It seems like I’m always writing about problems in the Australian wine industry (see Big Trouble Down Under, Bottom’s Up and Fosters, Wine, Rice and Drought in Australia or Australian Winequake).

It’s ironic that the Australian industry is so threatened given that many of the wines are so good (see Robert Parker’s reviews, for example), but you cannot judge the health of a wine industry by the top wines alone.

Two recent reports combine to paint a dismal picture.

Rock Bottom

There aren’t many names in Australian wine that are bigger than Wolf Blass, so his comments at a recent Barossa Generations lunch at the Peter Lehmann winery were newsworthy enough to be reported on Decanter.com.  Blass blasted out at what he sees as wrongheaded Australian wine strategy, which he said aimed to promote “overproduced wine from Australian irrigated fruit” in export markets.

These simple wines, he argued, cannot compete with products from South Africa and represent the wrong way to think about Australia’s wine future.  The right way for Barossa, he said, was to focus on full-bodied Shiraz – balanced wines with not too much alcohol. Australia will hit “rock bottom” if it continues in this direction, Blass said.

I’m not surprised that Blass would favor quality over quantity as a global wine strategy and it is part of Australia’s official wine marketing plan.  This is obviously the way forward, but supply hasn’t caught up with demand.  Australia’s production still falls disproportionately in the threatened Yellow Tail category and changing directions on the supply side is easier said than done.

Blass’s remark about South Africa caught me by surprise, I must admit, since most of what I’ve read recently about South Africa has stressed the challenges they too face.  If Blass is right, then I need to rethink South African wine – look for a blog post in 2009.

How to Fill a Lake

The 10^th annual Australian Winegrape Crush and Price Report was released recently and it shows just how big the gap between demand and supply Australia faces (and why, presumably, it ends up promoting the “wrong” wines just to try to clear stocks).  Here are some of the findings, quoted from a summary of the report that I received .

• 2008 total crush – up 32% to 1.8 million tonnes (red up 45% and white up 20%).  Districted weighted average price up 28% to $817 per tonne (red up 30% to $923 per tonne and white up 24% to $566 per tonne).

Good news so far.  Higher price, higher output — can’t beat that if you are a producer.  But of course this comes after a number of drought years have helped to dry up the huge oversupply created earlier in the decade, so we need to keep this context in mind.

• Demand (required intake) is expected to grow by 109KT, or 6%, over the forecast period (2009 to 2013).  The largest amount will be an expected 31KT increase in demand for warm-inland whites (up 16%) while the fastest growing sector will be cooler-climate whites (up 25KT or 10% off a lower base).
• The Australian crush is forecast to grow by 260KT over the forecast period with the biggest contributor expected to be warm-inland whites (up 180KT) while the tonnages of cooler-climate reds are expected to constrict (down 30KT).

Now here’s your problem.  We are back to the pre-drought scenario of supply growing much faster than demand, especially for the warm-inland whites, which I think means Chardonnay and Semillon.  Supply of these varietals is projected to rise nearly six times faster than demand.  That’s how you fill a lake.

• Growth in supply exceeds the growth in demand over the forecast period, resulting in an oversupply of fruit, by 7%, in 2013.
• By 2013, warm-inland whites are expected to be in significant oversupply (21% over) while moderate oversupply of cooler-climate reds is expected to remain (7% over), albeit down from a serious oversupply in 2009 (18% over).  Warm-inland reds are expected to be in modest shortage by 2013 (8% undersupplied) and cooler-climate whites in balance.

When Even the Good News is Bad

You know you’ve got a problem when the good news is that you will have a moderate oversupply, down from a serious oversupply.

• The top five varieties expected to be in demand in 2013 are Pinot Noir, Cabernet Sauvignon, Pinot Gris, Sauvignon Blanc and Viognier.  Off a low base, Tempranillo also deserves special mention.

What’s missing from this list?  Chardonnay and Merlot, the money grapes.  And Shiraz, the grape that defines Australian wine in the export markets.

• In 2013, the top five oversupplied varieties are expected to be Chardonnay, Muscat Gordo Blanco, Merlot, Semillon and Sultana.

Here they are — Chardonnay and Merlot finally make the list, but it is the wrong list, the wine glut list.

These are just projections, of course.  Demand can be fickle, as the Pinot Noir boom shows, and supply is by its nature hard to predictable.  What I take from this, then, is that the basic structures of supply and demand are currently misaligned and look to stay that way through the five years of the forecast.  In the long run, something will have to change.

This brings me back to Wolf Blass’s comments.  He criticized the marketing strategy’s focus on trying to sell what Australia has a lot of (the oversupply wines) rather than trying to sell your best product (investing  in reputation) and letting the markets for lower quality wines sort themselves out. This would be a pretty controversial thing to say in Australia — no wonder it make the news.

This would be a big change and, to repeat, changing directions is easier said than done.  I wonder if there is some grubbing up in Australia’s wine future?