Water worries ahead for SA’s wine makers

The demand for SA’s wine is insatiable but issues with water cost and availability were evident in the state’s lower-that-average vintage — and the problem isn’t going away any time soon.

A lack of available water was a key factor in the lower-than-average South Australian wine vintage this year, with grower yields halved in some regions.

The lack of water meant bulk wine availability is very limited, and the National Australian Bank is predicting prices will firm across all regional wine varieties, but predominantly reds.

NAB regional customer executive for South Australia and the Northern Territory Joe Paparella said while the impact of water availability and pricing was different across the state, there was no doubt it continued to be a source of concern for growers.

“Many growers haven’t got enough water, and are leasing at expensive prices which is biting into cashflow and affecting their margins,” he said.

“Growers carry all the agriculture risk. Yields variations, adverse weather conditions and water pricing are very hard to mitigate or influence.”

NAB managing partner, Stephen Stegmeyer said water allocations were tipped to become more expensive, on the back of increased development of permanent crops like almonds.

“These crops are high value, which allows growers to be very competitive in the water market,” he said.

“(Permanent) water allocations in SA currently sit around $6000 per megalitre. Should the upward trend in permanent crops and reduced water availability drive this up to around $10,000 per megalitre, this would equate to a material cost of roughly $100 per tonne for those wine grape growers needing to secure additional water.”

Winemakers are having to buy water in to keep their grape vines alive.

Mr Stegmeyer, said water availability was critical to heat management for wine grape growers.

“Growers in SA rely on a mix of water sources — including the Murray system, treated water, and groundwater,” Mr Stegmeyer said.

“Both the Clare and Barossa regions struggled with water availability this year. With very little bulk wine in the market, some winemakers are paying up to $4 per litre for generic bulk wines to supplement lower yields.”

Despite low yields and tight bulk wine supplies, the impact on pricing is expected to be subdued with many growers contracted to wineries under agreed pricing structures.

“Demand has outstripped supply in the Barossa for several years now, so many growers there are already operating with favourable pricing arrangements,” Mr Stegmeyer said.

Looking abroad, international demand for bulk and premium wine is not slowing, with China and Europe key players.

“Demand in the Asian market for high quality wines is insatiable, and any drop in yield may be offset by increased export prices for those who can access it,” Mr Stegmeyer said.

“If the exchange rate dips below USD70c, we will likely also see a spike in European export demand.”

Meanwhile, Riverland Wine executive chairman Chris Byrne has welcomed an interim report released by the Australian Competition and Consumer Commission into its study of the wine industry.

The report stated harmful market practices ware restricting competition in some wine grape growing regions, including the Riverland.

“The report sets the scene for some constructive review of some behaviours that may be impeding best practice in many relationships between winegrowers and winemakers,” Mr Byrne said.

“It presents an opportunity for growers and winemakers to examine the true competitiveness of the grape and wine industry; to renew the focus on best practice, continuous improvement and research, development and extension but especially to examine whether or not sustainability is taking its place alongside productivity, efficiency and profitability.

“The ACCC initiated this study of their own volition. It will be important now for all stakeholders to listen to others’ points of view and have input to policy settings where appropriate. It offers the chance for industry to embrace and encourage value-chain principles in the inland regions, especially if it leads to increased retention of the wealth generated through primary production for reinvestment, where it contributes to sustainable growth and prosperous communities.”