Grape glut threatens vineyards with ruin

PUBLISHED : Thursday, 08 June, 2006, 12:00am
UPDATED : Thursday, 08 June, 2006, 12:00am

A wine glut in Australia is so severe that a multimillion-dollar bailout is needed to protect hundreds of small vineyards from financial ruin, the industry has warned.

Years of over-planting of vines and recent bumper crops mean Australia is producing far more wine than it can sell. Up to 40 per cent of grape growers faced losing their livelihoods unless urgent action was taken, the head of Wine Grape Growers of Australia, Mark McKenzie, said yesterday.

'The people who can't find a home for their grapes have absolutely no income,' he said, adding that 15,000 hectares of vineyard - or 300,000 tonnes of grapes - needed to be taken 'out of the system' for the next two years.

The heads of Australia's six largest wine firms will hold a crisis summit in Melbourne tomorrow.

They will discuss imposing a compulsory levy on the industry to raise A$60 million to compensate growers for not picking their grapes for the next two years.

Another option is to spray grapes with a chemical agent which causes them to stop growing.

Prices offered by the big wine producing companies are so low that many vineyard owners say they do not even cover the cost of picking the fruit. The glut is expected to last for at least two years.

'There has been some very predatory activity, with buyers offering to take the grapes for a quarter of what they cost to grow,' Mr McKenzie said.

The crisis is affecting the country's best known wine regions, including the Hunter Valley in New South Wales, Margaret River in Western Australia and the Barossa Valley in South Australia.

But wine drinkers who expected the grape glut to bring down bottle prices would be disappointed, Mr McKenzie said.

'I think government intervention is the only way to save the industry,' Leo Pech, who has grown grapes in the Barossa Valley for 54 years, told ABC radio. He said he had never seen such severe oversupply.

The popularity of Australian wine in countries such as Britain and the US, coupled with generous government tax breaks, encouraged a craze for establishing new vineyards from the late 1990s.

The number of vineyards doubled in just three years and they have now started to bear fruit, creating oversupply. To use all its excess grapes Australia would have to increase its wine sales by 40 per cent, an almost impossible task, analysts said.

The government is investing about A$10 million (HK$57.5 million) a year promoting Australian wine globally.

Australia exports about 40 per cent of its wine to Britain, with another 30 per cent going to the US.