THE pendulum in the wine grape market is beginning to swing back to equilibrium and is gaining momentum.
Over the past five years we have seen true economic principles at play. Supply has declined and consumption has increased, leading to what will be a long awaited change in the cycle for winemakers and vignerons.
The last vineyard census completed in December last year revealed that the total area planted to vineyards had contracted by approximately 13,300 hectares, or nine per cent, since 2012.
Contrary to this, the overall value of Australian wine exports have increased by 11 per cent from July 2015 to June this year.
And for the first time since the mid-2000s the value of wine has increased across all price categories.
A major driver of this overall growth is the increase of exports to Northeast Asia.
Notably, exports to mainland China have increased by 50pc in the last 12 months, from $210 million to $419m.
These emerging supply and demand constraints are beginning to have an influence on vineyard prices, with noticeably more enquiry being received for winery and vineyard assets, particularly from new entrants who are identifying this disparity.
This year the weighted average price for Riverina wine grapes saw only a minor increase of 7pc, which still provides limited profitability to growers.
However it is expected that increased competition for wine grapes will influence some larger wine companies to enter into longer term wine grape supply agreements to secure their position and limit any future sharp rises in fruit prices.
Since June, Colliers International estimates that there has been about 5600ha of vineyards sold across the larger warm climate regions of Riverina, Murray Darling and Riverland. This is greater than the total area that had transacted in the previous three years.
There are a number of new purchasers in the market who are either looking to acquire both winery and vineyard assets in an attempt to gain vertical integration. There are also strategic investors who have the confidence of a supply agreement with a winery.
These investors are both large corporate buyers as well as existing operators that have held strong balance sheets.
As enquiry for vineyards increases I believe we will see greater competition and an eventual upward movement in the rates disclosed – it all just depends on how far the pendulum swings!
- Based in Sydney, Alex Delves is Colliers International’s associate director, valuation and advisory in the rural and agribusiness team. Contact Alex, (02) 9257 0362.