Wine Development in Australasia

In the 1980s, the wine industry in Australasian regions like Tasmania faced several challenges, including climate. Australia established itself as a producer of exquisite wines by exhibiting its winemaking process and creating a demand for wine and wine grapes[1].

Research shows that many formal and informal methods can produce world-class wines. This research is essential for determining the best varietals for each region. It also shows the optimal techniques for viticultural management and winemaking.

Land in Australia is available for purchase at a far lower price than in established wine regions on the mainland. However, water is becoming a scarce resource on Australia’s mainland. Yet, many viticultural regions have access to water. As far as climate change, all indications point to Tasmania being less affected than other states of the mainland[2].

Did you know? Over the last two decades, Australia’s preferences have shifted from heavy, alcoholic wines to lighter, crisper wines that pair well with food. Consequently, customers’ preference for food-friendly wines has increased in recent years[3].

This phenomenon shows a move from warm-climate wines to cold-climate wines. Given the Australian wine-drinking population’s knowledge, one might argue that this growing trend was predictable.

Australia’s national strategy during the last decade shed its status as a “bottled sunshine wine factory” to foster “regional heroes.” These regions produce wines with elegance and character. Their production of wines competes with the world’s finest.

Tasmania, which produces wines that compete with the best globally, is an ideal fit for this strategy[4]. Why has Tasmania not had rapid growth of vineyards and wineries? Especially given that the necessary conditions are satisfied, or as James Halliday puts it, “holding all the aces”?

Corporate Control of Wine Production

During the last three decades, Australian wine production has been in the hands of a few large corporations. In 2010, almost 90% of all wines sold in Australia were produced by the 20 largest wineries[5]. Additionally, Treasury Wine Estates and Accolade Wines accounted for around 45% of total sales of branded wine. Likewise, Australia has 2,457 other vineyards vying for the remaining portion of the market[6].

It is possible that these major firms prioritize short-term earnings over long-term projects. However, short-term shareholder returns are often not abnormal. Viticulture in cold regions is costly, dangerous, and unproductive due to poor and uncertain returns on investment.

To some degree, this assessment of the Australian wine industry is accurate. Companies and accountants manage these regions rather than winemakers. Due to corporations’ dominance, most wines produced in Australia are “homogenized corporate products.”

Declining Vineyards

Less significant winemakers, including Robert Hill-Smith, Brown Brothers, and Shaw + Smith, recently relocated to Tasmania[7]. Over the last several years, the industry’s low profitability has contributed to a decline in companies running vineyards in Tasmania.

A recent study by Deloitte indicates that returns on capital for small and medium-sized enterprises (SMEs) vary from very low to negative. This leaves little space for further investment to expand or relocate.

Australian Taxes on the Wine Industry

The Australian tax system is primarily responsible for the present state of affairs. In 1984, Australia implemented a tax on wine sales, drastically lowering vineyard and winery profits. Since then, it has steadily increased to its present level of 29%[8].

After a sluggish start, the Tasmanian economy has slowed. There is also an issue with the structure of the tax system. The recommendations of the Henry study have not resulted in a 29% wine tax in Australia, even though New Zealand has already enacted such tariffs (plus 10% GST).

Those who bought the shares of Penfolds Grange—which cost more than $130 after taxes—are most impacted[9]. This is a method for increasing bulk wine sales. Hence, due to the state’s high-cost, high-value production approach, Tasmanian wine will struggle to prosper under the current tax system. However, it will be a state that produces high-value products in the future.

Wine Profitability

The entry into wine selling by Australia’s two major grocery chains, Coles and Woolworths (formerly called Woolies), is also affecting the profitability of SMEs[10]. Moreover, due to the dominance of two enterprises in this industrial subsector, prices have fallen, and Tasmanian wines are less competitive in local and global markets[11].

A national wine surplus worsened this situation with slow export growth and overly optimistic vineyard development plans. For these reasons, Australian winemakers have been slow to adjust to changing circumstances. Instead of investing in cold-temperature areas, they have continued to develop places initially selected to produce fortified wine.

Wine Industry in Tasmania on the Rise

Regardless of the issues stated above, the wine sector in Tasmania is on the rise for other reasons. For the state, this is a positive. Despite a fall in bottle sales, the lack of grapes kept the price of wine grapes at a premium. Consequently, the cost of grapes remained high. Perhaps the industry’s slow expansion was advantageous, fueled by customer demand.

Since its worldwide popularity, New Zealand has undergone a state-sponsored campaign to remove vines. It is presently coping with an overstock scenario, which may lead to a further decline in the utility of many domestic vineyards[12]. All of these issues are due to the present oversupply situation. By the end of 2011, more than 70 vineyards were for sale in Marlborough alone. The average export price had declined by 48% in the preceding three years to $4.71 per bottle[13].

Due to Tasmania’s modest population growth, this state has escaped the boom-and-bust cycles that come with economic success and collapse. Most Tasmanian farmers feel that a “steady as she goes” policy is best for the state’s future, as demand for Tasmanian wine continues to increase nationally and globally.

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On This Day

July 17, 1967[15] – This day was the first distribution of 1,400 gallons of Waratah Red in 26 oz. bottles, half gallons, and gallons by City Merchant’s distributors. Wellington White became available for purchase after three weeks in Australia and New Zealand. The goal was to establish and maintain production and marketing standards for Tasmanian wines.

November 23, 1973[16] – On this date, many changes to the licensing rules took place. Consequently, the company’s hours of operation became far more flexible. It was suggested that a vineyard owned and operated locally, professionally managed, and selling wines to the public via retail sales would benefit a rural community. At least three Australian states encouraged their wineries to sell their goods directly to customers without intervention from retailers and other stakeholders. Therefore, wineries may be found in every one of these states.

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References

[1] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[2] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[3] “Australia’s Grape and Wine Production Has a History of Innovation, Revolutionising Wine Worldwide – ABC News,” ABC News, December 1, 2020

[4] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[5] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[6] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[7] “Australia’s Grape and Wine Production Has a History of Innovation, Revolutionising Wine Worldwide – ABC News,” ABC News, December 1, 2020

[8] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[9] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[10] “Australia’s Grape and Wine Production Has a History of Innovation, Revolutionising Wine Worldwide – ABC News,” ABC News, December 1, 2020

[11] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[12] “Australia’s Grape and Wine Production Has a History of Innovation, Revolutionising Wine Worldwide – ABC News,” ABC News, December 1, 2020

[13] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[14] “Australia’s Grape and Wine Production Has a History of Innovation, Revolutionising Wine Worldwide – ABC News,” ABC News, December 1, 2020

[15] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)

[16] Anthony Walker, “A History of the Tasmanian Wine Industry” (MSc Thesis, 2012)