Thursday, July 4, 2013

Vintage Statistics and PR Spin - What is a grape grower to do?

Nationally the Winemakers Federation of Australia (WFA) has been spruiking its new figures. They have been doing this via a press release featuring WFA’s Chief Executive, Paul Evans talking down grape prices. He notes that while prices have strengthened by an average of 9% but this trend might be difficult to sustain next vintage as the market responded to the higher than expected 2013 crush and anticipated inventory levels.
"The large crush is likely to result in higher inventory levels and bulk wine exports. It will place further downward pressure on prices and profitability throughout the commercial wine segment over the coming vintage.

"Fortunately, quality levels remain consistently high across the regions and varieties.

Consumers will be the big winners once again." 
- Paul Evans says.

Is the WFA talking down the wine industry? 

This press release has led to negative headlines and simplistic news coverage like - AUSTRALIA'S winegrape crush jumped 10 per cent in this year's vintage and remains "too high", the Winemaker's Federation of Australia says - spread in News Limited newspapers.

A cynical grape grower might think that the negative coverage caused by the press release is WFA spin to keep grape prices down. Have growers become too cynical? You might suggest that as this press release information is coming from the Winemakers Federation of Australia and they have a vested interest in keeping grape prices down. 

If you look at the figures as a whole you can come to the conclusion that the industry is over supplied. You can also glance the graph (fig. 1) and assume it shows that average grape prices have risen and, if you are cynical, you can suggest that the WFA needs to 'snap prices down'.

In my opinion it is a negative press release because it is looking at the whole of the Australian wine industry as if it was one piece. You shouldn't look at the industry as one piece! It is a complicated beast with sectors of the industry moving in different directions.

Vast Scale; Little detail

What influence does the average housing price in Launceston have on the average in western Sydney? What influence does the price of Muscat Gordo in Mildura have on Barossa Shiraz?

Figure 1 - Shows a recovery in grape prices, but this is all varieties across all of Australia. It is almost meaningless at a local level. 
Figure 3 - shows the dispersion of the tonnages across the price spectrum. Contributing to the increase in the average price has been a fall in the share of grapes purchased at the low end of the price spectrum, particularly in comparison to 2011 and 2010. Note that $2000 a tonne is on the far right hand side of the graph.

What does it mean locally?

How much does fruit sold at below $300 per tonne influence McLaren Vale's industry? How much does inland production affect bespoke producers overall? 

The answer is not much. If McLaren Vale grape supply is in balance then we are represented by the far right hand side of the pricing scale. In another words we grow grapes to our potential are the top of the pyramid and effectively divorced from the majority of grape trading shown in this graph (fig. 3). 

The figures look even better if you make bonus grades. How many wineries offer bonuses after the statistics are collated? I know of grape growers with Treasury Wine Estates who haven't had their final grading yet. How could these figures be in the national pricing? The answer is no, they are not included.   

Then you get to the 'other' set of winegrape pricing statistics that have come out this month. South Australian Winegrape Crush Survey preliminary results are now available to download from the Phylloxera Board Website - http://www.phylloxera.com.au/resources/sa-winegrape-crush-survey/.

For the key red grape varieties, Shiraz and Cabernet Sauvignon, prices appear to have significantly increased. Shiraz is estimated to have an average price of $1,900. Although the overall tonnages for McLaren Vale were approximately 2,000 tonnes lower than in Vintage 2012. Demand for these varieties is pushing up prices.

What should the press should be reporting on?

They should be commenting that we have a 'multi speed' grape and wine economy. Looking at the figures for the how industry is as useful as looking at housing prices for the whole of the country. 

South Australian data show very different figures and can be interpreted a different way. Grape production in South Australia is down. Much of this is due to the recovery and restructuring of the key grapegrowing regions. This is good news.

Grape prices for McLaren Vale's key red grape varieties are up. This is good news.

Bespoke wine production.
Why are we seing this demand? Because we have been addressing our local over supply.  If McLaren Vale's long term production is 35,000 to 40,000 tonnes down from an average of 70,000 tonnes in 2004 and 2005 does it suggest the local industry has taken steps restructure? Yes, it has. This is good news.

The WFA itself called  for grapegrowers to restructure their businesses from 2008 onwards.The call was heeded. Are we seeing demand for red grapes above $2000?  Yes we are. This is good news.

Tourism. An abstract picture of K1 by Geoff Hardy's cellar door. Tourism is a major contributor to the profitability of wine businesses in name areas.
In McLaren Vale restructuring has taken the form of several changes; 
  • We have reduced the  production of non preferred varieties  - generally white grapes.
  • We have reduced overall production by 45% - by improved viticulture.
  • Growers are developing on growing fruit to specification - again by improved viticulture.
  • Growers have reduced the use of water (by 41% from 9000ML to 5500ML from the aquifer).
  • Increased the value of our bottled wine. 
  • Reduced our environmental footprint - through programmes like Cropwatch and Sustainable Winegrowing Australia.
  • By investment in tourism and other ancillaries businesses like food production actually increased our employment in the region.
Similar positive stories can be said about the Barossa Valley. Production averages are down. Producers are focusing on high end red wine production. 

So why do areas that are forging ahead - like McLaren Vale - get lumped into the national mix? Surely there is scope for a good news story coming from regions that have adapted to change? What is the need for bad press? I think it is time to stop reading the PR spin in the newspapers and get on with growing A and B Grade red wine grapes. I know less people will read this blog post than the mainstream media coverage but ask yourself the question, what direction is your grape growing business heading?