From water to wine

Australia’s unwanted wine lake could double in size over the coming years if a large number of the vines planted during the boom times are not torn up, or the fruit left to wither on the vine, media reports say.

As much as a quarter of Australia’s vineyards, or 40,000 hectares, may no longer be economically viable. Up to 40 million cases of wine each year – the same as Australia’s annual exports to Britain – are added to this surplus.

However, the adjustment has already begun.

Australian Vintage (McGuigan, Miranda brands), which reported an AUD 123.6 million (EUR 78 million) loss last year on the back of restructuring efforts and asset write-downs, is in talks to acquire part of the Australian and British operations of another major wine producer, Constellation Brands.

Last year, Foster’s Group, which acquired the Australian wine company Southcorp for AUD 3.7 billion (EUR 2.4 billion) in 2005, sold dozens of its smaller wine brands and a similar number of vineyards as part of a restructuring, which also yielded AUD 415 million (EUR 265 million) in write-downs.

However, problems have continued to mount for the company. Just before Christmas, Foster’s CEO, Ian Johnston, reduced the earnings outlook for the wine business for the six months to 31 December 2009 by up to AUD 90 million (EUR 57 million) due to the rocketing Australian dollar.

Foster’s competitor Lion Nathan has a much smaller exposure to the wine industry, but it has still had to write off most of its AUD 400 million (EUR 250 million) investment.

Medium-sized producers are not faring any better. Even Casella Wines, the maker of the wildly successful Yellow Tail brand, saw its profits halved to AUD 40.6 million (EUR 25 million).

2010 is already shaping up as the most difficult year for the industry in decades.