Exports of wine are on the rise, so why does this industry struggle to survive

The value of exports soared by 14% in 2015 to $2.1 billion. These figures are the best since 2007. The submissions to the Senate Rural and Regional Affairs and Transport References Committee’s Inquiry , due to submit its report on the 12th February 2016, paint a very different picture. The wine industry is in dire need of change, but is its future sustainable given the vast differences between views?

Sustainability of the economy

Senate submissions indicate that all is not what it seems. Winemakers’ Federation of Australia has stated that 70% of Australian wine production may be uneconomic. Pernod Ricard Winemakers (the third largest wine producer) says that 84% of Australian grapes were produced in 2014 at a loss. The wine industry’s economic sustainability is still a major concern.

The Government Senate inquiry is aware of this. Its term of reference has a strong economic focus. The submissions show a litany of woes, both in government and market policy. For example, the issue of being a “price-taker” in a highly competitive marketplace.

Local groups will make the usual claims to gain a relative advantage in economic terms. Wine Tasmania , for example, favors financial incentives and marketing of cool-climate wines and small businesses (it does not have large producers).

, a company that has 25% of the nation’s annual grape crushing in a warm climate, suggests a collaborative strategy to help the industry overcome the problems it has faced over the past decade. For the industry to survive, it is important that there be a balance between competition and cooperation.

The Australian Grape and Wine Authority is responsible for this, and is being criticized (submission 4) because it is focusing on large wineries and neglecting small producers (#26 #27 #34).

The recent fall in the Australian Dollar may be a positive, but if the industry wants to stay viable on the long term, it must address two other sustainability concerns.

Environmental sustainability

The Senate Inquiry’s terms of reference are noticeably silent regarding environmental issues that affect the wine industry. Several submissions cite the environment as being critical to the future of the wine industry.

A wine industry consultant identifies sustainability of the environment as a potential concern.

The industry’s response will be a key factor in determining its differentiation and ability to charge a premium.

A second submission by individual winegrowers claimed that small businesses were ignored by professional wine associations, and they are also not the focus for state organisations despite their contribution towards environmental sustainability. In the submission, it was also stated that small businesses are not adequately represented in the wine industry. About 35% of innovative small wineries were described as “totally unnoticed” by the industry.

The Winemakers’ Federation of Australia understands the importance of leveraging the Australian wine industry’s environmentally friendly credentials, especially when international buyers such as the Liquor Control Board of Ontario and Marks & Spencer are introducing environmental standards into their buying criteria for premium brands.

Wine Australia’s current enthusiasm for short-term economic growth may be stymied by the environmental sustainability of extreme weather, changing seasons and water shortages.

Social sustainability

Despite the fact that many submissions are made, it is often overlooked how important social aspects of wine production, especially those related to small wineries, can be. The industry not only creates employment but also encourages tourism based on “locavore”, foodie, and other cultures. It also supports local communities who would be severely affected if small producers were unable to continue their activities. Only one submission is needed to fully understand the personal desperation of small wineries.

Success is achieved by integrating economic, social, and environmental factors

It is important to question why small producers are ignored at a time where the Australian government is encouraging agility and innovation in business. The evidence from CPA Australia, and This submission indicate that this is not the situation in Asia where social media and direct-to-consumer ecommerce technologies are commonplace. Small businesses are also developing new markets, such as the hospitality and tourism industry.

In Australia, small wine businesses are reporting cuts. One vineyard owner in Griffith, NSW, reports.

We have stopped repairs for soil moisture monitoring, and we’ve reduced the replacement of machinery. We use more cheaper chemicals to control disease and weeds, but some are more harmful than their expensive alternatives.

Sustainable wine production is a complex process that involves economic, environmental, and social factors. If the wine industry is to be sustainable on a long-term basis, then government and wine associations at all levels need to do more to support all producers. They also must take into account innovations that lead to changes in consumer patterns.

How and when can the government, wine industry associations, and the wine business itself become more flexible?

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