|Crunch time for irrigated grapes
By SHAY BAYLY, GrapeGrowers & Vignerons - Australia
Tuesday, 4 December 2007
Grapegrowes in Australia's warm inland regions are facing the difficult task of deciding whether to buy additional temporary water at record-high prices, without having a clear indication of how much return they'll get for their 2008 grapes.
River Murray temporary water is pushing $1200 a megalitre, costing growers more than $200 a tonne extra to produce a commercial grape crop.
Indicative and base prices for grapes have been released by most major wineries but viticulture industry representatives say figures closer to those that will transpire at harvest are needed for growers to make informed decisions about whether to purchase additional irrigation supply.
"Wine Grape Growers Australia (WGGA) did go to wineries earlier in the year, advising them that there was a big risk of the wineries getting less fruit than anticipated, with growers exiting the industry, unless the wineries offered incentive for growers to hang in there," WGGA executive director, Mark McKenzie, said.
Wineries did respond well to this by going out early and indicating prices but these prices need to be higher.
"They're a couple of hundred dollars (a tonne) off the pace," he said.
He warns that wineries need to get 'fair dinkum' about grape prices.
"To be honest, wineries are holding off as long as they can, hoping they don't have to pay too much," Mr McKenzie said.
But Winemakers' Federation of Australia chief executive, Stephen Strachan, says that, like grapegrowers, wineries are facing great uncertainty.
It's simply not possible to establish definitive and excessively high prices for fruit this far out from vintage, he says.
"At this stage, it's an unreasonable expectation," he says.
"The judgement won't be made until they have a better handle on market conditions."
The Murray Valley, Riverland and Riverina produce 60pc of Australia's grape production.
Murray Valley and Riverland growers will most likely need to make the crunch decision this month whether to purchase water or rely on rainfall to see them through until harvest.
"Any growers in the Murray Valley and Riverland, or those relying on the Lower Lakes and Langhorne Creek, have enough water until the end of December," Mr McKenzie said.
"Whether they have enough to finish the crop - that's the question."
As GrapeGrowers & Vignerons went to press, the average indicative prices from wineries in the Murray Valley were:
?Cabernet sauvignon ?$600/t
Murray Valley grapegrowers in Victoria have access to 20pc water allocation, and those in New South Wales are sitting at about the same, receiving half of their suspended 2006-07 allocation, carryover and critical water supply.
Murray Valley Winegrowers' chief executive officer, Mike Stone, says grape prices indicated by wineries so far do not reflect supply and demand coming into balance.
"For the past four years, wineries have been ramming oversupply down the throats of growers as the reason for poor prices," he said.
"Now we would like to see the law of supply and demand actually work.
"Mid-size and smaller wineries have responded well with better prices.
"But the majors just seem to be circling to see who goes first."
But Mr Strachan says supply and demand are not the only factors used in determining prices, with exchange rates and strong international competitiveness playing major roles.
"Prices are going up, but in terms of how much, we don't know yet," he said.
Mr Stachan says the 2008 national harvest could fall anywhere between 800,000 and 1.3 million tonnes.
Riverland irrigators, who had spent $12m on additional water by late October, are sitting at 16pc allocation.
Early grape prices are up 35-50pc on last season, but Riverland Winegrape Growers Association executive officer, Chris Byrne, says some of these prices were announced as far back as September.
"They need to be reviewed with the swelling cost of temporary water."
SOURCE: National GrapeGrowers & Vignerons, December issue.