AUS: Grapegrowers under the pump as Treasury Wines cuts costs

(AFR) - More than half the country’s 6000 grape growers did not make a profit on their vineyard operations over the past four years, but just as a glimmer of hope arises with improved ­conditions the major wine companies are playing hardball on pricing.

The grape harvest is in full swing in major wine regions and after blistering heat in South Australia and frost in NSW a lower vintage than last year’s 1.83 million tonnes is forecast.

A tough time caused by a grape oversupply, mainly in warmer inland regions that supply lower-quality grapes, has resulted in the exit of more than 500 growers from the industry.

Major wine companies including the ASX-listed Treasury Wine Estates, which is under pressure after a profit downgrade in late January, have signalled lower intakes.

Treasury owns the large Karadoc facility near Mildura which makes ­Lindeman’s and other sparkling wines, and has told growers it is cutting its projected intake for 2014 into that facility by around 20 per cent to 80,000 tonnes.

But growers fear Treasury is clamping down hard on costs as profits slide, and that some of the prices being offered – for chardonnay grapes in particular – are more than 30 per cent lower than past years. They also fear Treasury may be planning to buy extra grapes on the spot market at cheaper prices.

Growers suffering
Mark McKenzie, the chief executive of Murray Valley Winegrowers, which oversees the interests of more than 1300 grape growers in regions around the Sunraysia area in Victoria, said growers were feeling the pinch.

“This is a twin-edged sword,” he said.

Most growers in the region would not be able to meet their costs of ­production this year. The expectation was for a “lighter crop” of perhaps 200,000 tonnes below last year’s total harvest of 1.83 million tonnes, yet wine companies were cutting prices. “We just don’t believe there’s justification for this sort of price-slashing,” he said.

A spokesman for Treasury Wine Estates said pricing for grapes fluctuates from year to year according to ­various factors and the company was confident its “pricing is in line with the market”.

Lawrie Stanford, executive director of Wine Grape Growers Australia, predicts another 500 or so growers will leave the industry. “For the last four years, the average grower has not met their cost of production,” he said.