The long boom turns to bust
THE road from Mildura to Merbein, in north-west Victoria, is a sad sight. Many of its farms are covered with wine grapes, dying on the vines. Farmers planted the vines hoping to cash in on the seemingly endless boom in Australian wine. As with the gold rush that gripped Victoria 150 years ago, the most unlikely types expected to make a fortune. But in 2007 the boom turned to bust, forcing many farmers to walk away from grapes and land they cannot sell.
Over the past 15 years Australia’s wine industry has been one of its great success stories. Export revenues last year reached A$3 billion ($2.4 billion), four times the figure from 1997. Britain, America and Canada, among the most competitive markets for wine, are Australia’s three biggest customers. But the suffering in places like Mildura and nearby Renmark in South Australia is a sign that the industry fell victim to its own success.
Flushed with growing demand for Australian wines, a grape shortage and soaring grape prices, growers rushed to plant more vines in the late 1990s. In 1998 they put in a record 16,000 new hectares, double the new plantings two years earlier. In 2005 Australia produced almost 2m tonnes of wine grapes, a quarter more than analysts say its markets can absorb.
Then came Australia’s worst drought in a century. Mildura and Renmark are surrounded by desert, and fruit farms and vineyards survive only with irrigation from the Murray River, the lifeblood of Australia’s agriculture. Smaller firms, which supply the big winemakers with some of their grapes, faced a double whammy: falling grape prices and cuts to irrigation water. Stephen Strachan, chief executive of the Winemakers’ Federation of Australia, an industry body, reckons the drought was a turning point, even if a tragic one in some cases, in forcing the industry back to “sustainable levels”. The planting rush has ended. The 3,600 hectares of new vines planted in 2006 almost equalled the 3,400 hectares of vines ripped out of the ground that year.
The drought has also led to much soul-searching among Australia’s 2,000 wine producers about how the industry can recapture its reputation for quality wines. There is now stiff competition in the mid-market from other New World producers, notably New Zealand, where the wine industry is booming.
Much Australian wine during the grape glut found its way onto the world market as bulk or “commodity” wine, sold at low prices or even at a loss. This harmed Australia’s reputation among consumers. Australian producers now face the task of earning a reputation for quality rather than quantity. The appreciation of the Australian dollar, which makes Australian wines more expensive overseas, has brought a new urgency to the job.
Historically, many Australian winemakers have derided the French approach to making wine, especially the idea that the finest wines come only from a terroir—the union of climate and soil characteristic of each place. Australian producers instead pride themselves on what they regard as a less snooty and more democratic approach: blending grapes from different regions to achieve a consistent wine. But some are now asking whether marketing an Australian wine’s locality, as much as its grape variety, might not work better.
Some smaller producers are already doing just that. In Margaret River in Western Australia, for example, small winemakers produce 3% of the country’s production, mainly at the high end of the market, and independently of the big companies that predominate in eastern Australia. Denis Horgan, the owner of Leeuwin Estate, raves about the region’s soil and climate, and prides himself on Leeuwin’s high-quality wines, which sell for as much as A$95 a bottle. Steve Webber, the winemaker at De Bortoli, a family winery in the Yarra Valley of Victoria, argues that Australia can no longer hope to compete on price alone. “We have to be making more interesting wines, and we have to look more to our regions, as the French do,” he says.
Australia’s 2008 grape harvest is expected to be back down to 1.6m tonnes. Grapes are once again in short supply, and prices are rising modestly. But only the foolhardy would take this as a chance to make a killing, and start planting again.
From The Economist print edition