Q: You have recently been quoted as saying global prices are expected to rise over the next 12 months, with the precarious 2016 vintage threatening global supplies. What are the factors contributing to your view?
Denys Hornabrook: We are entering a really interesting phase where the pendulum is moving toward demand and applying price pressure. There’s now an increasing likelihood there’ll be a further tightening of global supply. Look at the constraints on what was produced in 2016. South Africa has had its worst vintage in four years, Chile its worst in five and Argentina its worst in 10. But that’s now being compounded by the US having average yields and large yield deficits throughout France and Italy, and especially Spain. Our VINEX Global Price Index which monitors the five major varieties produced around the world shows prices have already increased 21.5% since January. Sauvignon Blanc (heavily weighted by NZ) is the only variety that hasn’t increased in price.
Q: What signs are you seeing of the market responding to this potential reduced supply?
DH: We’ve seen domestic and international buyer registrations increase to access the exchange and then sourcing listings being added to secure additional current vintage supply. Also, several pre-harvest forward contracts have been traded with buyers wanting to hedge some of their 2017 requirement. So there’s a growing sense of a shortage, and buyers’ in-tune with the market are beginning to take early longer-term positions.
Q: What influences are currently affecting Australia’s global competitiveness?
DH: Our cost base, which is largely within our control, but still too high. Every grape and production dollar must extract greater value without compromising quality for Australia to remain competitive. Unfortunately not within our control and proving to be a major factor is the falling value of the GBP against the AUD. By value, the UK remains the largest market for bulk wine imports, importing £459 million worth of bulk wine in 2015, the vast majority of which comes from Australia. In absolute terms the AUD is +26% vs same time last year, and more importantly relative to the USD (used by Chile) is +6% and EUR (used by South Africa) is +5%. This is generating some serious concern. The AUD needs to be more competitive. This means for the increasing volume of varietal wine universal in style, going under brands that are increasingly not region specific, Australia will struggle to be competitive through 2017, unless there’s a quality difference, or if competing Southern Hemisphere countries have ongoing supply challenges, like in 2016.
Q: The market news and price analysis you’re publishing is comprehensive. Are all producers happy with VINEX providing such transparency to the industry?
DH: There’s been some initial concerns about the ease of access and the level of detail. Arguably producers have contributed to the ambiguity around price for their advantage in the past and that’s now going to be harder. Really though, any astute seller or buyer has always been able to make a fairly accurate assessment of the market. Now of course we live in a world rich with information from a myriad of near real-time sources. We’re not publishing any information that’s not available from other sources in the industry. What we are doing however, is making sure it’s objective, credible and timely.