Australian wine sector tries to stop oversupply

Challenger Wine Trust says the wine industry is facing major issues. Photo / Sarah Ivey

The Australian wine sector is moving to reduce its oversupply of wine, with grape growers ripping up vines or leaving fruit to wither, says the Challenger Wine Trust (CWT).

CWT on Thursday posted a 17.5 per cent drop in first half profit and said the wine industry was facing major issues that would challenge it for several years.

CWT is a fund that invests in vineyards and other wine infrastructure assets and is Australasia's second largest vineyard owner.

It owns and manages 22 vineyards, including two wineries, across Australia and New Zealand. CWT leases the vineyards to wine companies.

On Thursday, the trust reported a net profit after tax for the six months to December 31 of A$2.4 million ($3 million), down from A$2.9 million in the prior corresponding period. This was after the revaluations of 11 properties reduced values by A$5.3 million. Operating profit was A$7.3 million, down 13.3 per cent, affected by lower property income.

Trust fund manager Nick Gill said the outlook for the wine industry was testing. "In August, I said we are in challenging environment. Today, I say it again and will do so for the next year or so," MGill said in a market briefing.

The industry faced an oversupply of wine stock, excess vineyard capacity and a strong Australian dollar that was hurting exports, particularly to the United States and Britain.

All factors led to lower prices for grapes. "It's not until now that the full impact of the current oversupply metrics appears to have hit the grape growers," Mr Gill said.

"We now know that vineyards are being removed, increasing numbers of grapes are being left on the vine, and the move to balancing demand and supply has commenced."

Mr Gill said the wine industry would be undergoing change over the next two to three years.

While the transformation occurs the financial conditions for growers would remain tough.

"Looking forward, we would expect some continuing pressure on vineyard values as the impact of lower grape prices fully filters through," Mr Gill said.

According to industry figures, about 30,000 hectares of an estimated 157,000 hectares under vine are now surplus to market requirements.

CWT said the New Zealand wine industry was facing similar issues, particularly an oversupply of sauvignon blanc grapes, despite considerable export success.

Gill said CWT had produced a solid result for the first half despite the challenging industry conditions. He said CWT's cashflow remained healthy.

A net liability of A$21.7 million reported this time last year, arising from the mark to market of interest rate swaps, had been reduced significantly to $6 million, he added.

CWT confirmed an interim distribution per unit of 3.25 cents and forecast a distribution of seven cents per unit for the 2009/10 year. CWT units were 2.5 cents higher at 29.5 cents on Thursday.

- AAP