Andreas Clark on how Australia has put “its challenges’ behind it and is ready to grow exports in key Chinese and US markets
By Richard Siddle
It might not appear as the greatest use of your time to fly all the way from Australia to the UK to tell a room of collected British trade media and leading wine importers that the two biggest priorities for your country’s wine exports are China and the United States in the coming years.
But as this week’s set piece Wine Australia trade tasting also coincided with the release of the latest Australian wine exports and its “State of the Sector” report, it proved to be too good and opportunity not to mark everyone’s card about where Australia now sits as a major wine exporting country.
On paper all looks fine and rosy. All price points for Australian wine are mainly on the increase in all its key markets, but particularly so for wines above $10. Its long held desire to move the whole Australian wine category up a rudder or two on the pricing ladder appears to be working. Its biggest rises, admittedly from lower bases, are for wines between A$20 to A$29 up 60% and A$30 to A$49 up 52%.
At the commercial end total sales are up 18% for wines up to A$2.49, and 15% between A$5 and A$7.50. Bulk wine exports also up in value by 10% to A$440m and had an average value per litre in 2017 of A$1.03, up 6% The first time it has been over A$1 since 2012. The UK remains the number one bulk wine market worth A$169m in 2017.
The overall value of Australian wine exports grew 15% to A$2.56 billion, with volumes up 8% to 811 million litres. The average price per litre FOB is also up 7% to A$3.16, the highest since 2009.
It’s also worth putting these figures in to context of where the Australian wine industry was between 2007 and 2013. With so many commercial wines and brands all vying for attention on overseas supermarket shelves Australia was particularly badly hit by the global economic recession of 2008 onwards.
It was suddenly faced with mass over capacity, and a rise in the Australian dollar making its wines less attractive in all its key overseas markets. What was being exported was increasingly in the bulk and low priced categories. As a result export volumes fell 100 million litres to 686 million litres between 2007 and 2013. Value sales also fell by A$1.2 billion from A$3bn to A$1.8bn.
Troubles behind
So Australia has come a long way in a relatively short period of time, with its best years potentially just around the corner. Particularly so if Andreas Clark, chief executive of Wine Australia, gets his way and lifts sales in China and the US as much as it hopes.
He is quite open about the fact Australia has had “its challenges” but he firmly believes it has now “come out the other side” stronger, leaner and fit for purpose.
It’s also been treated to an extra A$50m in extra funding from the government to invest in expanding its exports in key countries.
He speaks a lot, in particular, about the “strong bedrocks” that are now the foundations of an industry that has the image as a reliable, credible wine producing country around the world. One that is heavily supported by its government and has some of the strictest and safest regulations to govern how it is developed. Combined with an extensive R&D budget focused on how to make its vines, grapes and wines even more reliable and relevant in the future.
Chinese success
Any analysis of Australia’s export performance has to start with China where it saw a hugely impressive 63% increase in sales in 2017, up to A$848m sales and close to A$1bn when you look at overall China. Volume exports were also up 54% to 153m litres.
Its average price per litre FOB is now A$5.55 (+6%) and China now accounts for more than half of Australia’s wine shipments of A$10 plus wines per litre.
Clark stresses, however, that this has not just happened overnight or completely as a direct consequence of the Free Trade Agreement. Instead it is the result of a long, sustained period of quite lobbying, promoting and educating what he describes as still a “nascent” wine consumer. It’s certainly enormous growth compared to the A$25m of sales it had 10 years ago.
“People have been working in the Chinese market for years, and it is now starting to pay dividends,” he explained. “We want to be keep funding that growth.”
Which means more work looking to help educate the trade as well as consumers. “Anything that helps them understand Australia more,” says Clark. “It’s collective hard work pushing those stories.”
It is looking to take full advantage, for example, of being nominated the country of honour at Vinexpo Hong Kong between May 29-31. It is also working hard to penetrate in to what Clark refers to China’s second and third tier cities which are less saturated in wine. It will be hosting a producer roadshow to key cities during the year.
“What’s particularly pleasing is we are getting cut through or our premium wines as well,” he adds, in a market that is notoriously price sensitive.
Bulk wine is also becoming a bigger sector in China, with Australia enjoying a 100% increase in sales at A$58m.
Red wine dominates Australia’s Chinese exports, accounting for 90% of sales, and “has been a key factor in our growth,” adds Clark.
Though US test
He concedes it has a tougher battle on its hands in the US. Not helped by the three tier system which makes it hard to create a national message for its wines.
In many ways it faces similar challenges and issues in the US as it has in the UK trying to move consumers away from just considering it as a commercial wine producing country. Some 93% of its wines in the US are currently sold in the $4 to $8 price bracket. But again, he adds, it is “over indexing in the $10 plus price categories”.
The bulk sector is also proving an important route in to the US with more businesses looking to ship and bottle in different states. It shipped A$79m of bulk wine in 2017, up 24%.
Wine Australia is also taking producers on a US city roadshow during 2018 in a bid to raise awareness and knowledge about its wines and is targeting its efforts on around seven key states across the country including Texas, California and Florida.
UK strengths
Clark was not totally impervious to playing to his London audience, pointing out that the UK is still Australia’s number one market by volume and that it too would receive extra marketing and promotional funds from its A$50m to help support both trade and consumer activities.
Clearly much rests on what happens post-Brexit, but he said it was working closely with the WSTA to lobby for the “same level of certainty” about how it can trade with both the UK and EU in the future. It was also a good time to “tighten up anomalies” around key technical areas that currently, for example, do not allow for its wines to be carbonated in Europe, or for the addition of sweetness or musts to bulk wine.
2018 and beyond
Australia, said Clark, was “very well placed” to take advantage of the huge wine shortages on the back of the poor global 2017 vintage considering it enjoyed its best harvest in 10 years. Particularly when you consider Australia’s total yearly production in 2016 was 1.3 billion litres, compared to the 2 billion drop in global production to 24.6 bn litres, a shortfall of some 222m cases of wine (OIV).
With less need to discount and keep prices strong, then 2018 could be a great launch pad for many more Australian wines, added Clark. Particularly as the national average purchase price for grapes increased by 7% in 2017 to A$565 per tonne, the highest since 2008. Shiraz and Colombard saw the greatest price increases followed by Muscat Gordo Blanco, Pinot Gris/Grigio and Chardonnay.
Significantly the proportion of A and B grade grapes (A$1500 and above per tonnne) were up to 7.4% from 6.4% reflecting the growth in premium Australian wines. Shiraz purchased at A and B grades increased to 15.5% from 13.3%, double the proportion from five years ago.