Exit strategy: Meet the grape growers still battling China’s wine tariffs

Next year would’ve marked Robert Bellato’s 40th year as a winegrape grower in the Riverina region of NSW.

It’s likely he won’t celebrate that anniversary: a little over a month ago, Bellato listed his two vineyards on the market.

“I’ve seen the highs and lows come and go,” he told the Herald.

Winegrape grower and Riverina Winegrape Growers Deputy chair Robert Bellato in his vineyard at Beelbangera.Credit: Marie Raccanello

Like thousands of other winegrape farmers in Australia’s major inland wine regions, Bellato has been struggling to make ends meet since China imposed its hefty wine tariffs nearly two years ago in what was then a bitter war of words between Beijing and Canberra.

“Honestly, I’ve lost all incentive to farm the last two, three years because of the way that things have been going.”

Decades ago, two or three good years would be followed by two or three bad years, and so the cycle would continue. Now, two good years are followed by seven bad ones.

“The China export market is not coming back for the foreseeable future.”

KPMG national wine advisory lead Tim Mableson

The paperwork has also increased. “We’ve got to abide by all the rules and regulations that just keep coming in – it’s just not an enjoyable occupation for me anymore,” he said.

If the number of other vineyards up for sale is any indication, Bellato’s peers are thinking along the same lines. They are all reckoning with the aftermath of Beijing’s trade strike, which cut off access to the $1.2 billion market virtually overnight. Once upon a time, the world’s second-largest economy accounted for 40 per cent of all Australia’s wine exports.

Chinese wine drinkers had developed a penchant for Aussie red, particularly shiraz and cabernet sauvignon. Much of this is produced in the prestigious wine regions of the Riverina, Riverland and Murray Valley. This south-eastern Australian belt of warm inland regions are the beating heart of the country’s wine production, creating more than 70 per cent of Australian wine each year.

But since November 2020, the wine once destined for Chinese drinkers has had nowhere to go. Export volumes have plummeted by 628 million litres, an amount exceeding Australia’s entire domestic consumption (500 million litres).

The door was closed while 2021 yielded a bumper vintage. Wine barrels are overflowing. In the season just past, some growers harvested grapes only to leave them to rot because there were no buyers and nowhere to put it.

Winegrape growers are left to weigh up whether they should stick it out for a few more years, or make like Bellato and get out.

“Independent grape growers, in particular in the inland regions, will come under extreme price pressure in the next 12 months,” said peak industry body Australian Grape & Wine chief Tony Battaglene.

“So in 2023, I think we’ll probably see quite a number of those decide to exit the industry ... anyone who exports is under pressure.”

The hefty price of growing winegrapes

Australia’s national oversupply has pushed down the value of commercial red wine grapes, and the cost of growing them has now exceeded what winemakers will pay for it.

It costs Bellato $8000 a hectare to produce red grapes, but he expects to make a return of just $4000 to $5000 meaning losses of up to $4000 for the next vintage. “To grow red grape this year is to lose money,” he says.

It hasn’t helped that the cost of production itself has also increased, thanks to another geopolitical disaster that broke out earlier this year some 6450 kilometres away from Beijing.

Russia’s war on Ukraine has put pressure on farmers all over the world: fertiliser, tartaric acid, oak barrels, and even bottles, labels, capsules, and cork prices, have gone up by 20-30 per cent. Like many other industries, labour isn’t just more expensive – it’s harder to find.

Inland red grape growers in Australia are still dealing with the fall-out of China’s hefty tariffs on Australia’s wine industry.Credit: Marie Raccanello

“Producers exposed to [shiraz and cabernet sauvignon] varietals and who are reliant on export markets are producing wine at a significant loss,” says KPMG’s national wine advisory lead Tim Mableson.

Next year’s prospects are looking even gloomier. There’s been some industry chatter that major wineries have told grape growers they’ll only need 50 per cent of their normal intake for the 2023 vintage season. Growers who have secured contracts will get by, but others won’t.

“Too many in the industry still go ahead and produce the wine,” says Mableson. “What it means is, if they can’t sell it, they’ll try to store it for a bit and hope the market improves. In the short-medium term, it just won’t, and that’s because the China export market is not coming back for the foreseeable future.”

The basic rule of supply and demand dictate prices should drop as a result. But the Australian consumer will likely never feel the effects of the national red wine glut: local bottle prices aren’t dropping, since the brands consumed by the Chinese market and the brands Australians are familiar with don’t tend to overlap.

China’s tariffs are closing a chapter on a generation of farmers and vineyard owners and has precipitated a lasting shift in the industry landscape. “What is starting to happen is there will be more and more consolidation in the industry in terms of vineyard holdings and brand holdings,” says Mableson.

It’s already happening: Australia’s largest family-owned wine business, Casella Family Brands, is selling 35 of its vineyards as part of a strategy to focus on brand-building rather than grape-growing. Meanwhile, major drinks retailer Endeavour Group recently acquired Tasmania’s Josef Chromy to expand its portfolio of private labels.

“This strategy may start to put the squeeze on shelf space for those medium to small wine businesses within the major domestic retailers.”

In these transactions, Bellato, Battaglene and Mableson are all in agreement that retailers have the upper hand. “Farmers are price takers not price setters,” Bellato says.

Diversification: Australian red wine’s post-China future

China’s tariffs have forced many producers to get creative. Ashley Ratcliff, a viticulturist and owner of Ricca Terra vineyards in South Australia’s Riverland region, plants 42 different varieties. Ricca Terra’s keg wine and ‘collab’ brand businesses, private-label wines made exclusively for some restaurants, are “booming”.

“Diversification has actually opened up a lot more opportunities to engage with small to medium wine producers in Australia,” Ratcliff said.

Ricca Terra vineyard owner Ashley Ratcliff.Credit:

Ricca Terra hasn’t been immune to the pressures experienced by other grape growers. But the blow has been cushioned by a few smart moves by Ratcliff years ago, who took inspiration from Warren Buffett’s famous investment quote: “be fearful when others are greedy, and greedy when others are fearful”.

Three years ago, Ratcliff’s observations of growers ripping up chardonnay vines to plant shiraz and cabernet prompted him not to do the same but to buy chardonnay vineyards.

“We knew, in time, there’d be a point where some of these varieties will become undersupplied because too much has been replaced by shiraz or cabernet.”

Investing in relationships with two of his biggest customers, ASX-listed global wine giant Treasury Wine Estates and Barossa-based Yalumba, has also paid off. “When the China thing was at its absolute height ... we stayed loyal.”

Bellato is making his own pivots. In the following years before his retirement, he will work as a grape harvester for other vineyards on a contracted basis, and continue to make use of his semi-trailer by delivering wheat and rice for grain farmers.

Ricca Terra wines.

But he’s conscious his counterparts who remain in the industry face difficult decisions: do they plant different varieties? That process takes two to three years. Should they grow nuts, like almonds, instead of grapes? That requires an entirely different irrigation system and incurs costs into the hundreds of thousands.

Farmers “don’t want handouts”, but perhaps some government financial assistance for hard-hit growers is warranted.

“Certain sectors have been suffering,” says Bellato, referring to former prime minister Scott Morrison and his government, under which relations with Beijing frosted to a record-low.

“What he’s done has created this problem for us farmers in coal, barley, winegrapes, several industries. And there’s been no compensation, not even a sorry, or any financial help, or any form of help whatsoever.”

Battaglene has penned an exhaustive list of 21 recommendations to the new Albanese government in a pre-budget submission and says our international reputation has been harmed by our shocking bushfires and laggard approach to climate change. This has translated into a real shift among consumers towards ‘low intervention’ natural wines and lower-alcohol options.

For Ratcliff, this is the next big growth opportunity; but Bellato will have to enjoy it as a consumer, not a grower. “I’m actually quite happy to see the back of these go.”

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