Private capital drawn to Australian wine industry as export figures improve

Improved Australian wine export figures on the back of a depreciating Australian dollar have raised the profile of the sector as an investment destination for private capital, according to sources.

Australian wine export volumes and values both increased by 1.9 percent in 2014, according to the Wine Export Approval Report released by the Australian Grape and Wine Authority (AGWA) last month.

Wine export volumes increased to 700 million litres and the value of exports increased by the same percentage to A$1.82 billion ($1.42 billion; €1.25 billion), according to AGWA. The number of exporters also rose from 893 to 1,329.

The data coincides with AGWA’s recently-published Strategic Plan 2015-2020 which details plans to increase demand for Australian wine and the industry’s cost-competitiveness. It also coincides with reports that some wine producers are receiving increased enquiries from family offices and private capital to invest into their vineyards, according to a West Australian wine producer who asked not to be named.

But some agri investment firms have decided to invest into other wine markets, citing concerns about volatility in Australia’s wine industry.

“Australia’s wine production market was less interesting to us than New Zealand because it can be a bit more prone to boom and bust through overplanting or certain grapes and so on,” said Griff Williams, investment director at global farmland fund manager Milltrust. “Vineyards have a long lead time, so once you have planted too much, there is not much you can do to control the oversupply later down the line.”

“New Zealand has been very successful in building brands and selling them into the Asian, European and US markets which gives them the ability to provide investors with more stable returns,” he added.

A prominent family office principal with investment in agriculture and wine told Agri Investor that “even with a 25 percent fall in the Australian dollar, the cost of production is still very high in Australia versus Chile and Argentina which have stolen its markets. Too much has been planted by people who are buying a dream, not investing in a business.” And this can be highlighted by the vineyards lacking potential for economies of scale, he added.

One permanent crops fund manager said he was put off investing into wine production because of the extra aspects that are less relevant in agricultural commodities. And Milltrust’s Williams agrees that “wine production is almost more about branding, marketing and labelling than it is about primary production”, he told Agri Investor.

“The wine industry is akin to the fashion industry; grape varieties go in and out of fashion and unless the vineyard or label has strong brand loyalty that will be reflected in the price you get,” said Williams. You need to be in the know about which grape varieties are rising in popularity and which aren’t, and you need to know the rising brands.”

Premium Australian wines contributed the most to a 7 percent average increase in the price of a bottled wine to A$4.85 per litre in 2014; its highest price in a decade, according to AGWA.

“The ultra-premium above A$50 segment grew 55 per cent, hitting a record A$107 million,” said AGWA’s acting chief executive Andreas Clark in a press release. “While the segment only accounts for 0.8 per cent of the total volume, it contributes 8 per cent of the total value of bottled exports.”

The UK is Australia’s biggest export market as bottles then travel to Europe from there. Demand from Asia weakened in the wake of austerity measures by the Chinese government in 2012 although export volumes to China have nearly recovered to pre-2012 levels, according to the release.