Sour grapes: growers feel the pinch as wine glut bites

Too much of a good thing is causing headaches in the wine industry, writes Nick O'Malley.

BILL CALABRIA, the owner of West End Estate at Griffith, began his brutal round of interviews in June last year. He called each of his growers one by one to the winery for a meeting.

They knew to expect bad news. Some brought their sons, others their wives - the wine business is still family business in Griffith. On his side of the conference table Mr Calabria had his son, Michael, West End's general manager, and his chief wine maker, Brian Currie.

Together they laid it out. Not just Australia, but the whole world was awash with cheap wine. The growers were facing serious cuts - not only in the price they would be paid per tonne of grapes, but to the number of tonnes they sold. For Mr Calabria's 40 growers, that meant each would lose, on average, about 20 per cent of their income. Some would be paid less per tonne than it cost them to grow the grapes.

Mr Calabria had little choice - Australia is sitting on a wine surplus equivalent to 100 million cases. About 40 million more cases are expected to be tipped into that pool over the next 12 months.

According to Mr Calabria the glut is not so much a sudden crisis as a slow-motion train wreck.

The wine market has been exploding in Australia and around the world since the mid-1990s, when prices for grapes grew and stayed high. Growers flooded into the market, as did investment money from Australia's superannuation pool. The same thing was happening in South Africa, Argentina and California. Then New Zealand arrived on the market. The Australian dollar crept higher as our economy survived the global collapse. The high dollar eroded hard-won markets in Britain and the United States.

Meanwhile, Coles and Woolworths have moved into the local market with Liquorland and Dan Murphy's, among others, forcing the retail price of wine lower still. Good news for drinkers, heartbreak for the industry.

The impact on a town like Griffith is pervasive. Here wine growers and wineries operate side by side in a sometimes tense symbiotic relationship. The town itself depends on the industry - farm supply and equipment shops are facing losses which will be passed on to the main street. Employment will shrink as growers and wineries cut costs.

John Cassella, whose winery exports a staggering 100 million litres of the famous Yellow Tail brand, believes growers simply did not believe the wineries when they started warning of an impending glut some years ago.

''They thought it was rumours spread by wineries to cut costs. It wasn't. It was a fact,'' he says.

No one doubts there is a crisis any more, just as no one seems to know how to fix it, or who, if anyone, is to blame.

Darren De Bortoli's grandfather Vittorio went from growing grapes to making wine in 1928 when the Depression started to bite and he found he could not sell his crop. Today Darren, the general manager of the empire Vittorio founded, has a reputation in town for being a tough businessman with a frank turn of phrase.

Sitting among vines at his winery in the sunset, drinking beer with a handful of staff and growers, the man himself seems hard to reconcile with the reputation, until talk turns to the glut.

''They are fools, it's a well-documented fact,'' he says, half in jest, of the local wine growers association. Mr De Bortoli believes the Riverina Wine Grapes Marketing Board should have seen the crisis coming and better informed its members. Instead, he says, ''they declared war on us''.

As evidence he produces a 2008 clipping from the local paper, headlined ''Time to declare war on wineries''. In it the board's chief executive, Brian Simpson, criticises wineries for proposing lower prices in the year ahead, given the larger than expected crop. In June that year De Bortoli posted a profit of $20 million. A year later the company suffered a loss of $1.6 million.

''It's all part of the agribusiness cycle,'' says Mr De Bortoli.

Later that evening, walking through a field of abandoned grapes that had once been destined for De Bortoli, the board's chairman, Bruno Brombol, a grower himself, rejects Mr De Bortoli's criticism.

''The majority of growers don't grow grapes if they don't have a home to go to,'' he says.

Mr Brombol says grapes now in glut were planted at the behest of wineries, but since much business is done over a handshake, the makers have no contractual obligation to buy them.

Mr Simpson offers two solutions. A code of conduct has been written that would formalise the relationship between the growers and the makers, but few wineries have signed it, he says. Second, a clear national registry of what stock exists to better manage supply should be maintained.

But, he concedes, some vines and some growers will not survive the current glut.

''Everyone says we have to shrink the crop,'' says one of Griffith's smaller growers, Kevin Sternberg. ''But who's going to pull up their vines first?''