the extension of research to growers.
Further Comment:

Peter Hackworth
Executive Officer
Wine Grape Council of South Australia

08 8222 9279 or 0439 182 411