Considering the supply side of the market a key in profitability

Deloitte’s latest Agribusiness Bulletin focuses on supply-side forces in light of the most recent Australian vintage. The 2016 vintage was estimated to be 6 per cent higher than the previous year, coming in at 1.81 million tonnes according to the Wine Australia’s Vintage Report 2016 released in July. The average price was the highest since 2009, at $526 per tonne. 

In the period between 2000 and 2007, wine production in Australia consistently surpassed demand. The persistent oversupply resulted in an overloaded inventory, peaking at almost 2 billion litres in 2005-06, which continued to hinder the sector’s profitability for years afterward. Although the severe drought experienced in 2007 helped reduce the inventory levels, a significant imbalance between supply and demand remained.

Since 2008, production levels have been consistent with relatively stable activity in sales and demand. A helping hand from the emerging Asian export markets has reduced the historical imbalance between supply and demand. Although some surpluses still remain, this new-found balance between supply and demand has helped average prices, and has resulted in the highest level achieved across all varieties since 2009. This has led the sector to a significantly more sustainable financial position in 2016 than in previous years.

When specific combinations of variety and region are examined, the supply situation can very quickly become tight. Producers with specific needs for certain blends should ensure that they have adequate arrangements to meet their supply.

Targeting profitable margins for Australian wine

The Gross Margin Ready Reckoner, recently updated by Wine Australia in partnership with Deloitte, is a tool that can help wine businesses calculate their profitability in certain scenarios. It combines user-supplied data with the latest tax information and exchange rates to provide benchmark reports on input costs and the winery’s expected gross margin. It allows the user to model the impact of changes in product mix, pricing, markets and distribution strategies on their profit margin.