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Australia Food and Drink Report Q4 2009
Business Monitor International, Aug 2009, Pages: 27
Business Monitor International's Australia Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's food and drink industry
While Australia has long been renowned globally as a top New World wine producer, the industry has recently encountered some major hurdles. This quarter brought more disheartening news for the industry, as discussed in BMI’s recently published Australia Food & Drink Report for Q409. In recent years, massive oversupply, limited and expensive inputs, a competitive global export market, a strengthening Australian dollar and weak demand in key export markets have all combined to push the Australian wine industry further into crisis.
In June domestic drinks giant Foster’s Group moved forward with the sale of 4,000 hectares (ha) of local vineyards, part of a wide-scale restructuring following a lengthy review of its underperforming wine business. However, Fosters is not alone in its move to sell off its vineyards. Constellation Wines Australia, a subsidiary of US giant Constellation Brands, has been forced to offload 23 vineyards, 17 of which remain on the market, and pursue substantial job cuts. In fact, it is estimated that AUD800mn (US$638mn) of Australian wine assets are currently on sale, raising questions over what price Foster’s will receive for its vineyards.
Yet, one thing is certain, and that is if industry majors such as Foster’s and Constellation are struggling, then smaller producers are almost certainly also feeling the heat. In recent years, the country’s wine industry has been hit hard by a series of challenges, including massive oversupply, as Australia's winegrape crush has increased by 203% since 1990 to stand at 1.83mn tonnes in 2008. The success of the industry led to increased investment and ever-expanding output, causing the current oversupply. While this was balanced for some time by the droughts which have plagued the country and served to cut supplies, this is no longer the case. Making matters worse has been the strength of the Australian dollar, weightin down on competitiveness. Furthermore, the global financial crisis has taken its toll on consumer confidence and private consumption in a number of key export markets.
Meanwhile, the domestic market looks equally difficult. Australia's economic prospects have continued to deteriorate as a result of the global slump. While the economy will receive a boost from a wide range of policy measures, these are unlikely to prevent it from slipping into a more prolonged period of downturn. The slowdown will be led by falling rates of private consumption growth as consumers enter a period of belt-tightening. Rising unemployment is another key concern, as this has been accelerating markedly since Q308 and is likely to continue doing so in the coming 18 months.
This will likely witness consumers trading down to less expensive alcoholic drinks. Although this certainly comes as good news for the country’s beer industry, the beer sector is also proving to be less resilient than originally thought, indicating that it is not just the wine industry, but the alcoholic drinks sector as a whole that is in for some tough times ahead.
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