Foster's urges Australia vine clearing to counter wine glut

SYDNEY — Australian drinks giant Foster's Sunday warned one quarter of the nation's grape vines needed to be pulled up to reverse a damaging wine glut forcing growers to let their fruit wither on the vine.

Chief executive Ian Johnston said global wine growers were experiencing a "very painful period" due to the global economic downturn, and a significant amount of Australia's vineyards needed to be pulled up.

"The commonly held number is somewhere around 30,000 to 40,000 hectares, about a quarter of what is planted," Johnston told ABC television's Inside Business programme.

Foster's last week reported a 13.5 percent plunge in first-half profits to 356 million dollars, with its wine business hammered by the double whammy of slowing demand and oversupply.

With cash-strapped consumers opting to drink at home, wine slated for sale at restaurants is flowing back to grocery markets at discounted prices, compounding the oversupply problem, Johnston said.

"That is a big issue for the industry and we can't see a short-term solution".

Australia's leading wine industry body last month warned the country needed to reduce its vineyards by 20 percent to counter the glut, which, coupled with a strong local dollar, had left growers facing the worst crisis in decades.

The Winemakers' Federation of Australia said the glut, which is estimated to exceed 100 million cases, would take years to reverse, with the amount of unwanted wine to more than double within three years unless production was halted.

Johnston said Foster's had reduced its plantings and was implementing a firesale of non-essential vineyards, wineries and other assets to focus on key brands "for when the economy improves and brings people back into the restaurants".

Australia's biggest brewer and the world's second-largest wine company, Foster's had received no direct takeover approaches for either its wine or beer business, Johnston said.

It owns seven of the top 10 biggest beer brands in Australia and three of the five fastest-growing brands, Johnston said, adding that "on the wine side, we have a portfolio of brands that's the envy of most wine companies in the world."

Australia's wine exports amount to some 2.8 billion dollars (2.5 billion US) each year, with the United States and Britain the dominant markets.