Wine exports a cause for sour grapes

AUSTRALIA'S annual wine exports have declined for the first time in 13 years as the global financial crisis and volatile exchange rates have crimped demand in the key markets of Britain and the US.

Figures from the Australian Wine & Brandy Corporation show that wine exports in 2008 fell 11 per cent by volume to 698 million litres, the first backward step since 1995.

But exports were comparatively worse hit in terms of value, falling 18 per cent to $2.465 million -- the first fall recorded in the 15 years that the AWBC has been compiling export data and the lowest revenue number since 2003.

AWBC senior analyst Peter Bailey attributed the slowdown to the multiple headwinds of the global financial crisis, fluctuations in currency exchange rates, intense competition from other wine-producing countries, tighter margins for winemakers and the impact of the drought on the certainty of supply.

"In the first half of the year, the strong Australian dollar placed enormous pressure on Australia's price competitiveness in our major wine markets, where there is already intense pressure from lower-priced competitors," Mr Bailey said.

In Britain, the largest export market for Australian wine, Mr Bailey said shelf prices were also forced higher by increases in excise duties on wine, prompting a 10 per cent slump in sales by volume and 18 per cent by value during 2008.

"In the second half, price pressures were somewhat reduced by the depreciation of the Australian dollar, while the much higher than expected 2008 harvest eased supply constraints," he said.

"However, the global financial crisis started to take hold in many of Australia's wine markets, placing additional pressure on exports."

The fastest-growing market for Australian wine was China, which spent $74 million on our product in 2008, up 32 per cent from 2007, and making the nation the fifth-largest market in value terms.

Reflecting the growing wealth of Chinese drinkers, sales of bottled wine were up 27 per cent while sales of cheaper bulk wine were down 68 per cent, lifting the average price per litre sold by 58 per cent to $4.92.

But the gains in China were not enough to offset declines in the US, Australia's second-largest wine export customer, where sales were down just 5.6 per cent by volume but plummeted 26.5 per cent by value.

Figures from market researcher AC Neilsen showed sales of Australian wine in US grocery stores fell by 3 per cent in December last year, compared with a 4 per cent rise in wine sales overall.

However, beverage giant Foster's managed to increase the value of wine sold in US grocers by 5 per cent over the final three months of last year, following the company's move to increase sales prices earlier in the year.

Even more heartening for Foster's, which last year wrote down the value of its wine division by $700 million following years of underperformance, was that sales growth was strongest among the higher-priced brands that deliver bigger margins.

Sales of wine selling for more than $US9 a bottle were up 16 per cent by value, compared with growth of just 4 per cent for the category as a whole.

Foster's has said it will consider selling the wine division or spinning it off into a separate structure, but Goldman Sachs analyst Ian Abbott said the poor state of the capital markets meant the company was unlikely to choose either option as part of the wine review.