Financial and business performance of wine grape growers...

Australian wine grapes Financial and business performance of wine grape growers 2011–12 Tim Caboche, Walter Shafron, Caroline Gunning-Trant, Milly

Lubulwa and Peter Martin

Research by the Australian Bureau of Agricultural and Resource Economics and Sciences

Research report13.14 December 2013

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Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. This publication (and any material sourced from it) should be attributed as: Caboche T, Shafron W, Gunning-Trant C, Lubulwa M, Martin P, 2013, Australian wine grapes: financial and business performance of wine grape growers 2011–12, ABARES research report (13.14), Canberra, December CC BY 3.0. Cataloguing data Caboche T, Shafron W, Gunning-Trant C, Lubulwa M, Martin P, 2013, Australian wine grapes: financial and business performance of wine grape growers 2011–12, ABARES research report (13.14), Canberra, December ISSN:1447-8358 ISBN: 978-1-74323-162-3 ABARES project: 43386 Internet Australian wine grapes; financial and business performance of wine grape growers 2011–12 is available at: daff.gov.au/abares/publications. Department of Agriculture Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Postal address GPO Box 1563 Canberra ACT 2601 Switchboard +61 2 6272 2010| Facsimile +61 2 6272 2001 Email [email protected] Web daff.gov.au/abares Inquiries regarding the licence and any use of this document should be sent to: [email protected]. The Australian Government acting through the Department of Agriculture has exercised due care and skill in the preparation and compilation of the information and data in this publication. Notwithstanding, the Department of Agriculture, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law.

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Contents Summary ................................................................................................................................................................... 5

1 Australian wine grape industry .......................................................................................................... 8

Wine grape 2011–12 seasonal overview .................................................................................... 10 Overview of wine grape regions...................................................................................................... 11

2 Wine grape production ........................................................................................................................ 14

Production characteristics of wine grape growers ................................................................ 14 Prices received by wine grape growers ....................................................................................... 16

3 Financial performance of wine grape producers .................................................................... 18

Farm receipts ............................................................................................................................................ 18 Farm cash income................................................................................................................................... 21 Farm debt and equity ........................................................................................................................... 22 Financial performance of wine grape growers selling wine ............................................. 23

4 Management practices of wine grape producers .................................................................... 25

Off-farm income ...................................................................................................................................... 25 Business priority ..................................................................................................................................... 25 Expectations of future wine grape prices ................................................................................... 28 Vineyard-management practices .................................................................................................... 28 Management practices ranked by financial performance .................................................. 29

5 Wine grape production projections to 2015–16 ..................................................................... 31

Wine grape production, 2012–13 ................................................................................................... 31 Projected wine grape production, 2013–14 and 2014–15................................................. 33 Production in the inland irrigated and cool climate zones ................................................ 36 Implication for financial performance of wine grape growers ........................................ 36

Appendix A: Australian wine grape production zones..................................................................... 37

Appendix B: Survey methods and definitions ...................................................................................... 38

Survey design ........................................................................................................................................... 38 Sample weighting ................................................................................................................................... 38 Sampling errors ....................................................................................................................................... 39 Calculating confidence intervals using relative standard errors .................................... 39

Appendix C: Methodology for projecting wine grape production .............................................. 40

Projection procedure ............................................................................................................................ 40 Calibration ................................................................................................................................................. 42 Yields ............................................................................................................................................................ 42

References ............................................................................................................................................................. 43

Tables Table 1 Gross value of wine grape production, 2010–11 ............................................................... 10

Table 2 Wine grape growers survey regions ........................................................................................ 11

Table 3 Wine grape production and vineyard area by region, 2011–12 ................................. 13

Table 4 Production characteristics and destination of grapes by region, average per farm ......................................................................................................................................................................... 15

Table 5 Market price of wine grapes produced by region, 2011–12 ........................................ 17

Table 6 Farm financial performance by wine region, 2011–12, average per farm ............ 19

Table 7 Financial performance, producers with wine receipts versus no wine receipts, average per farm ..................................................................................................................................... 24

Table 8 Management practices of wine grape growers, by region, 2011-12 ........................ 26

Table 9 Management practices of wine grape growers, by receipts generation ................. 29

Table 10 Estimated and projected wine grape production in Australia, by zone ............... 34

Table 11 Estimated and projected wine grape bearing areas in Australia, by zone .......... 35

Figures Figure 1 Australian wine grape production ............................................................................................. 8

Figure 2 Average Australian red wine grape price, 1999–2000 to 2011–12 ........................... 9

Figure 3 Average Australian white wine grape price, 1999–2000 to 2011–12 ...................... 9

Figure 4 Australian production of top three white varieties ........................................................ 32

Figure 5 Australian production of top three red varieties ............................................................. 32

Figure 6 Australia wine grape production, by category .................................................................. 33

Maps Map 1 Wine grape growers survey regions ........................................................................................... 12

Australian wine grapes: financial and business performance of wine grape growers 2011–12

5

Summary Wine grape production in Australia increased by 152 per cent in the period from 1993–94 to total 1.58 million tonnes in 2011–12 (ABS 2012). However, in recent years the growth in demand for Australian wine has slowed considerably, mainly because of higher Australian dollar and increased competition in some export markets. The average wine grape price per tonne has declined by 64 per cent in real terms from the record achieved in 2000–01 (Wine Australia 2012). The fall in prices and continued oversupply of wine grapes has lowered industry profitability, posing a significant challenge for wine grape producers.

In 2013, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) undertook a survey of the financial performance of the wine grape growing industry. The survey, the Australian Wine Grape Growers Survey (WGGS), was developed in consultation with Wine Grape Growers Australia and the Winemakers’ Federation of Australia. The survey was designed to provide information about the economic structure and performance of wine grape growing businesses and assist industry stakeholders to develop plans for the future direction of the wine grape growing industry.

The focus of the survey was wine grape producers. The survey targeted farm businesses mainly reliant on income from wine grapes and with more than 10 hectares planted to wine grapes. On average, businesses responding to the survey sold 91 per cent of their wine grape production to wineries operated by others to crush and sell as wine. Businesses mainly reliant on income from the sale of wine were outside the scope of the survey. Nevertheless, a significant number of businesses in the target population did operate wineries and results are provided separately for these businesses.

The survey collected production and financial performance data for individual farm businesses for the single financial year, 2011–12. In addition, a limited amount of information on management practices, future production intentions, reliance on off-farm income and business viability was collected. The survey results provide a point in time assessment of the industry. Ideally, financial performance in 2011-12 would be compared with historical performance. However, with no time series of data available, analysis of longer term trends and their implications is not possible.

Information was obtained for a sample of 400 farms with data collected via a mail-out questionnaire with a follow-up telephone interview. This methodology was selected as the most appropriate with the resources available. However, the use of telephone collection limited the overall amount of information that could be obtained. The sample size allowed results to be aggregated at a regional level. However, comparison of performance of farms within a region requires a larger survey sample.

The survey was conducted across eleven ‘regions’ categorised as either ‘inland irrigated regions’ or ‘cool climate regions’. These regions are amalgamations of the wine industry’s Geographical Indication [GI] zones. The reduction in wine grape prices has affected all regions. In 2011–12, the average price received by wine grape growers in the inland irrigated regions ranged from $284 a tonne in Big Rivers to $291 per tonne in Lower Murray. This contrasts with the significantly higher average price received by wine grape growers in cool climate regions of $1031 a tonne. These price differences reflect the different production methods and resulting wine grape quality between inland irrigated and cool climate regions.


6

On average, Australian wine grape growers had a positive farm cash income of $80 950 a farm in 2011–12. Two regions recorded negative average farm cash incomes, Port Phillip and Gippsland (–$97 100) and Big Rivers (–$1330) with Central Ranges and Hunter Valley ($4710) achieving very low positive farm cash income. The regions with the best average financial performance per farm were Limestone Coast ($208 100), North East and Central Victoria ($131 760) and Murray–Darling–Swan Hill ($122 830).

Wine grape growers who operate a more diverse farm business are less vulnerable to wine grape production and price shocks. Results indicate the wine grape growing industry is relatively specialised. The proportion of total gross income accounted for by wine and wine grape receipts averaged 84 per cent. This high reliance on wine and wine grape receipts highlights the difficulty wine growers face in transitioning out of the industry despite the price signals.

Some segments of the industry are performing more strongly than others. Wine grape growers who crushed grapes through either their own winery or crushed under contract by a contract winemaker achieved considerably higher farm cash income on average ($229 300) than other wine grape growers in both cool climate ($34 450) and inland irrigated regions ($68 030). This is mainly because of the larger scale of businesses selling wine. Wine grape growers selling wine recorded total gross income three to four times higher than wine grape specialists despite comparable areas operated and planted to wine grapes.

Heavy reliance on off-farm income can indicate that on-farm income is unable to consistently cover operating expenses. The proportion of wine grape growing farms in Australia that indicated they were ‘highly reliant’ on off-farm income in 2011–12 was 33 per cent, with a further 29 per cent reporting that they were ‘somewhat reliant’. Wine grape grower’s high reliance on off-farm income is consistent with the declining profitability in the industry.

To remain competitive, wine grape growers must adapt to the current industry issues, potentially implementing new vineyard-management strategies. The survey asked growers to identify the vineyard-management strategies recently implemented. Comparing the vineyard-management strategies implemented by wine grape growers across financial performance categories suggests some strategies were more successful in improving financial performance than others.

In the two years prior to 2011–12, the strategies more common with the top performing growers were a focus on quality wine grape production (66 per cent compared to 34 per cent for bottom performing growers) and a change in varieties (47 per cent compared to 16 per cent). Reducing inputs was a common strategy for all growers as this is likely to be similarly achievable for both bottom and top performing growers. In the next three years from 2011–12, the dominant strategy wine grape growers plan to implement is to focus on higher quality grape production (42 per cent) as they continue to seek more profitable returns for their product.

To provide an indication of future industry performance, ABARES projected wine grape production from 2012–13 to 2014–15. The model used data from the 2012 Vineyards Survey undertaken by the Australian Bureau of Statistics (ABS), and input from industry stakeholders. The model projected wine grape production to be 7 per cent higher in 2012–13 than in 2011–12. This increase was a result of better seasonal conditions leading up to the 2013 vintage than in the previous two years. Wine grape production is projected to increase by 2 per cent in 2013–14 and to remain largely unchanged in 2014–15. This forecast assumes favourable seasonal conditions, good fruit set stemming from the 2012–13 season, and a return of yields to their long-term average.


7

The average wine grape price increased 9 per cent in 2012–13, as reported by Wine Australia in the Wine Grape Purchases: Price Dispersion Survey. This was driven by stronger demand for premium wine grapes as a result of the growing demand for premium Australian wines in export markets; it is supported by the WGGS results indicating a high focus on quality wine grape production. The financial performance of wine grape growers is expected to improve in 2012–13 as growth in wine receipts outstrips any rise in the cost of production.


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1 Australian wine grape industry Wine grape production in Australia increased rapidly in the period from 1992–93 to 2004–05, driven primarily by strong demand for Australian wine in export markets. During this period, relatively high wine grape prices led to a rapid expansion of Australia's vineyard area. Production peaked in 2004–05 at 1.94 million tonnes, compared with 0.63 million tonnes in 1992–93. Production in 2011–12 was 1.58 million tonnes (Figure 1).

Figure 1 Australian wine grape production

Source: ABS 2012

Lower production since 2004–05 reflects slower growth in demand for Australian wine, because of increased competition in export markets and the strengthening of the Australian dollar. This has placed downward pressure on the prices of both wine and wine grapes. In response to increased international competition, the proportion of wine exports being shipped in bulk has increased, placing further downward pressure on wine prices and, in turn, wine grape prices.

Wine Australia's 2012 Wine grape purchases: price dispersion report provides estimates of average wine grape prices by region and variety. The average price increased 8 per cent in real terms from 2010–11 to 2011–12, to $457 a tonne (Figure 2 and Figure 3). The price improvement was particularly pronounced for red wine grapes produced in the inland irrigated regions, with an average price increase of 18 per cent. White wine grapes produced in cool climate regions were the only category to defy the trend, declining 1 per cent. Despite the recent increase softening the downward trend of the past decade, the price remains 64 per cent below the record achieved in 2000–01 in real terms, posing a significant challenge for wine grape producers.

0

500

1 000

1 500

2 000

2 500


9

Figure 2 Average Australian red wine grape price, 1999–2000 to 2011–12

Source: Wine Australia 2012 (and previous issues)

Figure 3 Average Australian white wine grape price, 1999–2000 to 2011–12

Source: Wine Australia 2012 (and previous issues)

Despite the decline in prices received for wine grapes and a stabilisation in production over the past decade, wine grape production remains an important agricultural industry in Australia. The gross value of production was $712 million in 2010–11 (Table 1), the latest year for which ABS data are available. While production occurs across all states, South Australia was the major contributor, accounting for 52 per cent ($369 million) of the gross value of wine grape production. New South Wales accounted for 19 per cent ($136 million), Victoria 14 per cent ($100 million) and Western Australia 12 per cent ($88 million).

0

500

1 000

1 500

2 000

2 500

cool climate

inland irrigated

2011–12 $/t

0

500

1 000

1 500

2 000

2 500

cool climate

inland irrigated

2011–12 $/t


10

Table 1 Gross value of wine grape production, 2010–11

State Value ($m)

Proportion (%)

South Australia 369 52

New South Wales 136 19

Victoria 100 14

Western Australia 88 12

Tasmania 18 2

Queensland 0.4 0

Australian Capital Territory a 0 0

Northern Territory 0 0

Australia 712 100

a The percentage for the Australian Capital Territory is less than 0.01. Source: ABS 2012

Wine grape 2011–12 seasonal overview Australia’s wine grape growers are classified into Geographical Indication (GI) zones (as defined in the Register of Protected Names maintained by Wine Australia). Amalgamations of these zones have been applied throughout the report to analyse the wine grape industry.

In 2011–12, 1.58 million tonnes of grapes were harvested for winemaking, an increase of around 1 per cent from the 2010–11 harvest of 1.56 million tonnes (Table 10). The largest increases occurred in the Limestone Coast GI zone (31 per cent), the Lower Murray zone (18 per cent), the North East Victoria zone (13 per cent), and the Murray–Darling–Swan Hill zone (11 per cent). These increases were offset by decreases in other GI zones that could generally be attributed to high rainfall.

Persistent rainfall in the eastern states beginning in late January 2012 required growers to be vigilant in their canopy-management regimes to control for outbreaks of disease. In many eastern GI zones, harvesting began earlier than usual because seasonal temperatures were relatively mild and the crops lighter. This proved fortuitous for those zones that managed to start harvesting before the heavy rainfall, which occurred in late February and into March across New South Wales and north-east Victoria. For those zones that had not finished harvesting, or had just begun, the persistent summer rainfall resulted in crop losses and the downgrading of fruit. In addition, according to the ABS, there were an estimated 3842 hectares of vines removed or grafted during 2011–12, further contributing to the fall in production in those zones.

The impact of the heavy late summer rains was highly variable. Some vineyards in zones such as the Hunter Valley and Central Ranges sustained significant damage, which caused some growers to abandon their crop, particularly those growing shiraz. In the Central Victoria zone and Gippsland and Port Phillip zone, the quality of the grapes was affected, with reports of berries splitting and outbreaks of botrytis in varieties including chardonnay, pinot noir and cabernet sauvignon.

For most GI zones in eastern Australia, average wine grape yields were below the five-year average to 2010 (the last year the ABS released variety-specific data). The wet and humid conditions of 2011 resulted in a lower fruit set in some zones for the 2012 crop. As a result,


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vines in 2012 generally had fewer grape bunches with smaller berries. Despite the lighter crop, the quality of the 2012 vintage was better than that of 2011.

In 2011–12, total bearing area fell 4 per cent from 2010–11 to 145 382 hectares. The total non-bearing area was 34 per cent lower in 2011–12 than 2010–11 at 3127 hectares. This is a decrease of 1592 hectares year-on-year, which means that a significant area of wine grape vines came into full bearing in 2011–12. More than half of the total decrease in non-bearing area between 2010–11 and 2011–12 can be attributed to the Murray–Darling–Swan Hill zone (466 hectares) and the Big Rivers zone (387 hectares).

Some of the reduction in non-bearing area could also be explained by the permanent removal of vines from production. The area of grapes removed from production prior to the 2011–12 harvest (either by removal, grafting off or abandoning to die) was 3864 hectares in 2011–12, 34 per cent lower than the 5819 hectares removed from production in 2010–11.

Overview of wine grape regions The WGGS and resulting analysis were conducted on 11 regions from the four largest wine grape producing states. Because of the low survey response in some areas, the combination and exclusion of some GI wine zones was required and the analysis restricted to the 11 regions in Table 2 and Map 1. The full list of GI zones and their respective GI regions can be found in Appendix A.

Table 2 Wine grape growers survey regions

Wine grape growers survey regions Geographical Indication wine zones

New South Wales Big Rivers (excl. Murray–Darling) Big Rivers (excl. Murray–Darling) Central Ranges and Hunter Valley Central Ranges Hunter Valley Victoria North East and Central Victoria North East Victoria Central Victoria Port Phillip and Gippsland Port Phillip and Gippsland South Australia Mount Lofty Ranges Mount Lofty Ranges Barossa Barossa Fleurieu Fleurieu Limestone Coast Limestone Coast Lower Murray Lower Murray Western Australia West Australia Greater Perth South West Australia Other Western Australia Murray Valley Murray–Darling–Swan Hill Murray–Darling–Swan Hill


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Map 1 Wine grape growers survey regions

Source: ABARES

The 11 regions surveyed and analysed in this report represented 98 per cent of Australia’s total wine grape production in 2011–12 (Table 3). The inland irrigated regions of Lower Murray, Murray–Darling–Swan Hill and Big Rivers are the major production regions accounting for 67 per cent (1.07 million tonnes). These regions are characterised by a greater reliance on irrigation, higher yields and generally lower wine grape prices than the cool climate zones. The regions in cool climate zones with the highest production are Limestone Coast, Fleurieu and Barossa.

These differences between the inland irrigated and cool climate regions are well illustrated by the two regions surveyed in New South Wales: Big Rivers, and Central Ranges and Hunter Valley. Both have a similar number of wine grape businesses (427 and 404 respectively); however, the total vineyard area operated in Big Rivers is almost three times larger than Central Ranges and Hunter Valley, with eight times the production.

Areas planted to wine grapes are denoted as either bearing or non-bearing. The area not yet bearing is a measure of new capacity expected to produce wine grapes in future years. Producers plant these additional vines to increase production or change the varietal mix of their business. The regions with the highest non-bearing areas are Barossa with 640 hectares and Big Rivers with 515 hectares.

The ABS reported in 2011–12 that 3864 hectares of wine grape vines were removed. Producers remove vines for a number of reasons: to reduce production and convert the land to another use, to reduce production and exit the industry, or to replace vines with another variety. The regions with the largest areas of wine grape vines removed were Central Ranges and Hunter Valley (761 hectares), Western Australia (460 hectares) and Murray–Darling–Swan Hill (452 hectares). A comparison of area not yet bearing with area removed indicates that total bearing area is expected to continue to decline in the short term as producers leave the industry or reduce production.


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Table 3 Wine grape production and vineyard area by region, 2011–12

Region Number of businesses

Area bearing (ha)

Area not yet bearing

(ha)

Area total (ha)

Area removed (ha)

Production (t)

Big Rivers (excl. Murray–Darling) a

427 21 188 515 21 703 192 249 389

Central Ranges and Hunter Valley

404 7 754 133 7 887 761 30 593

New South Wales other 259 2 159 61 2 220 225 9 264 New South Wales 1 090 31 102 709 31 810 1 178 289 246

North East and Central Victoria

394 7 316 213 7 529 177 43 845

Port Phillip and Gippsland

394 4 085 106 4 192 160 17 918

Victoria other 152 1 943 140 2 083 46 7 159 Victoria 940 13 344 459 13 803 383 68 922

Barossa 551 12 342 640 12 982 187 73 599 Fleurieu 535 13 224 134 13 358 219 99 223 Limestone Coast 256 15 037 128 15 165 300 107 418 Lower Murray a 851 20 495 237 20 732 338 435 927 Mount Lofty Ranges 472 8 625 201 8826 284 51 413 South Australia other 23 246 1 247 15 1 338 South Australia 2 688 69 970 1 340 71 310 1 342 768 918

Murray-Darling-Swan Hill a

662 18 630 264 18 893 452 380 388

Western Australia 621 10 316 240 10 556 460 68 021

Queensland 104 690 23 712 19 1 129 Tasmania 142 1 229 91 1 320 31 5 379 Australian Capital Territory

3 102 1 103 0 45

Australia 6 251 145 382 3 127 148 509 3 864 1 582 049 a inland irrigated region Note: Shading denotes regions included in the wine grape growers survey. Source: ABS 2012


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2 Wine grape production The WGGS collected farm-level production and financial performance data for the 2011–12 financial year and information on issues of particular interest to the industry, such as management practices, future production intentions, levels of off-farm income and information relating to business viability. The survey targeted farms with 10 hectares or more planted to wine grapes. To be eligible, farms also had to be operating under the current management for at least six months of 2011–12.

In this report all the survey tables and analysis relate to wine grape growers who had 10 hectares or more planted to wine grapes. The term ‘wine grape grower’ represents the person who completed the survey. As such there is a one-to-one relationship between a wine grape grower and a wine grape growing farm, with the terms used interchangeably throughout the report. (Note that the ABS Vineyards Survey statistics include farms with less than 10 hectares planted to wine grapes.)

Production characteristics of wine grape growers Results from the WGGS show that wine grape growers, on average, operated a farm area of 111 hectares in 2011–12 (Table 4). Of this, 50 hectares were planted to wine grapes (45 per cent). The proportion of the farm area planted to wine grapes is higher in wine grape specialist regions such as Barossa (57 per cent) and Fleurieu (63 per cent). Regions with more diverse agricultural production tend to have wine grape growers that operate a more varied business and, as such, a smaller proportion of each farm area is planted to wine grapes. Wine grape growing farms in Central Ranges and Hunter Valley had an average of 23 per cent of each farm planted to wine grapes. The respective proportions of farm area planted to wine grapes were Port Phillip and Gippsland 26 per cent, North East and Central Victoria 33 per cent, Murray–Darling–Swan Hill 34 per cent and Limestone Coast 37 per cent. Generally, growers in these regions run additional enterprises to wine grape production, often livestock and other horticulture.

The size of farms, as indicated by area planted to wine grapes, varied substantially across regions. Wine grape growing farms in the Limestone Coast region had, on average, the largest area planted to wine grapes at 84 hectares and were almost three times as large as Port Phillip and Gippsland wine grape growing farms with an average of 29 hectares planted to wine grapes (Table 4).

In 2011–12 the average harvest per wine grape growing farm in Australia was 593 tonnes (Table 4). This was driven by the inland irrigated regions, which on average had higher yields. Murray–Darling–Swan Hill wine grape growing farms had the largest average harvest of 1183 tonnes followed by Lower Murray with 905 tonnes. The large harvest per farm in these regions was the result of high yields and moderate areas planted to wine grapes. Big Rivers wine grape growing farms had the third largest harvest per farm resulting from moderate yields and large areas planted to wine grapes.

Of the regions classified as cool climate, the largest average harvest per farm was achieved by wine grape growing farms in Limestone Coast, Fleurieu, and North East and Central Victoria (Table 4). The large average harvest per farm in Fleurieu (422 tonnes) and North East and Central Victoria (393 tonnes) was the result of higher than average yields for cool climate regions. Limestone Coast wine grape growing farms (656 tonnes) achieved a large average harvest per farm because of the large area planted to wine grapes.


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Table 4 Production characteristics and destination of grapes by region, average per farm

Big Rivers a Central Ranges and Hunter Valley



Barossa Mount Lofty Ranges

Age of business yrs 19 (11) 22 (14) 22 (11) 14 (17) 30 (14) 18 (16) Operating a winery % 0 18 (46) 29 (15) 26 (34) 8 (51) 10 (45) Total area operated ha 92 (10) 182 (40) 150 (14) 112 (46) 75 (12) 84 (21) Area planted to wine grapes ha 71 (10) 42 (19) 49 (7) 29 (134) 43 (14) 40 (11) Area harvested ha 67 (10) 27 (29) 41 (13) 27 (115) 42 (14) 36 (10) Tonnes harvested t 837 (12) 187 (20) 393 (20) 136 (64) 296 (21) 257 (14) Sold t 837 (1) 165 (6) 275 (14) 107 (19) 263 (5) 211 (8) Crushed by a contract winemaker t 7 (86) 24 (35) 14 (89) 24 (54) 21 (44) Crushed by this business winery t 11 (74) 47 (26) 10 (68) 6 (84) 18 (66) Transferred to other winery businesses t 4 (55) 5 (98) 5 (78) Dumped or wasted t 4 (88) 43 (66) 3 (86)

Yield t/ha 12.49 (5) 6.93 (18) 9.59 (8) 5.04 (52) 7.05 (6) 7.14 (10) Fleurieu

Limestone Coast Lower Murray a Murray–Darling–

Swan Hill a West Australia Australia

Age of business yrs 23 (9) 16 (6) 23 (7) 21 (9) 15 (6) 21 (4) Operating a winery % 14 (36) 11 (45) 0 3 (189) 16 (43) 9 (16) Total area operated ha 79 (12) 226 (32) 85 (10) 174 (82) 71 (19) 111 (16) Area planted to wine grapes ha 50 (7) 84 (15) 42 (11) 60 (17) 36 (21) 50 (5) Area harvested ha 48 (7) 84 (15) 38 (14) 54 (24) 20 (29) 45 (6) Tonnes harvested t 422 (10) 656 (19) 905 (6) 1,183 (28) 156 (26) 593 (8) Sold t 367 (3) 525 (9) 815 (6) 1,159 (1) 133 (8) 540 (2) Crushed by a contract winemaker t 8 (39) 98 (48) 27 (109) 24 (75) 9 (79) 24 (35) Crushed by this business winery t 25 (40) 33 (60) 11 (50) 12 (19) Transferred to other winery businesses t 54 (69) 12 (63) Dumped or wasted t 21 (67) 2 (116) 6 (39) Yield t/ha 8.79 (7) 7.81 (8) 23.82 (9) 21.91 (6) 7.80 (6) 13.18 (4) a inland irrigated region. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES


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Wine grape growing farms can value add by producing and selling wine as the finished product instead of wine grapes. However, the capital investment to construct a winery and the ongoing expense to operate it can be significant. In Australia, 9 per cent of wine grape growing farms operated a winery as part of their grape growing business in 2011–12 (Table 4). Wine grape growing farms in North East and Central Victoria had the highest proportion operating a winery (29 per cent). An estimated 26 per cent of wine grape growing farms in Port Phillip and Gippsland operated a winery, 18 per cent of Central Ranges and Hunter Valley farms, and 16 per cent of West Australia farms. The three inland irrigated regions had the lowest proportion of wine grape growers operating a winery, with growers tending to specialise in bulk wine grape production and selling their grapes under contract to winery businesses.

Wine grape growers sold the majority of production (91 per cent) to other winery businesses to crush and on sell as wine (Table 4). The remainder was either crushed by a contract winemaker and sold as wine by the wine grape growing farm (4 per cent), crushed by the wine grape grower’s winery (2 per cent), or transferred to another winery business under a common ownership structure (2 per cent). An estimated 1 per cent of production was dumped or wasted.

Prices received by wine grape growers Despite the decade-long decline in average prices received for wine grapes, price variation within a single vintage remains a strong indicator of quality. The WGGS asked growers to provide the volume of grapes sold within six price brackets (Table 5).

The prices received by wine grape growing farms in the inland irrigated regions displayed the least variation because of the focus on high yielding, irrigated, low-price grape production (Table 5). In these regions in 2011–12 all production was sold for less than $600 a tonne. The average price per tonne was similar across the three regions, ranging from $284 in Big Rivers to $291 in Lower Murray.

Wine grape growing farms in cool climate regions, with typically a greater focus on producing wine grapes at a higher price point, achieved a greater spread in prices received. The average price received by wine grape growing farms in cool climate regions was $1031 a tonne in 2011–12 with the majority of grapes sold between $600 a tonne and $1500 a tonne. Despite the high average price, in 2011–12 cool climate regions sold 80 000 tonnes of wine grapes for less than $600 per tonne. This accounted for 16 per cent of cool climate production.

Wine grape growing farms in cool climate regions produce more heterogeneous products than the inland irrigated regions because of their diverse climatic conditions, soil profiles and methods of production. The varying supply and demand dynamics for each of these products is reflected in the range of prices received by cool climate wine regions. Wine grape growing farms in Central Ranges and Hunter Valley received the lowest average price of $713 a tonne in 2011–12 (Table 5). Wine grape production in this region was affected by heavy late season rains causing significant damage to some grapes. Wine grape growing farms in Port Phillip and Gippsland received the highest average price of $1665 a tonne, more than double the average price received by wine grape grower farms in Central Ranges and Hunter Valley.


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Table 5 Market price of wine grapes produced by region, 2011–12

Price per tonne Less than $300

$300 – $600

$600 – $1000

$1000 – $1500

$1500 – $2000

Greater than

$2000

Total Average tonnes

harvested

Average price per

tonne % % % % % % % t $/t

Big Rivers a 65 35

100 837 284 Central Ranges and Hunter Valley

10 46 21 20 3

100 187 713


6 34 26 24 7 3 100 393 1 276

Port Phillip and Gippsland 1 8 7 37 28 19 100 136 1 665 Mount Lofty Ranges 2 2 45 42 6 3 100 257 880 Barossa 14 9 20 34 17 6 100 296 998 Fleurieu 5 15 47 25 3 5 100 422 929 Limestone Coast 12 6 44 34 2 2 100 656 955 Lower Murray a 41 59

100 905 291

Murray-Darling-Swan Hilla 36 64

100 1 183 288 West Australia

3 12 57 21 7 100 156 1 273

Australia 34 42 11 10 2 1 100 593 507 a inland irrigated region. Note: Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES


18

3 Financial performance of wine grape producers

Overall, Australian wine grape growing farms had positive farm cash income of $80 950 a farm in 2011–12 (Table 6). Total gross income was $468 520 a farm with total operating expenditure of $387 570 a farm. The major contributor to total gross income was wine grape receipts with $270 920 (58 per cent of gross income). Wine receipts accounted for 26 per cent ($123 390), government refunds and rebates 3 per cent ($15 020), other horticulture products 2 per cent ($10 090) and other income 7 per cent ($32 610). The major expenditure item was hired labour costs, which accounted for 22 per cent ($86 440) of total operating expenditure. Contracts paid accounted for a further 14 per cent ($55 780), interest 13 per cent ($51 770), and winery materials and supplies 7 per cent ($25 480).

The structure of farm costs differs between inland irrigated regions and cool climate regions. Wine grape growing farms in the inland irrigated regions tend to use more-input intensive production systems leading to higher costs for fertiliser, water, and herbicides and other sprays (Table 6). This is complemented by lower hired labour costs and lower contracts paid than in cool climate regions because of a higher use of mechanical harvesting and pruning.

Farm receipts The proportion of total gross income accounted for by wine grape and wine receipts is a measure of a grower’s reliance on their wine grape enterprise for financial viability. A lower percentage indicates a more diverse farm business that is less vulnerable to wine grape production and price shocks. The region with the most diverse wine grape growing farms, on average, was Port Phillip and Gippsland with only 67 per cent of total gross income accounted for by wine grape and wine receipts (Table 6). Other regions with diverse wine grape growing farms were Barossa with 74 per cent of total gross income accounted for by wine grape and wine receipts, Mount Lofty Ranges with 77 per cent, and Central Ranges and Hunter Valley with 79 per cent.

Accommodation and agri-tourism was the next most significant income source for wine grape growing farms in Port Phillip and Gippsland and Central Ranges and Hunter Valley (Table 6). Their proximity to Australia’s two major cities of Sydney and Melbourne make them attractive locations for weekend getaways. Other significant income sources were livestock or livestock products and government rebates. For wine grape growing farms in Mount Lofty Ranges and Barossa the alternative income sources were the same, although in a different order of significance.

Despite the relative diversity of some regions, wine grape and wine receipts accounted for, on average, 84 per cent of total gross income (Table 6). This proportion rises if government refunds and rebates are included. These receipts were significantly generated by the wine and wine grape enterprise through programs such as the wine equalisation tax (WET) rebate. The high proportion of receipts generated by the wine grape and wine enterprise indicates that, on average, wine grape growing farms operate specialised enterprises. This is comparable to specialist beef and crop producers where both generate 80 per cent of total gross income from the sale of beef cattle and crops respectively (ABARES 2013).


19

Table 6 Farm financial performance by wine region, 2011–12, average per farm

Big Rivers a

Central Ranges and Hunter Valley

North East and Central Vic.


Murray-Darling Swan Hill a

Mount Lofty Ranges

Business income Wine grapes $ 237 320 (14) 120 190 (29) 280 060 (19) 167 080 (19) 332 000 (28) 202 000 (14) Wine $

271 370 (54) 352 030 (21) 122 780 (19) 55 380 (108) 171 140 (52)

Table grapes or dried vine fruit $ 470 (97)

10 (91)

2 100 (66)

Other horticultural products $ 20 450 (44) 820 (92)

45 340 (71) 1 610 (61) Grains or other broadacre crops $ 7 840 (49)

2 390 (63) 1 520 (68) 4 260 (200)

Livestock or livestock products $

17 210 (78) 13 090 (26) 28 500 (39) 970 (193) 5 340 (49)

Accommodation and agri-tourism $

37 050 (90) 19 230 (31) 52 510 (29) 320 (97) 12 560 (86) Government refunds and rebates $ 2 850 (33) 22 570 (62) 24 920 (31) 19 890 (14) 6 800 (60) 19 530 (44) All other income $ 12 550 (39) 24 670 (49) 23 580 (40) 41 370 (30) 6 460 (65) 75 550 (89) Total gross income $ 281 480 (14) 493 890 (40) 715 310 (14) 433 640 (9) 453 630 (33) 487 730 (31) Operating expenditure

Hired labour costs $ 31 650 (20) 135 620 (41) 176 350 (11) 171 270 (32) 59 270 (61) 72 290 (35) Herbicides and other sprays $ 36 290 (14) 24 260 (22) 35 260 (14) 32 820 (47) 24 680 (16) 14 880 (11) Fertiliser $ 14 970 (15) 3 730 (32) 15 100 (22) 5 300 (198) 14 180 (43) 1 500 (22) Contracts paid $ 42 680 (30) 47 890 (24) 83 080 (20) 66 670 (72) 43 900 (30) 55 600 (15) Repairs and maintenance $ 24 970 (16) 15 390 (23) 26 840 (13) 21 240 (81) 20 460 (37) 12 380 (15) Water $ 15 020 (10) 7 350 (66) 10 990 (36) 3 370 (75) 25 390 (50) 6 780 (31) Winery materials and supplies $ 910 (70) 83 380 (58) 47 410 (27) 59 720 (39) 1 070 (87) 35 580 (53) Interest $ 73 980 (13) 55 690 (40) 69 650 (23) 18 040 (37) 50 210 (55) 58 930 (39) All other expenses $ 42 340 (18) 115 870 (45) 118 870 (33) 152 320 (37) 91 640 (56) 133 850 (28) Total operating expenditure $ 282 800 (10) 489 180 (34) 583 550 (13) 530 750 (34) 330 800 (41) 391 790 (21) Other financial information

Farm cash income $ –1 330 (1 235) 4 710 (1,377) 131 760 (34) –97 100 (155) 122 830 (51) 95 940 (101) Estimated value of business $ 2 059 380 (13) 3 154 080 (22) 2 749 800 (10) 3 225 790 (72) 2 147 120 (42) 3 360 600 (29) Total business debt $ 1 129 720 (15) 676 140 (43) 954 840 (22) 463 830 (117) 780 590 (52) 911 400 (36) Equity ratio % 43 (11) 76 (10) 61 (12) 85 (17) 64 (14) 72 (5)


20

Table 6 Farm financial performance by wine region, 2011–12, average per farm (continued)

Barossa Fleurieu Limestone Coast Lower Murray a West Australia Australia Business income Wine grapes $ 272 920 (18) 350 340 (9) 504 500 (17) 257 220 (9) 179 190 (27) 270 920 (6) Wine $ 86 010 (49) 284 320 (50) 236 450 (47) 25 100 (112) 118 410 (40) 123 390 (18) Table grapes or dried vine fruit $

170 (92)

20 (99)

320 (53)

Other horticultural products $ 1 660 (100) 1 960 (84)

8 090 (41) 3 600 (112) 10 090 (40) Grains or other broadacre crops $ 340 (73) 7 230 (66) 8 740 (67)

30 (215) 2 870 (44)

Livestock or livestock products $ 8 830 (38) 2 170 (59) 41 070 (52)

720 (75) 6 920 (23) Accommodation and agri-tourism $ 140 (100) 2 240 (58) 6 590 (90) 50 (97) 320 (202) 6 390 (31) Government refunds and rebates $ 12 030 (53) 18 330 (34) 35 830 (45) 13 150 (67) 15 390 (46) 15 020 (17) All other income $ 102 950 (69) 35 510 (34) 30 010 (29) 6 280 (65) 21 970 (45) 32 610 (31) Total gross income $ 484 890 (16) 702 270 (22) 863 190 (17) 309 900 (14) 339 620 (22) 468 520 (7) Operating expenditure

Hired labour costs $ 67 120 (16) 147 850 (31) 169 100 (20) 47 150 (26) 73 710 (26) 86 440 (10) Herbicides and other sprays $ 14 990 (14) 25 520 (7) 44 200 (19) 21 210 (30) 9 350 (30) 24 220 (7) Fertiliser $ 3 680 (23) 11 320 (11) 3 870 (31) 14 060 (19) 10 850 (66) 10 030 (12) Contracts paid $ 112 410 (39) 66 240 (13) 70 960 (19) 25 310 (15) 39 600 (30) 55 780 (11) Repairs and maintenance $ 18 350 (22) 32 230 (21) 27 170 (13) 16 840 (8) 8 440 (23) 20 100 (8) Water $ 28 770 (23) 21 600 (14) 870 (36) 9 810 (22) 920 (66) 13 860 (13) Winery materials and supplies $ 10 300 (72) 69 140 (50) 28 300 (82) 6 560 (105) 32 270 (60) 25 480 (21) Interest $ 30 010 (23) 76 150 (19) 82 640 (27) 34 900 (21) 36 960 (27) 51 770 (10) All other expenses $ 94 550 (34) 160 390 (22) 227 970 (25) 36 710 (18) 97 790 (29) 99 880 (10) Total operating expenditure $ 380 180 (22) 610 430 (20) 655 080 (19) 212 550 (16) 309 880 (21) 387 570 (7) Other financial information

Farm cash income $ 104 710 (21) 91 840 (43) 208 100 (49) 97 350 (19) 29 740 (85) 80 950 (19) Estimated value of business $ 2 432 960 (9) 3 223 820 (13) 3 662 500 (14) 1 595 820 (9) 2 329 900 (27) 2 491 010 (8) Total business debt $ 422 780 (24) 1 165 490 (18) 1 206 720 (23) 437 180 (26) 452 940 (28) 751 350 (10) Equity ratio % 83 (6) 61 (8) 67 (8) 73 (9) 79 (10) 69 (3) a inland irrigated region. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES


21

Farm cash income Of the 11 regions surveyed in the WGGS, only two regions, Port Phillip and Gippsland and Big Rivers, averaged negative farm cash income in 2011–12. The regions with the best farm financial performance were Limestone Coast, North East and Central Victoria, and Murray–Darling–Swan Hill. Wine grape growing farms in Limestone Coast achieved the strongest average farm cash incomes per farm, with $208 100 in 2011–12 (Table 6), more than double the national average of $80 950. This result was driven by high farm production and low unit costs of production. Of the surveyed regions, Limestone Coast wine grape growing farms had the largest average area planted to wine grapes and the highest average harvested volume for a cool climate region (Table 4). Strong production coupled with a solid average price for wine grapes of $955 a tonne (Table 5) resulted in the highest total gross income per farm of $863 190. Costs were also well contained, with fertiliser, water and winery materials and supplies all below the average for cool climate regions.

North East and Central Victoria wine grape growing farms and Murray–Darling–Swan Hill wine grape growing farms also achieved strong average farm cash income in 2011–12 of $131 760 and $122 830 respectively. The North East and Central Victoria result was driven by high yields for a cool climate region (Table 4) and high wine grape prices (Table 5), resulting in high wine receipts (Table 6). Despite Murray–Darling–Swan Hill growers having higher average costs than comparable Lower Murray growers, their 43 per cent larger area planted to wine grapes drove higher wine grape production resulting in the strong farm cash income position.

The region with the lowest farm cash income in 2011–12 was Port Phillip and Gippsland with an average of –$97 100 per farm (Table 6), despite the region having achieved the highest average price for wine grapes of $1665 per tonne (Table 5). The result was driven by high operating costs and a low average yield reducing wine grape production and ultimately wine production (Table 4). In comparing operating costs with area planted to wine grapes, wine grape growers in Port Phillip and Gippsland have the highest cost structure of all surveyed regions. Despite these growers having, on average, the smallest area planted to wine grapes (35 per cent the size of Limestone Coast), they had the second or third highest costs for hired labour, winery materials and supplies, and other expenses.

Central Ranges and Hunter Valley growers and Big Rivers growers also recorded weak farm cash income in 2011–12 of $4710 and –$1330 respectively (Table 6). The Central Ranges and Hunter Valley result was because of low wine grape prices (Table 5) and high operating costs. The 2011–12 vintage in the Central Ranges and Hunter Valley region was particularly affected by cool and wet seasonal conditions resulting in a reduced area harvested (Table 4) and lower prices for the wine grapes that were harvested.

The negative farm cash income result for Big Rivers was in contrast to the other two inland irrigated regions, with Murray–Darling–Swan Hill achieving a farm cash income of $122 830 and Lower Murray achieving a farm cash income of $97 350 (Table 6). Big Rivers had an average yield of 12.5 tonnes a hectare, approximately half the yield achieved in the other two regions (Table 4), largely owing to wet seasonal conditions. However, the increased area planted to wine grapes in Big Rivers largely offset the impact. Big Rivers also received marginally lower average prices per tonne for wine grapes than Murray–Darling–Swan Hill and Lower Murray (Table 5).

The major driver for Big Rivers’ poor financial performance is a relatively high cost structure. The inland irrigated regions operate high-volume and low-margin wine grape enterprises. Small movements in operating costs can have a large impact on farm cash income and the long-term viability of a farm. As the price and therefore the market’s judgement of the quality of wine


22

grapes is relatively homogeneous across these regions, a simplified measure of cost of production per tonne of wine grapes harvested can be derived to compare the cost structure of each region. Since costs associated with the wine grape enterprise cannot be separated from the costs associated with other enterprises, the estimate is only approximate. However, since the ratio of wine receipts to total receipts is high and comparable across regions (84 per cent to 91 per cent), the relative differences approximately hold.

The cost of production per tonne of wine grapes harvested for Big Rivers is 30 per cent higher than in Lower Murray and 17 per cent higher than in Murray–Darling–Swan Hill. The cost categories driving the higher cost structure are interest, herbicides and sprays, contracts paid, and repairs and maintenance. Interest expenditure is the most significant cost category, accounting for 26 per cent of total operating costs. Big Rivers interest expenditure per tonne of grapes is more than double the interest expenditure per tonne in the Lower Murray and Murray–Darling–Swan Hill regions.

Farm debt and equity Debt is an important source of funds for farm investment as well as ongoing working capital. Average debt per wine grape farm was $751 350 in 2011–12 (Table 6). The region with the highest average debt per farm was Limestone Coast with $1 206 720 because of the large average size of the business and relatively young age of businesses at 16 years (Table 4). The region with the lowest average debt per farm was Barossa with an average of $422 780.

The farm equity ratio is a measure of business equity as a proportion of the estimated value of the business. The lower the equity ratio, the higher the proportion of farm debt and the less likely a wine grape growing farm could borrow further. The average equity ratio per wine grape growing farm in 2011–12 was 69 per cent (Table 6). The ratio was highest in Port Phillip and Gippsland (85 per cent) and Barossa (83 per cent), and the lowest in Big Rivers (43 per cent).

The average equity ratio for wine grape growing farms is low compared with the broadacre and dairy industries (ABARES 2013). The broadacre industry had an average equity ratio of 88 per cent per farm in 2011–12 with the dairy industry recording an average equity ratio of 80 per cent per farm. The general observation from ABARES survey data is that institutional lenders permit relatively few farm businesses to operate with equity ratios below 70 per cent which suggests many wine grape growers are operating at their debt limit. However, this observation needs to be treated with caution because of limitations with the survey responses. Wine grape growers were asked to provide the approximate total value of their farm business. As this was a self-assessment question, some wine grape growers may have undervalued their business because of their negative views of the wine grape industry. If this ‘undervaluation’ was exaggerated, it would result in a lower equity ratio than the true market value of assets would suggest.


23

Financial performance of wine grape growers selling wine For most wine grape growers, the primary source of income is the selling of wine grapes. A grower may, however, decide to value add by processing their wine grapes and selling the final product as wine. To achieve this, wine grapes may be crushed through the business’s own winery or crushed under contract by a contract winemaker. Both approaches add significant cost to the wine grape growing business but provide the opportunity to generate significantly greater income. The financial performance of wine grape growers who sold at least some wine was compared with that of those that specialise in wine grape production. To further interrogate the performance of wine grape specialists, growers were split by regions into cool climate and inland irrigated.

The proportion of wine grape growers in inland irrigated regions selling wine is very low in our survey (Table 4 and Table 6) due to small sample sizes. These growers have been excluded from the analysis in this section.

Wine grape growers selling wine achieved significantly higher farm cash income ($229 300), on average, than wine grape specialists in both cool climate ($34 450) and inland irrigated regions ($68 030). This result was primarily driven by the larger scale of these businesses. Wine grape growers selling wine recorded total gross income and total operating expenses three to four times higher than wine grape specialists, despite comparable areas operated and planted to wine grapes (Table 7).

Wine grape growers selling wine generated, on average, 57 per cent of total cash income from wine receipts in 2011–12 (Table 7). However, these businesses also achieved significant contributions to farm cash income from accommodation and agri-tourism ($35 780) and government refunds and rebates ($63 210). On average, wine grape growers selling wine sold 63 per cent of wine grapes harvested and had 34 per cent crushed and sold as wine. These growers, on average, did not specialise in wine production; instead, they targeted the most profitable market (wine or wine grapes). In making this decision, growers needed to consider the additional cost of producing wine, with hired labour, contracts paid and winery materials and supplies costing significantly more than for wine grape specialists.

A comparison between wine grape specialists in cool climate regions and inland irrigated regions indicated the financial results achieved were not consistent for all wine grape specialists. Wine grape specialists in inland irrigated regions achieved significantly stronger farm cash income ($68 030) than wine grape specialists in cool climate regions ($34 450). This result was driven more by a difference in costs than a difference in receipts. Despite the notable differences in production characteristics (yield and price received) between the two regions, average wine grape receipts were approximately the same (Table 7). The different farm cash incomes resulted primarily from the higher costs incurred by wine grape specialists in cool climate regions. The cost items of most significance were hired labour ($67 420 compared to $37 310) and contracts paid ($52 070 compared to $31 350). These cost items are lower in inland irrigated regions because of higher use of mechanical harvesting and pruning.


24

Table 7 Financial performance, producers with wine receipts versus no wine receipts, average per farm

Wine grape grower selling

wine

Wine grape specialist

Cool climate regions

Cool climate regions

Inland irrigated regions

Age of business yrs 23 21 22 Operating a winery % 44 0 0 Total area operated ha 146 98 102 Area planted to wine grapes ha 54 43 52 Area harvested ha 50 36 47 Tonnes harvested t 388 295 897 Sold t 243 286 868 Crushed by a contract winemaker t 62 0 0 Transferred to other winery businesses

t 2 1 29

Crushed by this business winery t 68 0 0 Dumped or wasted t 13 8 0 Yield t/ha 7.68 8.15 18.97 Average price per tonne $/t 1 005 936 299 Business income

Wine grapes $ 239 130 288 400 268 280 Wine $ 651 320 0 0 Table grapes or dried vine fruit $ 100 0 750 Other horticultural products $ 2 660 1 110 18 960 Grains or other broadacre crops $ 3 110 2 490 3 380 Livestock or livestock products $ 15 230 10 860 280 Accommodation and agri-tourism $ 35 780 160 20 Government refunds and rebates $ 63 210 1 180 3 750 All other income $ 122 510 19 710 7 720 Total gross income $ 1 133 040 323 910 303 150 Operating expenditure

Hired labour costs $ 229 420 67 420 37 310 Herbicides and other sprays $ 29 010 19 150 24 980 Fertiliser $ 10 750 5 500 13 570 Contracts paid $ 119 440 52 070 31 350 Repairs and maintenance $ 29 080 16 770 19 280 Water $ 16 550 11 830 14 330 Winery materials and supplies $ 130 620 2 460 570 Interest $ 85 380 37 400 46 630 All other expenses $ 253 490 76 870 47 100 Total operating expenditure $ 903 740 289 470 235 120 Other financial information

Farm cash income $ 229 300 34 450 68 030 Estimated value of business $ 4 566 130 2 183 950 1 801 090 Total business debt $ 1 278 810 599 060 674 900 Equity ratio % 72 73 63

Note: Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES


25

4 Management practices of wine grape producers

The WGGS obtained information on issues of particular interest to the industry, such as management practices, future production intentions, levels of off-farm income and information relating to business viability. Considering the decline in wine grape prices since 2002–03 (Figure 2 and Figure 3), these issues provide some insight into how wine grape growers are currently operating their businesses and adapting to price and other changes.

Off-farm income Some wine grape growers can supplement their farm enterprise income with off-farm income. Off-farm income includes wages earned, other business initiatives or investments. Wine grape growers typically generate the majority of income at a single point in the year when wine grapes are sold after harvest. Developing alternative income sources can be a risk-management strategy to smooth income earnings over a whole year. However, a farm’s heavy reliance on off-farm income can indicate an inability of the farm’s income to consistently cover operating expenses.

The survey collected information on each wine grape business’s reliance on off-farm income. The proportion of wine grape growing farms in Australia highly reliant on off-farm income in 2011–12 was 33 per cent, with 29 per cent somewhat reliant (Table 8). These results closely follow the results for average farm cash income per farm. That is, the regions with wine grape growing farms highly reliant on off-farm income also recorded the lowest average farm cash income per farm. In Central Ranges and Hunter Valley 58 per cent of wine grape growing farms were highly reliant on off-farm income while farm cash income was just $4700; in Big Rivers and West Australia 42 per cent were highly reliant, while farms cash income was –$1300 and $29 700 respectively .

Similarly, the regions with the highest proportion of wine grape growing farms not at all reliant on off-farm income were regions with high average farm cash income. In Barossa 49 per cent of wine grape growing farms were not at all reliant on off-farm income, 43 per cent in Fleurieu, and 42 per cent in North East and Central Victoria (Table 8). The exception was West Australia where 45 per cent of wine grape growing farms were not at all reliant on off-farm income, yet their average farm cash income was an estimated $29 740 (Table 6).

Business priority Growers can have different priorities when setting the business direction of their wine grape growing enterprise. The priority of the business can have a significant bearing on how a grower measures success. The survey asked wine grape growers to indicate their priority when determining the direction of their wine grape growing business. The proportion of wine grape growers who stated their business priority as profitability was 47 per cent in 2011–12 (Table 8). The regions with the highest proportion of wine grape growers prioritising profitability were regions that also achieved strong farm cash income (Table 6). In Limestone Coast 82 per cent of wine grape growers stated profitability as the priority for their business, 76 per cent stated profitability as their priority in North East and Central Victoria and 65 per cent in Murray–Darling–Swan Hill. Wine grape growers in Central Ranges and Hunter Valley, with the third lowest farm cash income of the surveyed regions, had the lowest proportion of growers prioritising profitability (8 per cent).


26

Table 8 Management practices of wine grape growers, by region, 2011-12

Big

Rivers a

Central Ranges and

Hunter Valley


Port Phillip and

Gippsland

Murray–Darling–

Swan Hill a

Mount Lofty

Ranges

How reliant is this business on off-farm income?

Not at all % 31 26 42 30 30 33 Somewhat reliant % 27 16 27 54 37 30 Highly reliant % 42 58 31 16 33 37 What is the highest business priority?

Readiness for retirement

% 22 37 15 6 18 4

Lifestyle or work–life balance

% 14 30 9 23 6 19

Profitability % 39 8 76 36 65 52 Capital gain % 11 10 0 8 8 12 Other % 14 16 0 27 4 13 Over the next 3 years what do you expect prices to do?

Increase % 26 45 29 22 41 64 Remain the same % 62 50 61 57 53 32 Decline % 12 5 10 21 5 4 Changes implemented in last 2 years

Reduce area planted to wine grapes

% 10 40 12 13 11 27

Increase area planted to wine grapes

% 12 10 11 3 13 9

Change varieties % 27 22 41 42 15 46 Reduce inputs % 54 40 56 28 64 32 Focus on quality grapes % 46 45 57 54 27 55 No change % 12 13 14 21 20 6 Other vineyard changes % 6 17 17 5 5 4 Intended changes in the next 3 years

Reduce area planted to wine grapes

% 8 34 3 7 1 13

Increase area planted to wine grapes

% 10 0 14 17 18 13

Change varieties % 10 13 38 30 23 52 Reduce inputs % 42 10 53 7 11 18 Focus on quality grapes % 43 30 60 33 32 49 No change % 23 36 11 46 17 10 Other vineyard changes % 10 11 18 2 7 11


27

Table 8 Management practices of wine grape growers, by region, 2011–12 (continued)

Barossa Fleurieu Limestone Coast

Lower Murray a

West Australia Australia

How reliant is this business on off-farm income?

Not at all % 49 43 40 40 45 38

Somewhat reliant % 26 31 37 29 13 29

Highly reliant % 25 26 23 30 42 33 What is the highest business priority? Readiness for retirement % 19 18 7 28 25 20

Lifestyle or work–life balance % 19 36 5 30 6 19

Profitability % 59 39 82 27 60 47

Capital gain % 2 4 6 13 5 8 Other % 2 3 0 3 5 6 Over the next 3 years what do you expect prices to do?

Increase % 52 40 44 48 21 41

Remain the same % 44 55 52 51 70 53 Decline % 4 4 4 1 9 6 Changes implemented in last 2 years Reduce area planted to wine grapes % 15 13 7 6 18 14

Increase area planted to wine grapes % 12 6 3 19 15 12

Change varieties % 64 42 23 24 14 32

Reduce inputs % 40 52 57 41 48 47

Focus on quality grapes % 65 67 80 30 47 49

No change % 7 15 9 27 6 15

Other vineyard changes % 5 4 4 2 5 5 Intended changes in the next 3 years Reduce area planted to wine grapes % 5 7 11 0 12 7

Increase area planted to wine grapes % 16 5 9 18 5 13

Change varieties % 42 45 40 15 24 28 Reduce inputs % 28 31 27 23 39 27

Focus on quality grapes % 37 59 76 31 32 42

No change % 9 20 10 40 16 22

Other vineyard changes % 18 5 6 13 25 12 a inland irrigated region. Note: Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES


28

The second highest priority for wine grape growers (20 per cent of farms nationally) was readiness for retirement (Table 8). The results were mixed across the regions with both strong and poor financial performance regions recording similar results.

The proportion of wine grape growers who stated their business priority as lifestyle or work-life balance was 19 per cent of farms nationally in 2011–12 (Table 8). The regions with a high proportion of such growers were located close to capital cities, and on average had lower farm cash income per farm. Wine grape growers with this focus were usually less responsive to low farm cash income or declining wine grape prices than wine grape growers who prioritise profitability. The results from the WGGS also indicate a relationship between growers who focus on lifestyle or work–life balance and their low tendency to implement vineyard-management strategies.

Expectations of future wine grape prices A wine grape grower’s expectation of future changes in wine grape prices can be an important determination of future production decisions. An expected decline in wine grape prices means a grower has to reduce production costs in order to maintain the current profit margin. An expected increase in prices means a grower may look to increase production to capture more profit. The results from the WGGS indicate that 41 per cent of wine grape growers expected wine grape prices to increase in the next three years (Table 8). Only 6 per cent expected prices to decline with 53 per cent expecting prices to remain constant.

Vineyard-management practices To remain competitive, wine grape growers must adapt and implement new vineyard-management strategies. Some growers target revenue generation and differentiate their product by quality or variety. Other growers specialise in producing a relatively homogeneous product and tightly manage their costs of production. Most will use a combination of both, depending on the specific wine grape growing farm’s geography, climate and soil profile. The WGGS asked growers to identify the vineyard-management strategies they implemented in the previous two years to 2011–12, and the strategies they planned to implement in the coming three years.

In the two years to 2011–12, the most common change implemented by wine grape growers was to focus on higher quality grape production (49 per cent) (Table 8). A similar proportion of growers targeted a reduction in the use of inputs (47 per cent), such as labour, water, herbicides and fertiliser. Another common strategy implemented by wine grape growers was to change the varietal mix of the enterprise (32 per cent). There were also marginally more growers who reduced the area planted to wine grapes (14 per cent) than growers who increased the area planted (12 per cent).

In the next three years from 2011–12, a focus on higher quality grape production is the dominant strategy wine grape growers plan to implement (42 per cent) as they continue to seek more profitable returns for their product. Twenty-eight per cent plan to change the varietal mix of their enterprise in the next three years, a similar proportion as in the previous two years. The proportion of wine grape growers planning to reduce input use in the next three years declined to 27 per cent. There were more growers planning to increase (13 per cent) than decrease (7 per cent) the area planted to wine grapes in the next three years. The proportion of wine grape growers planning to implement no new strategies in the three years after 2011–12 was 22 per cent.


29

Management practices ranked by financial performance To explore the success of various management practices, the survey results of wine grape growers with different levels of financial performance were compared. The dominant survey responses for wine grape growers with strong financial performance differed from those with weak financial performance.

On the basis of their receipts, wine grape growing businesses were categorised into three performance groups: top 25 per cent, middle 50 per cent, and bottom 25 per cent. This measure is correlated with the scale of farm operations. There were insufficient financial variables to calculate a measure that was independent of scale or size, such as rate of return to capital excluding capital appreciation.

Two-thirds of the top 25 per cent stated profitability as their priority in setting their business direction, compared with only 25 per cent of wine grape growers ranked in the bottom 25 per cent (Table 9). Therefore a relationship exists between a wine grape growing business setting a financially orientated goal and strong financial performance. Conversely, only 8 per cent of the top 25 per cent stated the priority for their business was lifestyle or work–life balance, compared with 38 per cent of wine grape growers in the bottom 25 per cent.

Table 9 Management practices of wine grape growers, by receipts generation

Top 25% Middle 50% Bottom 25%

What is the highest business priority

Readiness for retirement % 12 24 19 Lifestyle or work–life balance % 8 14 38 Profitability % 66 50 25 Capital gain % 11 6 8 Other % 3 6 9 Changes implemented in last 2 years

Reduce area planted to wine grapes % 12 10 21 Increase area planted to wine grapes % 14 14 6 Change varieties % 47 33 16 Reduce inputs % 52 45 46 Focus on quality grapes % 66 48 34 No change % 11 12 25 Other vineyard changes % 5 6 5 Intended changes in the next 3 years

Reduce area planted to wine grapes % 4 5 15 Increase area planted to wine grapes % 20 15 1 Change varieties % 43 25 19 Reduce inputs % 37 19 31 Focus on quality grapes % 64 36 32 No change % 10 25 28 Other vineyard changes % 11 9 17

Note: Values are for farms with > 10 hectares planted to wine grapes. Source: ABARES

Comparing the vineyard-management strategies implemented by wine grape growers across financial performance categories suggests some strategies were more successful at improving financial performance than others. In the two years prior to 2011–12, approximately twice as many wine grape growers ranked in the top 25 per cent focused on quality wine grape production (66 per cent) than wine grape growers ranked in the bottom 25 per cent


30

(34 per cent)(Table 9). Similarly, changing varieties was a strategy that was three times more common for the top 25 per cent than the bottom 25 per cent (47 per cent compared to 16 per cent) of wine grape growers. It is worth noting that despite understanding the financial benefits of these two strategies, wine grape growers with financial performance in the bottom 25 per cent may not be able to afford the investment required to implement them.

One in four (25 per cent) wine grape growers in the bottom 25 per cent based on total receipts have made no change to their vineyard-management strategies in the two years prior to 2011–12 compared with only 11 per cent in the top 25 per cent (Table 9). This reflects the high proportion (38 per cent) of wine grape growers in the bottom 25 per cent that indicated their business priority was lifestyle or work–life balance.

Decreasing the area planted to wine grapes was a strategy most frequently implemented by the bottom 25 per cent of wine grape growers (21 per cent) than the top 25 per cent of growers (12 per cent)(Table 9).

Reducing inputs was the most common or second most common strategy implemented by wine grape growers across all three financial performance categories (Table 9). The proportion of wine grape growers that reduced inputs was consistent across financial performance categories, with 52 per cent of the top 25 per cent indicating they had reduced input use, compared with 45 per cent of the middle 50 per cent, and 46 per cent of the bottom 25 per cent. This result is to be expected as reducing inputs is probably as achievable for the bottom 25 per cent as it is for the top 25 per cent.

The WGGS also asked growers about the vineyard-management strategies they intended to implement in the three years after 2011–12. When allocated into the three financial performance categories, the results were similar to the vineyard-management strategies implemented in the two years prior to 2011–12. Overall, the gap between the top 25 per cent and the middle 50 per cent appears to be widening, with the results for the middle 50 per cent more comparable with the bottom 25 per cent than the top 25 per cent (Table 9).

The proportion of wine grape growers who intended to increase or decrease the area planted to wine grapes is increasingly divergent between the top and bottom 25 per cent (Table 9). Of the top 25 per cent, 20 per cent are intending to increase the area planted compared with only 1 per cent of the bottom 25 per cent. Only 4 per cent of the top 25 per cent intended to decrease the area planted compared with 15 per cent of the bottom 25 per cent.


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5 Wine grape production projections to 2015–16

To inform expectations of future industry performance, ABARES projected wine grape production from 2012–13 to 2014–15. The model used data from the ABS Vineyards Survey and input from industry stakeholders. For more information on the method used to project wine grape production, refer to Appendix C. Estimates have been made for total wine grape production in each of Australia’s wine grape producing zones. These wine zones are defined by the ABS, and are known as Australian Geographical Indication (GI) zones. These zones are official descriptions of Australian wine zones as defined in the Australian Wine and Brandy Corporation Act 1980. As discussed in Chapter 2, the WGGS was conducted on 11 regions based on the GI zones. See Table 2 for more information.

Wine grape production, 2012–13 Across the country the seasonal conditions leading up to the 2013 vintage were better than in the previous two years. In general the conditions can be characterised as hot and dry, although there were a few notable rainfall events. A January heatwave in South Australia and the eastern states did not significantly affect yields because of the good soil moisture profile stemming from the 2012 winter rains. At the same time, heavy coastal rainfall in southern Queensland and the north coast of New South Wales was early enough in the season to not have any significant effect on yields (WGGA 2013).

Late summer rain in the Hunter, Mudgee and Orange regions did not affect yields of white wine grape varieties as they had been largely harvested. For red varieties, the rain assisted in slowing sugar development in grapes; this had been accelerated by the hot and dry seasonal conditions (WGGA 2013).

As a result of the improved seasonal conditions relative to 2012, wine grape production is forecast to be 7 per cent higher in 2012–13 than in 2011–12 at 1.70 million tonnes (Table 10). This increase reflects a forecast 1 per cent increase in bearing area of wine grapes in 2012–13 (which excludes multipurpose vines for drying and table use) to 146 253 hectares (Table 11). The quality of the 2012–13 wine grape crop, for both red and white wine grapes, is expected to be generally good.

Production of almost all major commercial varieties is expected to be higher in 2012–13 relative to 2011–12, with the exception of semillon and riesling, which are expected to fall by 6 per cent and 5 per cent respectively. Production of pinot noir and muscat gordo blanco is expected to rise most strongly, in percentage terms, at 16 per cent and 14 per cent respectively.

For the leading commercial white wine grape varieties, production of chardonnay is expected to increase by 6 per cent in 2012–13 while production of sauvignon blanc is forecast to rise by 10 per cent (Figure 4). Production of semillon is expected to decline by 6 per cent.


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Figure 4 Australian production of top three white varieties

f Forecast. z Projection. Note: 2010–11 is an ABARES estimate. Data source: ABS 2013; ABS 2010; ABARES.

For the three leading red wine grape varieties, production is expected to rise slightly through the projection period. Production of shiraz, which accounts for more than 47 per cent of all red varieties, is forecast to be 12 per cent higher in 2012–13 compared with 2011–12. Production of cabernet sauvignon and merlot is forecast to be 12 per cent and 1 per cent higher, respectively, in 2012–13.

Figure 5 Australian production of top three red varieties

f Forecast. z Projection. Note: 2010–11 is an ABARES estimate. Data source: ABS 2013; ABS 2010; ABARES

kt

100

200

300

400

500

Chardonnay

Sauvignon blanc

Semillon

kt

100

200

300

400

500

Shiraz

Cabernet sauvignon

Merlot


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The Winemakers’ Federation of Australia (WFA) released its 2013 vintage report on 28 June 2013. The report estimated a total 2013 crush of 1.83 million tonnes, a 10 per cent increase on the 2012 estimate (WFA 2013). While the absolute volume estimated by WFA is higher than that estimated by ABARES, the relative increases from 2012 to 2013 are comparable and significant (ABARES estimated a 7 per cent increase; WFA estimated a 10 per cent increase). The difference comes from the baselines used. ABARES uses data from the ABS Vineyards Survey whereas WFA uses data from their annual survey.

Projected wine grape production, 2013–14 and 2014–15 Wine grape production is projected to increase by 2 per cent to 1.73 million tonnes in 2013–14 and to remain largely unchanged in 2014–15 (Table 10). This forecast is primarily based on the assumption of favourable seasonal conditions (that is, without the occurrence of a severe weather event), good fruit set stemming from the 2012–13 season, a return of yields to their long-term average, plus a small increase in bearing areas. The national bearing area in 2013–14 is forecast to be around 147 356 hectares and to increase slightly in 2014–15 to 148 286 hectares (Table 11).

The bearing area for red wine grapes has historically been larger than the area for white wine grapes and this is projected to be the case out to 2014–15. In the five years to 2011–12 (excluding 2010–11 for which the ABS collected no detailed varietal data), an average of 61 per cent of Australia’s total bearing area was planted to red wine grape varieties. Over the same period, yields of red wine grapes averaged around 25 per cent lower than for white wine grape varieties. Assuming the proportion of bearing area for red wine grapes remains steady over the projection period, the area planted to red wine grapes in 2014–15 is projected to be about 91 000 hectares, and production around 927 800 tonnes (Figure 6).

Figure 6 Australia wine grape production, by category

f Forecast. z Projection. Note: Starting in 2008–09, multipurpose grapes are no longer reported separately from red and white grapes. 2010–11 is an ABARES estimate. Data source: ABS 2013; ABS 2010; ABARES.

kt

500

1000

1500

2000

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

2012-13f

2014-15z

multipurpose

white

red


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Table 10 Estimated and projected wine grape production in Australia, by zone Estimated Projected production 2011–12 2012–13f 2013–14z 2014–15z kt kt kt kt

South Australia Barossa 74 82 90 90 Mount Lofty Ranges 51 63 67 67 Fleurieu 99 111 114 113 Limestone Coast 107 121 120 120 Lower Murray a 436 437 431 430 Far North and the Peninsulas 1 1 1 1 Total 769 815 822 821 New South Wales and ACT Hunter Valley 11 13 15 15 Big Rivers (excl. Murray–Darling) a 249 284 301 303 Central Ranges 20 29 31 31 North and West New South Wales 0 1 1 1 Southern New South Wales 7 9 10 10 South Coast 2 2 2 2 Australian Capital Territory 0 0 0 0 Total 289 340 360 362 Victoria Central 25 29 31 31 North East 19 22 23 23 Gippsland and Port Phillip 19 22 24 24 North West and Western Victoria 7 8 9 9 Total 69 81 86 87 Western Australia South West Australia 61 60 61 61 Greater Perth and Other Western Australia 7 7 7 7 Total 68 67 68 68 Murray–Darling – Swan Hill a 380 382 379 379 Tasmania 5 7 8 8 Queensland 1 1 2 2 Australia 1 582 1 695 1 725 1 727 a Inland irrigated zone. f Forecast. z Projection.


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Table 11 Estimated and projected wine grape bearing areas in Australia, by zone Estimated area Projected area 2011–12 2012–13f 2013–14z 2014–15z ha ha ha ha South Australia Barossa 12 342 12 585 12 833 12 976 Mount Lofty Ranges 8 625 8 664 8 750 8 825 Fleurieu 13 224 13 254 13 289 13 355 Limestone Coast 15 037 15 064 15 086 15 141 Lower Murray a 20 495 20 553 20 643 20 732 Far North and the Peninsulas 246 246 246 246

Total 69 970 70 366 70 847 71 275 New South Wales and ACT

Hunter Valley 2 628 2 638 2 654 2 659 Big Rivers (excl. Murray–Darling) a 21 188 21 375 21 487 21 703 Central Ranges 5 126 5 139 5 180 5 215 North and West New South Wales 288 288 291 294 Southern New South Wales 1 507 1 509 1 523 1 534 South Coast 359 361 362 362 Australian Capital Territory 70 70 70 71

Total 31 166 31 381 31 568 31 838 Victoria Central 4 269 4 296 4 336 4 368 North East 3 046 3 053 3 069 3 097 Gippsland and Port Phillip 4 326 4 344 4 396 4 432 North West and Western Victoria 1 702 1 723 1 807 1 818

Total 13 343 13 416 13 608 13 715 Western Australia

South West Australia 9 202 9 311 9 382 9 403 Greater Perth and Other Western Australia 1 115 1 121 1 132 1 137

Total 10 316 10 433 10 514 10 541

Murray–Darling – Swan Hill a 18 630 18 711 18 839 18 889 Tasmania 1 229 1 251 1 276 1 318 Queensland 690 694 705 711

Australia 145 343 146 253 147 356 148 286 a Inland irrigated zone. f Forecast. z Projection.


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Production in the inland irrigated and cool climate zones The inland irrigated zones across Australia produce approximately 60 per cent of the national crop and are characterised by a greater reliance on irrigation, higher yields and generally lower wine grape prices than cool climate zones. The inland irrigated zones include the Lower Murray zone of South Australia, the Big Rivers zone in New South Wales and the Murray–Darling–Swan Hill zone, which covers parts of both Victoria and New South Wales.

In 2012–13, yields across the inland irrigated zones are forecast to average around 18.2 tonnes a hectare, compared with 17.8 tonnes a hectare in 2011–12. The rise in yields this year can be attributed to improved seasonal conditions; good canopy coverage that protected fruit from extreme heat; and good water availability and soil moisture in the eastern states. Despite the improved yields across the inland irrigated zones, production in the Lower Murray zone and in the Murray–Darling–Swan Hill zone is expected to rise only slightly, by less than 1 per cent. A more significant increase is forecast for the Big Rivers zone, where wine grape production in 2012–13 is forecast to be 14 per cent higher than 2011–12. In the two years to 2014–15, wine grape production in the inland irrigated zones is expected to increase slightly, relative to 2012–13. This projection is based on the assumption of favourable seasonal conditions and, accordingly, a return of yields in these zones to more long term average.

Wine grape production in cool climate zones (which include all other Australian zones outside of the three inland irrigated zones, see Table 10) is expected to increase by almost 15 per cent in 2012–13 compared with 2011–12. With seasonal conditions in the eastern states and Western Australia generally warm and dry, average yields are estimated to be about 14 per cent higher. In the two years to 2014–15, wine grape production in the cool climate zones is expected to increase 4 per cent relative to 2012–13. This projection is based on the assumption of favourable seasonal conditions and, accordingly, a return to longer term averages.

Implication for financial performance of wine grape growers The average wine grape price increased 9 per cent in 2012–13, as collected by Wine Australia in the Wine Grape Purchases: Price Dispersion Survey. This was driven by stronger demand for premium wine grapes due to the growing demand for premium Australian wines in export markets. This is supported by WGGS results indicating a high focus on quality wine grape production. The financial performance of wine grape growers is expected to improve in 2012–13 as a result of growth in wine receipts outstripping any rise in the cost of production. The result is expected to differ between zones with cool climate zones benefiting more than inland irrigated zones from stronger increases in both production and price. In 2012–13, the average wine grape price in the inland irrigated zones increased by only 5 per cent compared with a 19 per cent increase in the cool climate zones (Wine Australia 2013).

Assuming demand for premium Australian wines continues to improve in export markets, the increase in wine grape production projected for 2013–14 and 2014–15 should not adversely affect the average price received by wine grape growers. This also assumes competition in export markets does not intensify and seasonal conditions are favourable. Under these conditions, wine grape growers can expect stronger farm cash income.


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Appendix A: Australian wine grape production zones Table 12 lists the Geographical Indication (GI) zones and regions as defined in the Register of Protected Names maintained by Wine Australia (formerly the Australian Wine and Brandy Corporation).

Table A1 Wine grape zones and regions of Australia

Zone Region New South Wales

Big Rivers (excl. Murray–Darling) a

Perricoota/Riverina/other

Central Ranges Cowra/Mudgee/Orange/other Hunter Valley Hunter/other Southern New South

Wales Canberra District (NSW)/Gundagai/Tumbarumba/ Hilltops/other

South Coast Shoalhaven Coast/Southern Highlands/other North and West New

South Wales Western Plains/New England Australia/Hastings River/Northern Slopes/other Northern Rivers

Queensland Queensland Granite Belt/South Burnett/other Victoria North East Victoria Alpine Valleys/Beechworth/ Glenrowan/Rutherglen/King

Valley/other Central Victoria Bendigo/Goulburn Valley/Heathcote/Strathbogie

Ranges/Upper Goulburn/other North and West

Victoria Grampians/Henty/Pyrenees/other Western/other North West


Geelong/Macedon Ranges/Mornington Peninsula/Sunbury/Yarra Valley/other Port Phillip/other Gippsland

South Australia Mount Lofty Ranges Adelaide Hills/Adelaide Plains/Clare Valley/other Barossa Barossa Valley/Eden Valley/other Fleurieu Currency Creek/Kangaroo Island/Langhorne

Creek/McLaren Vale/Southern Fleurieu/other Limestone Coast Coonawarra/Mount

Benson/Padthaway/Wrattonbully/Robe/Bordertown/other Lower Murray a Riverland/other Far North and the

Peninsulas Southern Flinders Ranges/The Peninsulas/other Far North

Western Australia

Greater Perth Perth Hills/Swan District/Peel/other

South West Australia Blackwood Valley/Geographe/Great Southern/Margaret River/Manjimup/Pemberton/other

Other Western Australia

Central WA/West Australian South East Coast/Eastern Plains, Inland and North of Western Australia

Tasmania Tasmania Tasmania Australian Capital Territory

Australian Capital Territory

Canberra District (ACT)/other

Murray Valley Murray–Darling–Swan Hill a

Murray–Darling (NSW)/Swan Hill (NSW)/Murray–Darling (Vic.)/Swan Hill (Vic.)

a inland irrigated zone. Source: ABS 2010


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Appendix B: Survey methods and definitions Survey design This survey of wine grape growers was designed from a population list drawn from the Australian Business Register (ABR) and maintained by the Australian Bureau of Statistics. The ABR comprises businesses registered with the Australian Taxation Office. The population list provided to ABARES consists of agricultural establishments with a corresponding geography code (currently Australian Statistical Geography Standard), an industry classification (ANZSIC–Australian and New Zealand Standard Industrial Classification), and a size of operation variable.

The target population for this survey was farming businesses assigned to the grape growing ANZSIC (0131) that had 10 hectares or more planted to wine grapes. As ABARES had no size of planting information, the target population was grouped into strata defined by GI zones and size of operation. A filter question was asked about the size of the wine grape plantings. A sample of 1000 farm businesses was initially selected with a reserve of 1500. The sample allocation was a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable, and an allocation proportional to the population of the stratum.

The method of collection for this survey was by telephone interview with the owner–manager of the farm using a computer-assisted telephone interview application. The telephone interview method adopted for this survey was similar to that used by Statistics Canada for the Farm Financial Surveys. Questionnaires were mailed to owner–managers a few weeks prior to collection for reference during the interview. Physical, financial and vineyard-management information was collected pertaining to the 2011–12 financial year.

The telephone method has limitations, including the need to keep the questionnaire short and the difficulty of obtaining farmers willing to provide financial information over the phone. The response rate for this survey was around 18 per cent.

Sample weighting ABARES survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. Sample weights were calculated so that population estimates from the sample for numbers of farms, and the area planted to wine grapes corresponded as closely as possible to ABS estimates from data collected from the 2012 ABS Vineyards Survey.

The weighting methodology for this and other ABARES surveys uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described by Bardsley and Chambers (1984).

Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects both the strategy of sampling a higher fraction of the large farms than smaller farms and the relatively lower numbers of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output.


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Sampling errors Only a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called ‘sampling errors’.

The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, state and national estimates are likely to have lower sampling errors than zone-level estimates.

To give a guide to the reliability of the survey estimates, standard errors are calculated for most of the published estimates. These estimated errors are expressed as percentages of the survey estimates and termed ‘relative standard errors’.

Calculating confidence intervals using relative standard errors Relative standard errors can be used to calculate ‘confidence intervals’ that give an indication of how close the actual population value is likely to be to the survey estimate.

To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6000. This is one standard error. Two standard errors equal $12 000.

There is roughly a two-in-three chance that the ‘census value’ (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $94 000 and $106 000 ($100 000 plus or minus $6000).

There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $88 000 and $112 000 ($100 000 plus or minus $12 000).


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Appendix C: Methodology for projecting wine grape production Projection procedure The projections of wine grape production contained in this report are generated from estimates of yields and wine grape bearing areas. Projections are made for total wine grape production in 22 wine-producing zones in Australia.

These wine zones are defined by the Australian Bureau of Statistics (ABS), which collects detailed statistics on the Australian grape growing industry each year from grape growers (ABS 2012, 2011). Australian geographical indication (GI) zones are official descriptions of Australian wine zones as defined in the Australian Wine and Brandy Corporation Act 1980. For more details on Australian GI zones, see the Wine Australia website at www.wineaustralia.com.

In 2012 the ABS again undertook a census of Australian wine grape production. The scope of the 2012 Vineyards collection was agricultural businesses recorded on the ABS Business Register (ABSBR) above a minimum size cut-off of $5000. The measure of size was based on either the ABS Estimated Value of Agricultural Operations (EVAO) or a derived value based on Business Activity Statement (BAS) turnover. The ABSBR is based on the Australian Business Register (ABR) which is administered and maintained by the Australian Taxation Office (ATO) (ABS 2012).

Until 2009, and again in 2010, the ABS conducted an annual census of Australian wine grape production, which included up to 48 different wine grape varieties and covered up to 94 wine-producing regions. In 2009, the scope of the data collected was reduced and only a survey was conducted. The ABS collected data for nine selected premium wine grape varieties, including bearing area, non-bearing area and the quantity harvested for winemaking. Information was also obtained about the amount of the non-bearing area that was planted or grafted on in the previous 12 months, as well as the area that was non-bearing for more than a year.

In 2011 the collection was part of the 2011 Agricultural Census rather than its own census. As such, only four pieces of information were collected from each GI region: total wine grape production; total bearing area; total non-bearing area; and the area removed from production by grubbing or abandoning to die after the 2010 harvest but before the 2011 harvest. In 2011, the non-bearing area data do not distinguish between what was planted or grafted on in the previous 12 months and what had been non-bearing for more than a year.

As a result of the reduction in the scope of the 2009 and 2011 data, it has not been possible to report detailed information over a continuous period on the 48 varieties for each of the GI regions. For that reason, production for only the nine selected premium wine grape varieties is reported, with all other varieties captured by estimates for ‘all other reds’ and ‘all other whites’. Despite this, the collection of viticultural data continues to provide information about the current state of Australian viticulture and is crucial to the projections of future wine grape production reported here.

As grapes are perennial, the bearing area of grapes next year is determined mostly by the area of grape vines that are currently bearing fruit. It is also affected by the area of grapes planted or grafted on in previous years that will bear fruit next year (a portion of the current non-bearing area). In addition, it is possible that growers might take grape vines permanently out of

http://www.wineaustralia.com/


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production between the current harvest and next year’s harvest, which is a practice known as grubbing. They may also abandon the vines to die if the cost of grubbing is prohibitive.

The need to merge data from the 2009 wine grape survey with the 2010 census data and the 2011 agricultural census data required some calibrating of estimates about the future bearing areas of wine grapes other than those reported in 2009. For 2011, production and bearing area by variety were estimated by apportioning the reported total wine grape production and bearing area for each GI zone according to the share of production and bearing area by variety in 2010. These 2011 varietal estimates are not reported in this document but were used as a basis to apply changes to average yields across varieties within the GI zones. Based on this intertemporal relationship, the following model is used to estimate future production:

Giprojt+1 = (BAi,t+ PLiprojt–k – RMiprojt+1) * Yiprojt+1

where Giprojt+1 is projected production of wine grape variety i at year t+1; BAi,t is the current bearing area; PLiprojt–k is the portion of the current non-bearing area that was planted or grafted on in an earlier year t–k, but is projected to be bearing next harvest (k = 3 for warm climate regions and k = 4 for cool climate regions); RMiprojt+1 is the projected area of grape variety i that will be removed or grubbed next year; and Yiprojt+1 is the estimate of next year’s yield per hectare for wine grape variety i. The portion of the current non-bearing area that is expected to come into bearing in the future is determined by estimating an age profile of the current non-bearing area that is more than one year old—that is, the area that was not planted (or grafted on) last year. For 2011, the non-bearing area that is less than one year old is estimated to be the difference between the total non-bearing area in 2011 and 2010.

The age profile of the non-bearing area that is two years of age and older is assumed to reflect the relative size of new plantings (and grafting on) over recent years. For the cool climate regions it is assumed that it takes four years for newly planted vines to reach a full commercial bearing age, while in the warm inland regions it is assumed to take three years. Hence, for warm climate regions, for example, the proportion of total plantings from two, three and four years ago is used to apportion the total non-bearing area that is currently reported to be at least two years old. The apportioned areas provide estimates of PLiprojt–k, the areas that are to become bearing in the future. For cool climates, total plantings from two, three, four and five years previously are used in a similar manner to determine the additions to bearing area in the future.

Ideally, the area grubbed next year should be subtracted from the bearing area. However, given the very small area of grapes that have historically been grubbed or grafted off according to ABS data, and that future decisions by growers to grub are too difficult to forecast with any objectivity, they were assumed to be zero and excluded from the projections model.

According to the model provided above, estimated wine grape production for the specified varieties in 2012–13 is calculated as the sum of 2011–12 bearing area and the portion of non-bearing area reported in 2011–12 that is expected to reach commercial bearing in 2012–13 (four years old in cool climate regions and three years old in warm climate regions), multiplied by the projected yield in 2012–13. To forecast grape production for the following year, 2013–14, the area expected to become bearing in 2013–14 is added to the estimate of the bearing area in 2012–13 and the total area multiplied by the projected yield.


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Calibration Previously, ABS estimates of wine grape bearing areas have been calibrated using production estimates collected by the Australian Regional Wine Grape Crush Survey (ARWCS). This was done because the ARWCS historically had greater coverage of wine grape growers and, accordingly, the production estimates from this survey were greater than those estimated by the ABS survey.

In recent years, the coverage of the ABS vineyards survey has increased, and the ABS estimate of wine grape production in 2007–08 was 4 per cent higher than the ARWCS estimate. As a result, ABS production estimates ceased being calibrated to the ARWCS results in 2008–09.

The ARWCS is no longer conducted, so the ABS is the sole source of data used for these projections. It should be noted that for some zones the projections contained in this report should not be compared with previous publications. Before 2009, this is mainly in the ‘other’ regions within GI zones where, because of less precise boundary definitions, there were large discrepancies between the ABS and ARWCS estimates. Some zones in 2009 also cannot be compared with previous years because of the ABS’s redefinition of some zones.

Multipurpose and some minor grape varieties are commonly used for purposes other than making wine. Therefore, production projections for these types of grapes based only on the bearing area of the vines would typically far exceed their use for wine. Accordingly, production estimates of multipurpose and minor variety grapes in projections before 2009 were calibrated using the proportion of these grapes that were used for making wine.

From 2009, the bearing area for multipurpose and minor grape varieties for purposes other than winemaking was excluded from the ABS Vineyards Estimates and 2011 Vineyards Australia. As a result, bearing areas from previous years were calibrated to that same area to allow comparisons between bearing area over time. For this reason, historical bearing areas reported in projections from 2009 onwards will not match those from before 2009.

Yields Industry experts and contacts in various regions provided their own views of the effects that the current seasonal conditions had, and were having, on yields in their region. These views were taken into consideration when estimating the yields that were to be used to project production for the 2012–13 harvest. Five-year average yields, extending from 2006–07 and 2011–12, were applied for the following years. Because the ABS did not report across varieties in 2011, the calculation of five-year average yields excluded 2010–11.


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References ABARES 2013, Australian farm survey results, 2010–11 to 2012–13, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

ABS 2012, Vineyards Australia (and previous issues), cat. No. 1329.0.55.002, Australian Bureau of Statistics, Canberra.

ABS 2012, Value of agricultural commodities produced, cat. no. 7503.0, Australian Bureau of Statistics, Canberra.

ABS 2013, Australian wine and grape industry (and previous issues), cat. no. 1329.0.55.002, Australian Bureau of Statistics, Canberra.

Bardsley, P & Chambers, RL 1984, ‘Multipurpose estimation from unbalanced samples’, Journal of Royal Statistical Society, Series C (Applied Statistics), vol. 33, pp. 290–9.

Wine Australia 2013, Winegrape purchases: price dispersion report (and previous issues), Wine Australia, Adelaide, South Australia, available at http://www.wineaustralia.com/australia.

Wine Federation of Australia 2013, Vintage report, Wine Federation of Australia, Adelaide, South Australia, available at http://www.wfa.org.au/information/vintage-report-/ .

WGGA 2013, 'Harvest report 2013', Wine Grape Growers Australia, Adelaide, available at wgga.com.au/wp-content/uploads/Harvest-Report-MAR-2013.pdf (pdf 267kb).

http://www.wineaustralia.com/australia

http://www.wfa.org.au/information/vintage-report-/

http://www.wgga.com.au/wp-content/uploads/Harvest-Report-MAR-2013.pdf

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