Boom to Bust in Oz

The Australian wine industry is undergoing a reversal of fortune.
   Less than a decade ago, Australian wine was one of the most popular beverages in North America. Bottles of old-vine Shiraz and Grenache routinely sold for $50 to $100, and collectors lined up for them. Allocations were tight in most parts of the United States, and the best Australian wines were regarded as trophies. It was a heady time Down Under, as the large producers experienced explosive growth and entrepreneurs rushed in to start their own boutique wineries.
   The boom resulted in a serious oversupply of Australian wine—a surplus of 100 million cases by 2009. Since then, things have gotten even worse. The global recession sharply reduced demand for wines more than $50, a category frequently referred to by retailers as “the dead zone.” At the same time, the strength of the Australian dollar resulted in price increases across the board. This situation proved disastrous for lower-end wines, such as Yellow Tail, and exports plummeted. In the high-end category, the series of devastating wildfires in Victoria destroyed many of those new boutique wineries. Huge companies, such as Treasury Wine Estates (which controls brands such as Penfolds, Lindeman’s, Rosemount and Wolf Blass), have slashed prices by as much as 50 percent. As a result, many growers are having trouble selling their fruit.

   History buffs will recall similar events in the Australian wine industry have happened before. After five years of oversupply and low prices during the 1980s, the government was forced to take action. In 1987, Australia instituted a program known as The Great Vine Pull, in which growers were actually paid to rip up older vines and undesirable grape varieties. Unfortunately, this resulted in the removal of thousands of acres of priceless old Shiraz vines—and the loss of fruit that would have made wines commanding stunning prices during the next boom.

   As the worldwide economy improves, there are glimmers of hope. While the segments of the market more than $50 and less than $10 remain sluggish, most industry sources report improvement in sales in the $10-to-$15-per-bottle price range, a level where many consumers feel comfortable purchasing wine for daily drinking. There has been increased interest in the States (Australia’s second-largest export market after the United Kingdom) and China, which seems to be the salvation of large numbers of wine producers lately.

A 2010 bottle of Penfolds Cabernet-Shiraz Bin 389, from Australia’s Treasury Wine Estates, sells for about $60 in America.

   At the highest levels, ironically, demand for the top wines remains intense. Chris Ringland Three Rivers Shiraz sells for at least $500 per bottle when you can find it, and perennial favorites such as Penfolds Grange and Shiraz from Henschke Hill of Grace Vineyard frequently cost more than that. However, these wines are anomalies. They are true collectibles, made in small quantities and prized by some connoisseurs just as much as First Growth Bordeaux or Burgundy Grand Crus.
   Every indication shows help is on the way. The Australian government is getting involved in a more strategic manner than it did in 1987 through the Wine Australia Corp., a statutory body established with the goal of supporting the industry in export markets. At the same time, the Winemaker’s Federation of Australia has released an action plan that focuses on tax incentives, global competition and the thorny issue of supply and demand. The hope is these efforts will restore Australian wine to what it once was: an affordable indulgence, luscious and brimming with fruit, that makes a gracious addition to dinner tables worldwide.