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Marlowe says the industry must rationalize during this
period by increasing exports and decreasing the amount
of grapes grown. He said the WGCA is lobbying the government
to stop awarding grape growers tax breaks through its
"accelerated depreciation" of new vine plantings.
They are also pushing for the creation of better export
opportunities.
"Small to medium wineries, particularly those
that have borrowed heavily in the last few years and
have a high debt-to-equity ratio, could find themselves
in financial trouble in the next few years as markets
become increasingly competitive," says Marlowe.
Continued rationalization
The bleak news was enough to send shares in top Australian
wine companies, such as Southcorp and BRL Hardy, sliding
in the past month.
Chris Day, head of the $110 million International Wine
Investment Fund, says there is no doubt the industry
will continue to go through a rationalization process
until either supply diminishes or demand increases.
Pointing to the 10,000 labels, 3000 brands and 1500
registered wineries, Day says scale is becoming increasingly
important.
"Not all 1500 companies can be competitive when
the top four control up to 80 per cent of the local
market," says Day, adding that the industry must
continue to push exports in order to remain afloat.
With domestic wine sales having remained level at 350-million
litres for the past six years, the industry is looking
to push famous Aussie brands like Lindemans and Rosemount
onto new overseas markets.
Australian wines enjoy a robust market in the United
Kingdom, having become the favoured drop because of
their high quality and low cost. Currently, the UK accounts
for 25 per cent of Australian exports. This is more
than Australia exports to the US, Canada, New Zealand
and Europe combined, according to the Australian Wine
and Brandy Corporation.
Experience pays off
Although aggressive marketing has produced an increase
of exports from 100 million litres in 1992 to over 500
million litres this year, it will be a challenge to
maintain these growth levels in the face of stiff competition
from other low-end wine producers such as the US, South
America and Africa.
Day says Australian winemakers will ultimately be successful
in selling more wine overseas because they have already
learned the hard lessons of quality, price and marketing
in the domestic market, but he acknowledges the industry
is in a slump.
"Industries such as wine go through cycles and
if you are in the industry for the long haul you have
to direct the business successfully," says Day.
It's the long haul that will ultimately sort the serious
growers and producers from the hobbyists or investors
looking for a tax shelter.
Both Marlowe and Day say the big four wine companies
will continue to take over smaller growers and will
eventually own or control most of the 150,000 hectares
of grapes now under cultivation.
Marlowe warns that this rationalization will be tremendously
hard on the small grape growers but will ultimately
benefit the industry and, most importantly, the consumers.
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