Australia's wine 'cheaper than a bottle of water'

  • 30 December 2014
  • From the section Business
A 750ml bottle of red wine for sale for A$1.00 in a 'throw out bin' at a Wines Direct outlet in Melbourne, Australia
Image caption A bottle of red wine on sale for A$1 on a tasting table in Melbourne

It depends what wine you're looking at and where you get your bottled water, but on some big retailers' shelves in Australia it's not too hard today to find water that is more expensive than wine.

You may be considering a little-known bottle of red that's sitting in a bargain bucket selling for one Australian dollar (53p).

Or you could be about to purchase a well-known white going for A$2.99.

That's all before you spot your favourite four-litre box of cask wine selling for less than A$17.

Whatever you fancy, if you compare your purchase to an average 350ml of bottled water selling for about A$2.50, "then you've certainly got wine that's cheaper than buying a bottle of water," says Prof Kym Anderson from the Wine Economics Research Centre in Adelaide.

"And that does seem a bit bizarre, especially when there's a wholesale tax and a retail tax on top of that," he says.

How did it happen?

Image caption Wine for sale at Woolworths' wine store, Dan Murphy's

It's not the first time this kind of pricing scenario has made news in Australia, but today, the situation according to some experts is quite dire.

Prices across the board have been affected by several interconnected factors, including recent foreign exchange rates, falling international demand, and a glut of product in the domestic market.

Some of the highs that Australia's currency saw against the US dollar from early 2011 until early 2013 have had two major impacts on the wine industry, says Paul Evans, chief executive of the Winemakers' Federation of Australia (WFA).

"A lot of the export volume that we were previously selling to overseas markets has come back to the domestic market as international demand for our wine has dropped off."

This scenario increases competition between local producers, he explains, which in turn drives down prices.

"But of course it provides a commercial incentive for imports to come into the country as well, and we've seen the proportion of imported wine sales in the domestic market increase substantially," he says.

Tax and prices

Another contributing factor keeping wine prices low in Australia is the tax on alcohol, which varies according to the product.

"What you have in Australia is a regime where wine and cider are taxed differently," explains Prof Robin Room, an internationally recognised leader in alcohol research who heads up Melbourne's Turning Point Alcohol and Drug Centre.

"They are taxed on the value of the product as it is sold, rather than on any particular amount of alcohol it has in it,"

This situation, he says, means that if wine is sold very cheaply, then there's a very small tax on it.

"So the people who are making the expensive stuff are taxed at a higher rate, and if they don't make the cheap stuff as well, they feel that they're being treated rather badly."

And this has caused a division in the industry, he says.

Image copyright Getty Images
Image caption Introducing a minimum alcohol price would help reduce drinking-related violence, says Prof Room

One of Prof Room's roles is to help reduce alcohol-related health issues in Australia. So would a hike in the tax paid on cheap wines ease competition on the domestic front, and help reduce some of the wider health issues?

"We would see a reduction in the really serious health problems - and some of the problems of social order and violence from drinking," he says.

Instead, Prof Room says there's been a steady rise in alcohol associated health issues.

"It's particularly true for incidences of people being really heavily intoxicated," he says.

"Ambulance calls have doubled in Victoria in the last 10 years [and numbers] coming into the emergency departments have gone up for intensive drinking related episodes.

"Hospital admissions for liver cirrhosis have gone up," he says.

But he also says that some alcohol in Australia "has been cheap all along" and that taxes aside, developing a minimum price for products "would also be an important way of thinking about reducing alcohol problems".

A duopoly and the winemakers

Another factor keeping the price of some wines very affordable in Australia is a duopoly between two big supermarkets, Woolworths and Coles.

Between them, they control more than 70% of all retail wine sales.

The WFA says it applauds the major investments in the industry that has come from them, but says the situation needs to be reviewed.

"There is a considerable mismatch between the market power of the retailers and winemakers (which) is negatively affecting the wine industry as a whole," says the WFA's Mr Evans.

Image caption Exporting wine in order to cut stockpiles is not necessarily a solution, says winemaker Fergus McGhie

"It reflects in margins and profitability for winemakers, which cascades down to grape growers.

"And we've seen very low profitability there, and in some cases, loss-making at both of those levels in recent years," he says.

Others say the retail duopoly isn't such a bad thing and that the big retailers are helping winemakers battle through a tough time in the market.

One small winegrower from Canberra in the Australian Capital Territory says some retailers like Dan Murphy's, owned by Woolworths, are actually good traders.

"They are definitely helping some growers out with their oversupplies," says Fergus McGhie of Mount Majura Vineyard.

Image copyright Simon Hughes
Image caption Australia's glut of home-produced wine is not sustainable in the long term, says the WFA

"We're meant to reduce our overall stock of vineyard - and therefore of wine being made by about 10%," he says, explaining some of the solutions that have been discussed to help reduce Australia's wine glut.

"And that's across every region. We're told everybody needs to pull out about 10% of our vines to bring things back to balance.

"But nobody wants to do that. And I'm not pulling out 10% of my vineyard. So it's really only the people who don't understand the scenario who whinge about the retail duopoly," he says.

"Those big retailers are just going about doing their job of selling wine - and they do it really well."

For the consumers?

Overall, the cripplingly low prices of a range of Australian wines seem acceptable for some growers, and a win-win for consumers looking for a nice affordable bottle of wine for under $10.

And perhaps it's a win, too, for the big retailers who are being seen as a saviour by some growers in need of reducing their oversupply of product.

But what about the long-term view?

The WFA says the situation is not sustainable and that they are working with the government to help correct it.

"The current situation is seeing a devaluation of the brand equity that many of Australia's winemakers have built up over a long period of time," says Mr Evans.

"But I think even more importantly, in the longer term, it's disconnecting the important link in a consumer's mind between the quality of wine, and the price they're paying for that wine."

"And it's going to be very hard for consumers to go back to pricing that's more relative to the intrinsic value of the quality of that wine they're consuming."

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