Chinese investors bring cheer to troubled wine industry

China's growing interest in Australian industries is extending to wineries.

It seems astute buyers are looking to the longer term growth in the Chinese consumer market.

While enquiries are picking up, the industry problems of the past few years mean clinching a sale can still be difficult.

Presenter: Karon Snowdon
Speaker: Stephen Strachan, Chief Executive Winemakers Federation of Australia; Toby Langley Managing Director, Gaetjens Langley; Tim Altschwager, Senior Director, Colliers International Rural

Listen: Windows Media
SNOWDON: Years of massive oversupply, bad weather, overseas recession and the strong Australian dollar have all contributed to the poor state of the mid range section of the Australian wine industry.

Companies have gone broke, vines have been dug up and cows graze on former vineyards.

Stephen Strachan is the Chief Executive of the Winemakers Federation.

STRACHAN: The industry is going through a very very tough period, returns to wine and grape growers are declining and as returns decline so to of course do asset values, so that's one of the motivations for those that do have an interest in purchasing vineyards and wineries across the country.

SNOWDON: Because they're relatively cheap at the moment.

STRACHAN: Well they are, if you look at the sort of prices that were being paid for vineyards in the boom years compared to now and it's only a fraction now, there would be some out there who would see this as an attractive proposition.

SNOWDON: But that depends on the longer term because there'll be no quick fix for the industry as a whole.

The company, Gaetjens Langley is a specialist industry valuer, adviser and wine broker based in South Australia.

The firm opened an office in China 18 months ago when interest from China started to take off.

Managing Director, Toby Langley

LANGLEY: The wine industry in China is growing very strongly, australian wine exports to China are growing very strongly and I think there are a lot of entrepreneurs in China that see it as another industry, that perhaps like luxury goods and cars is a growing industry and perhaps could be a large industry in years to come.

SNOWDON: Toby Langley recently sold the country's 5th largest winery to a US buyer and says there's always been foreign interest in the industry.

And now there are about ten internet enquiries a week from China, but few sales yet.

LANGLEY: They're becoming quite an active segment of the market and that was not happening two or three years ago, so we've seen depreciation of values of 30 to 70% in vineyards, relatively that's a bargain.

SNOWDON: Recent sales to Chinese buyers include wineries in the Barossa Valley and the Adelaide Hills.

Tim Altschwager focuses on the wine industry with estate agents Colliers International.

He says Chinese investors are particularly interested in processing negotiations are underway for two or three properties.

ALSCHWAGER: The Chinese see a bit of an opportunity while the industry is down, they do particularly want processing facilities. so the wineries' brands to be able to put into their markets so they know that they don't have to purchase vineyards here, they can contract fruit and process it and take it back over to China, so that's predominantly their focus at the moment but still very difficult to get deals or transactions over the line.

SNOWDON: Why is that?

ALSCHWAGER: Well, particularly an Asian buyer, it's difficult for them to come out and take over an existing business and understand the way it runs in Australia, so they take a fair time to understand it and do the transactions.

SNOWDON: There are high hopes for the Chinese market, as the middle class expands -- and perhaps along with it a taste for wine.

Last year Australian wine exports to China totalled 55 million litres, but around half of it was cheap bulk wine.

And while export growth is expected to remain strong for another three to five years, China itself is thought to have more vines than Australia.

It might yet be a competitor rather than the saviour some are hoping for.

But the Winemakers Federation's Stephen Strachan says foreign investment in the Australian industry is to be welcomed.

STRACHAN: There are as I said a lot of businesses out there that are viable going concerns but if they're not getting the support from the banks then they're going to need an equity injection from somewhere, so I don't think anyone should have any fear about overseas investment and where that investment comes from, in fact I know situations where Chinese investors have come in and purchased Australian businesses and in doing so have opened up access to the Chinese markets, so there are a lot of benefits that come from it as well.