Annual Report

Transcription

1 Annual Report

2 Published by: Wine Australia Corporation National Wine Centre Industry House Corner Hackney and Botanic Roads, Adelaide SA 5000 Postal Address: PO Box 2733, Kent Town, SA 5071 Telephone: Facsimile: enquiries@wineaustralia.com Website: Wine Australia Corporation 2013 ISSN This work is copyright. Textual information in this report may be reproduced in whole or in part, provided the information is not sold or used for commercial benefit and its source ( Wine Australia Annual Report ) is acknowledged. Reproduction of text for other purposes, and storage or reproduction of any photographs or other graphical material in the report for any purpose is prohibited without the prior written permission of Wine Australia Corporation.

3 Contents OVERVIEW 4 Our mission 4 What we do 4 Stakeholders and other industry partners 4 CHAIRMAN S REPORT 5 CHIEF EXECUTIVE S REPORT 8 YEAR IN REVIEW 12 State of the industry 13 Market development 17 Wine sector intelligence 23 Compliance 26 Trade 28 Geographical indications 30 Financial results 30 Market overviews 31 The ORGANISATION 45 Board 46 Committees 48 Enabling legislation 50 Accountability 50 Corporate governanace 51 People 53 FINANCIAL STATEMENTS 55 APPENDICIES 94 Appendix 1 Corporate directory 95 Appendix 2 Wine industry statistics 96 Appendix 3 Glossary of terms and acronyms 98 Appendix 4 Compliance index 99 Appendix 5 Alphabetical index 100

4 Overview The Wine Australia Corporation is a statutory authority that was established in 1981 to provide strategic support to the Australian wine sector. Its responsibilities include: International and domestic marketing of Australian wine; Export regulation and compliance; Wine sector information and analysis; Maintaining the integrity of Australia s wine labels and winemaking practices; Protecting the names of the wine producing areas of Australia and other countries; and Assisting in negotiations to reduce international trade barriers. WINE SECTOR INTELLIGENCE Providing information and analysis that supports informed decision making Wine Australia provides the wine sector with the latest industry statistics, information, data, analysis and insights to help make informed business decisions. COMPLIANCE Protecting the reputation of Australian wine Wine Australia s regulatory activities are aimed at protecting and enhancing the reputation, quality and integrity of Australian wine through licensing exporters, issuing permits for Australian wine exports and running a label integrity program to prevent false or misleading labelling. WINE AUSTRALIA CORPORATION ANNUAL REPORT OVERVIEW 4 OUR MISSION Identify and maximise the environment for sustainable demand for Australian wine. OUR VISION To be recognised as an innovative and respected industry partner acknowledged for leadership; value creation; and exceptional communication. OUR VALUES Integrity: We do what we say we will. Transparency: We strive to deliver a no surprises culture. Passion: We are passionate about achieving results for the success of the Australian wine industry. Understanding: We seek to fully understand by listening to and acting on feedback. Agile: Our agility enables us to adapt, grow and change as the industry requires. Accountable: We regard individual goals as commitments not intentions. WHAT WE DO MARKET DEVELOPMENT Building the reputation of Australian wine Wine Australia markets and promotes Australian wine domestically and internationally through strategies and activities in key markets. To help achieve this, Wine Australia has offices in Australia, the United Kingdom, the United States, Canada and China. Wine Australia protects the integrity of Australia s wine producing areas, maintains the Register of Protected Geographical Indications and Other Terms and supports the Geographical Indications Committee - a statutory committee established to define the grape producing regions of Australia. TRADE Addressing access barriers and removing trade impediments Wine Australia assists the wine sector with international market access issues by working to reduce trade barriers and developing a comprehensive understanding of regulatory requirements in key markets. STAKEHOLDERS AND OTHER INDUSTRY PARTNERS Wine Australia s principal stakeholders are the Australian Government and the wine producers who pay the Wine Grapes Levy and the exporters who pay the Wine Export Charge. Forty-two per cent of Wine Australia s revenue is drawn from these levy payers who have the right to vote at its Annual General Meetings. Wine Australia also works closely with other Australian Government agencies, such as the Department of Agriculture, Fisheries and Forestry, Grape and Wine Research Development Corporation (GWRDC), Tourism Australia, Austrade and the Department of Foreign Affairs and Trade. Other stakeholders include: The national, state and regional wine producer associations and bodies; Wine grape growers and their national, state and regional associations; Liquor boards, authorities and overseas governments; Importers, distributors and retailers; and The wine trade, sommeliers, wine educators and other influencers.

5 Chairman s Report CHAIRMAN GEORGE WAHBY It has been well documented that the Australian wine industry has had to navigate through many challenges in recent years, the most significant being the effects of a period of over supply, made more challenging by a historically high Australian dollar. Actions to clear inventories during this period have obscured the promotion of the quality and diversity of our wine offer in key markets around the world. However, the environment is shifting: we have an evolving export footprint and market mix, many of the opportunistic traders have come and gone and we are seeing growth at more sustainable price points. There are 30 million glasses of Australian wine consumed everyday around the world, produced by our 2,400 wineries and 6,200 grape growers, which is a solid foundation from which to further develop the sector. The quality of our wines has never been higher. In fact, the 2013 vintage is expected to be another exceptional vintage. The industry has always been known for its innovation, investment in research and ability to push the quality parameters. Supporting this with the long term, consistent investment in activities that build the reputation of the category and assist genuine businesses to position their wines at sustainable price points remains central to Wine Australia s focus. KEY MARKET OPPORTUNITIES The industry is working collectively to ensure there is greater awareness around the world of the quality and diversity of Australian wine, to help improve returns for grape growers and winemakers. This strategy to build a stronger perception of the quality of Australian wine is achieving cut-through, particularly in Asia where Australian wine has experienced 16% per annum growth over the past five years. China in particular is driving that growth and at higher and more sustainable price segments. China has now become the biggest market for Australian bottled exports above A$7.50 per litre, and remains a significant growth opportunity for our sector. The emerging Asian markets provide an exciting prospect, given their proximity, emerging middle class, population and the growing cultural interest in wine. The sector needs to continue to explore the opportunity in these markets. However, rather than supplying one-off opportunities, as is currently prevalent, investing in brand building in channels within markets, has to be the priority. In some of Australia s more mature markets such as the US, we are starting to see an improved shift in sentiment, with an increasing buzz and recognition of the high quality of wines available from Australia. In the UK, Australia remains the number one category for volume and value in the market. In the US, which remains the biggest premium imported wine market in the world, Australian wine is the second largest category. It is important that Australian wineries continue to support initiatives to take our diverse range of wines into these markets and increase our representation across the various price segments. STRATEGIC PRIORITIES Throughout the year, my first in this role, Wine Australia clearly articulated its priorities and delivered initiatives that provide the maximum return on investment for our industry partners and levy payers across the organisation s four main areas of responsibility: building the reputation of Australian wine; protecting the reputation of Australian wine through a credible regulatory system; addressing market access barriers and removing trade impediments; and providing information and analysis that supports informed decision making. Last year, the Wine Australia Board and management team identified six priorities for the organisation, in consultation with the industry, to help better position the industry to take advantage of some of the emerging opportunities. Here s an overview of what s been delivered against those priorities: 1. Provide appropriate support and cooperation to implement industry s proposal to merge Wine Australia and the Grape & Wine Research Development Corporation (GWRDC) WINE AUSTRALIA CORPORATION ANNUAL REPORT CHAIRMAN S REPORT 5

6 WINE AUSTRALIA CORPORATION ANNUAL REPORT CHAIRMAN S REPORT 6 The journey towards national structural reform for the wine sector continued, with the then Minister for Agriculture, Fisheries and Forestry approving plans to merge the Wine Australia Corporation and the GWRDC into one, unified wine sector statutory body to better align wine sector investment and priorities. Subject to the passing of the legislation the new Authority will commence operations on 1 July We acknowledge the broad industry support for this reform and the efforts of the Winemakers Federation of Australia (WFA), Wine Grape Growers Australia (WGGA), the GWRDC and the broader industry to achieve this outcome. The Board and management team are laying the foundations to prepare the organisation for this structural reform. 2. Deliver the Wine Australia website to provide a gateway to industry information, analysis, statistics and regulatory information. The new Wine Australia corporate and industry website was successfully launched and includes a range of new features to ensure levy payers can easily access the information they need including content to assist with navigating export processes and keeping abreast of changes to the regulatory environment; research, data, statistics and analysis to help inform business decision making and information on and subscription to the global program of user-pays market development activities. 3. Galvanise the industry behind our marketing strategy and implement effective marketing activities that help increase market share for Australian wine at sustainable price points, capitalise on growth activities and address the loss of market share to imports in the domestic market. Wine Australia continued to focus its core activities on positively positioning the quality, diversity and regionality of Australian wine through education programs and engaging with a global network of key influencers including sommeliers, importers, distributors, retailers, hotel food and beverage professionals, media, wine commentators and wine educators. Further, our user-pays activities were delivered to reinforce key messages through trade shows, themed tastings, Landmark Australia tastings, road shows, regional visits, retail promotions, and consumer facing events and activities. Wine Australia s focus in the domestic market continued to expand. Consumer promotions in the domestic market focused on Aussie Wine Month, which was expanded into a month long event and attracted a major retail partner Dan Murphy s. The month-long celebration included 130 events across 35 wine regions, which generated over 140 media mentions across the country. Trade education also become a major focus in the domestic market, with Wine Australia rolling out One Day Wine Schools and Sommelier and Trade Immersion visits to wine regions around Australia to help educate the domestic wine trade about the quality, diversity and regionality of wines from their own backyard. Central to the priority of building the reputation of our category, following the signing of the Memorandum of Understanding with Tourism Australia, Wine Australia has been developing a major, global campaign for 2013/14 that leverages our Australian Federal Government grant and attracts funding support from tourism bodies and our major wine industry partners. The campaign being developed in consultation with Tourism Australia and our wine industry partners, will aim to evolve the positioning of Australian wine; build a higher value, premium perception of Australian wine; and develop Australia s food and wine to be more relevant to the decision making process for travel to/ throughout Australia. The campaign will have two core components: From September 2013, Wine Australia and Tourism Australia will host delegates from all over the world at Savour Australia This event is the biggest and most comprehensive Australian food and wine forum ever undertaken. It will challenge outdated perceptions of Australian wine and uncover the domestic and global business case for wines from Australia. The three day business forum will showcase the quality and diversity of Australian wine and wine regions to the global wine trade, importers, distributors and wine/lifestyle media. Savour Australia 2013 will be followed by in-market consumer facing campaigns to run in key markets including events, promotions, digital communications and retail on- and off-premise activation through our trade partners. Wine Australia s continued focus on meaningful and detailed education of trade, key Influencers and consumers, overlayed with a consumer facing campaign promoting food, wine and tourism as a total package in partnership with Tourism Australia, in our view will help the industry maximise the market opportunities that lie ahead.

7 4. Increase our auditing activities and further develop the culture of compliance in our industry Wine Australia expanded its auditing capability to ensure the new regulatory and compliance approach introduced last year continues to protect the quality and integrity of Australian wine and is resourced to do so well into the future. Over 400 audits were conducted during the year with three export licenses suspended. 5. Work with government to assist the sector s competitiveness by achieving lower tariff and non-tariff barriers. Wine Australia participated in a range of influential global forums and organisations to help improve market access for Australian wine exports including the Asia Pacific Economic Co-operation (APEC) Wine Regulatory Forum, the World Wine Trade Group (WWTG), the Organisation of Vine and Wine (OIV) and the Trans Pacific Partnership negotiations. With free trade agreement negotiations being especially complex, patience is required, but it s critical that Wine Australia continues to have a seat at the table for these important forums, to create a favourable trading environment for Australian wine around the world. 6. Improve industry communication to raise awareness of positive industry news. Wine Australia continued to expand its communication platforms to communicate positive news about the Australian industry into markets around the world and to keep the industry updated with the latest market intelligence through editorials, events, the new Wine Australia website, e-newsletters and social media platforms including Facebook, Twitter, Sina Weibo in China, Instagram and a Vimeo video channel. In addition we have expanded our Wine Sector Intelligence and Compliance and Regulatory activities by holding information sessions in various wine regions. These forums form part of an ongoing program to ensure our wine community are aware of the information and tools available to them through the Wine Australia website and to help them navigate through the regulatory framework and changes. Wine Australia has also conducted briefings in the financial community to communicate the sector position, industry response and market opportunities with a view to improving the flow of capital in the sector. In addition to these strategic priorities, we have continued to reduce our investment in fixed costs and infrastructure and have developed a more flexible operating model that can deliver more efficient services to our levy payers and maximise the return on their investment. For example, in overseas markets, we have this year established an operating platform that operates independently of Austrade, and as a consequence we have a far lower commitment to staffing costs, office rental and other accommodation and related costs. The Wine Australia Board and management team continues to strive to ensure the organisation remains lean but is also adequately resourced to deliver its core levy payer services, provide export assistance, implement a global program of user-pays activities and deliver on its strategic priorities. It should be noted that whilst Wine Australia continues to operate within its means, reduced levies and an increase in some operating costs, has resulted in us prioritising investment between compelling initiatives. We have shared with the peak industry bodies the benefits that would follow greater investment in marketing to ensure the Australian industry captures opportunities in our key markets and realises the necessary sustainable growth. A particular highlight of my first year in the role of Chairman was the opportunity to work with the many dedicated wine producers who are the backbone of this industry. I would like to thank the Board and the management team for their support as I ve transitioned into my new role. I would particularly like to thank out-going Chief Executive, Andrew Cheesman, for his exemplary leadership over the past four years. Andrew is a passionate advocate for the Australian wine sector and has been a key driver of change in the industry s national organisations. During his tenure he has transformed Wine Australia, ensuring the delivery of key services for the sector, especially during the difficult trading environment over the past few years. I wish him well for the future. I would also like to welcome Andreas Clark who will take on, in addition to his COO role, the position of Acting CEO. I am sure Andreas with his knowledge and experience will be well positioned to guide the organisation leading into the merger with GWRDC. I would also like to acknowledge the hard work of Wine Australia s global team a group of very passionate and dedicated people who are doing everything they can to maximise the environment for the sustainable demand for Australian wine. I look forward to working with you, our levy payers and industry partners, as we look at ways to convert emerging opportunities into long term, sustainable business: that s an exciting outlook. George Wahby Chairman WINE AUSTRALIA CORPORATION ANNUAL REPORT CHAIRMAN S REPORT 7

8 Chief Executive s Report CHIEF EXECUTIVE ANDREW CHEESMAN Focusing on actions that best support industry s return to sustainable profitability and restoring value in underlying assets must be the key objective for WFA, WGGA and the statutory bodies. The industry bodies at a national, state and regional level are working closely to ensure the general policy framework and operating environment is set appropriately to allow any genuine business model to operate successfully. The industry needs to commit to re-establishing itself as a global leader in each emerging, developing and mature market and in doing so define potential growth opportunities in each market segment. Only by targeting modest, long term, whole of industry sales growth to absorb current over production can we achieve the much sought industry prosperity. It is important that the collective will of the industry be applied towards the following: WINE AUSTRALIA CORPORATION ANNUAL REPORT CHIEF EXECUTIVE S REPORT 1. Rebuild and grow total industry profitability with the aim of restoring and increasing the total market value of Australian wine industry assets. An appropriate measure of success would be an increase in the market value of industry s assets over time (vineyards, wineries and brands). 2. Improve and increase our relative market share in targeted emerging, developing and mature markets while performing equal to, or better than the whole market in each sustainable category or segment. Only if Australia can operate and grow in the sustainable categories in each market can we regain and grow our position and influence as a leader in the global wine industry. 3. Operate in a trading environment free of distortion so that companies can protect and grow their share through quality, innovation and investment in marketing, distribution and sales. 4. Seek modest long term growth in our total industry size and profitability to underwrite sustained value preservation and growth of our industry assets. 5. Set and implement industry policy that is consistent with the above and to actively discourage policy development that favours one industry sector over another. Policy levers are implemented that stand the test of whole of industry benefit rather than specific corporate or sector interest. The peak industry bodies will drive key policy reforms to achieve these outcomes. The role Wine Australia can play beyond core operating activities is to: Attract greater investment behind initiatives to increase the local and export demand opportunity for Australian wine. Further funds are required so that Wine Australia can deliver higher profile, more visible activities thereby increasing the reach and impact of the activities and accelerating a return to the Australian category by trade and consumers in key markets; Establish control of our data collection and reporting. Rather than relying on third parties, it is logical for a web based IT interface to be built and owned by the sector to efficiently collect viticulture and wine production data, together with inventory and domestic and export sales data; Contribute data and analysis that ensures balanced, evidence based and rigorous debate is undertaken to achieve appropriate outcomes that support the development of a responsible drinking culture and address legitimate concerns about the misuse of alcohol: and Fully co-operate with industry policy directed towards further consolidation and alignment of national, state and regional organisations. Allocating funds to these priorities will assist industry to maximise its opportunities for success, achieve sustainable profitability and restore value in underlying assets. The Australian wine sector is starting to emerge from a challenging period. While there are still key issues to address, the most significant being a lack of profitability through the supply chain, some of the macro factors affecting the sector are continuing to improve. Significantly, supply and demand are more balanced and wine stocks are at more manageable levels. At a global level, reports by the International Organisation of Vine and Wine (OIV) indicate that the global wine industry is moving from oversupply to a so-called deficit, with wine production at the lowest levels recorded in 37 years due to a combination 8

9 of structural and seasonal forces. Global demand for wine continues to increase and a premiumisation trend is evident in key markets. Sales growth in the Australian domestic market is at higher prices, the value per litre of bottled export shipments has increased by 11% since lows experienced in 2010, and bulk wine prices have firmed up, with the average value per litre of bulk wine shipments now over $1 per litre. While Australia represents just 4% of global production, it is one of the top four exporters of wine in the world. While the volume of Australian wine exports declined this year, bottled wine exports continued to grow at higher price points. This is significant because while the shipment of higher priced wines above $7.50 per litre represents only 4% of the volume of wine exports, it represents 23% of the total value of wine exported. The $7.50 to $9.99 per litre segment recorded growth on a moving annual total (MAT) basis for the first time in six years, up by 2.3% to 10 million litres, while the above $10 per litre segment grew 5.3% to 16 million litres. It is important that our marketing programs continue to focus on supporting this growth, as these segments are where Australia is under represented in key markets and growth in these segments will provide benefits to the entire category. It is a challenging time, however, one during which a galvanised approach to key sector priorities will enable us to capture the opportunities and set the industry up for future value growth. HIGHLIGHTS DURING THE YEAR Wine Australia continued to build on some of the new initiatives that were introduced last year to help evolve the organisation and to deliver the most value for our industry partners and levy payers. Notably, we attracted strong sign-up from wine producers and brands, regional wine associations and state bodies to our first global program of user-pays activities as part of the Wine Australia Market Program Prospectus, with all initiatives successfully undertaken in our key markets around the world. This partnership approach has enabled Wine Australia to achieve far greater reach with its marketing and educational efforts and provided our partners with an opportunity to reach influential trade, media and consumers in key markets around the world. Throughout the year, we delivered a range of core services and initiatives to help deliver the most value and return on investment for our levy payers with particular focus on delivering our A+ Australian Wine educational programs; working with a global network of sommeliers, importers, distributors, retailers, wine educators, wine and lifestyle media, wine commentators, bloggers, other Australian Government agencies and key influencers to promote the diversity, regionality, and quality of Australian wine; delivering a global program of public relations, media relations, online communications and social media to generate news about Australian wine among our global network of influencers; providing the latest market intelligence, analysis and data; and providing export assistance. The new, overhauled regulatory and compliance system has been operating successfully for a year, underpinned by a rigorous auditing presence that continues to protect the quality and integrity of Australian wine. This year, we expanded our auditing presence, which enabled us to undertake over 400 audits of wine producers and exporters to uphold the quality and integrity of Australian wine. This year, we launched a new Wine Australia corporate and industry website As part of this project, we improved the content and format of our data, statistics, analysis and reports. We have now made this information available to all levy payers in the grape grower, winemaker and exporter communities. The new site significantly improves the accessibility to information for levy payers, thus helping sector participants to navigate the compliance and regulatory framework and make more informed business decisions. Key achievements throughout the year are detailed in the function and market reports included within the annual report. However, at an organisational level, key progress included: Establishing our operations independent of Austrade in export markets with a resultant lower cost structure and greater agility to respond to market opportunities; Entering a Memorandum of Understanding (MOU) with the Winemakers Federation of Australia (WFA) to foster greater inter agency cooperation and accountability; Continuing to support the merger process with GWRDC to deliver a single statutory authority by 1 July On 24 June 2013, the Australian Government introduced into the Parliament the Grape and Wine Legislation Amendment (Australian Grape and Wine Authority) Bill 2013 (the Bill). The Bill provides for the establishment of the Australian Grape and Wine Authority on 1 July The Authority will undertake the functions of the Corporation and the GWRDC. The assets, staff and functions of the Corporation and the GWRDC will transfer to the new Authority; Attracting support and funding from GWRDC for two key market research projects in the UK and USA. The research was completed and results have been reported. Extension of insights will now be communicated to industry; Cementing our very strong ties with Tourism Australia by entering a Memorandum of Understanding. The MOU formalises our partnership and outlines specific areas for collaboration including promotional campaigns, digital WINE AUSTRALIA CORPORATION ANNUAL REPORT CHIEF EXECUTIVE S REPORT 9

10 WINE AUSTRALIA CORPORATION ANNUAL REPORT CHIEF EXECUTIVE S REPORT marketing, public relations, consumer shows, special events and distribution development, as well as allocated funding for some of our key markets including China, the US, Canada, the UK and Australia. This partnership is a very exciting prospect for our wine community as we move the promotion of wine firmly into the lifestyle sector, with activity focused on the combination of food, wine and tourism. Tourism Australia will be launching a consumerfocused food and wine campaign next year in partnership with Wine Australia, to promote Australia s premium food and wine experiences. Wine Australia is a member of Tourism Australia s food and wine advisory group to guide the development of the food and wine strategy and ensure the quality, regionality and diversity of Australian wine is reflected. This is a major opportunity for Australia s wine sector and the chance to extend our consumer reach in a way and on a scale that has never been done before. As a precursor to Tourism Australia s campaign, Wine Australia used part of the first instalment of the $2.1 million Australian Government grant, allocated through last year s Federal Budget, to create Savour Australia 2013 Australia s first global wine forum, which will be held in Adelaide from 15 to 18 September This is the biggest, most comprehensive Australian wine forum ever undertaken and involves around 750 of the world s wine trade, media and Australian wine producers coming together to challenge the world s perception of Australian wine. Its unique combination of business sessions - led by the world s leading authorities on retailing, digital and social marketing, pricing, supply and demand, global trends, distribution and consumer behaviour; tasting opportunities through Landmark Australia tastings, a Grand Tasting and tasting bars; networking lounges; and themed lunches and dinners, will give Australian producers the opportunity to showcase their wines to the world and do business with the world s wine trade on Australian soil. The event will help us to engage and excite our global network of distributors, importers, retailers, sommeliers, hotel food and beverage professionals and other on- and off-premise specialists to get our quality wines onto the world s wine lists and retail shelves. Savour Australia 2013 is a major undertaking for Wine Australia and the entire industry. Throughout the year, our focus has been to build the event from the bottom up including: Working in partnership with some of Australia s leading wine brands to guide the development of the forum, attract the world s leading wine authorities as speakers and panellists, create themed Landmark Australia wine tastings and showcase Australia s best food and wine experiences. Confirming over 160 of the world s leading wine media and trade professionals Wine Australia is hosting for the event and as part of a pre/post tour through some of our wine regions. Confirming some of the world s leading authorities to deliver the business sessions and lead lively discussions. Creating dedicated networking lounges, themed lunches and dinners throughout the program to give opportunities for Australian wine producers to meet and do business with the wine trade. Creating numerous opportunities for Australian wine producers in the Savour program to showcase wines during the event at lunches, dinners, tasting bars, the Grand Tasting and Landmark Australia tastings and network with trade and media. Working with regional wine associations to create a series of regional visits for hosted trade and wine media. Uniting the Australian wine sector to get behind the event, maximise the opportunity and demonstrate our united and confident industry to the rest of the world. The forum will be an important step in the delivery of the sector s marketing strategy, providing an opportunity to further dispel myths about the Australian wine category and raise greater awareness about the quality and diversity of Australia s wine offer. FRAUD CONTROL I certify that Wine Australia has put in place appropriate fraud prevention, detection, investigation, reporting and data collection procedures to meet the specific needs of the organisation and comply with guidelines. No incidents of fraud were detected throughout the year. LOOKING AHEAD The Australian wine industry still has some way to go to address profitability issues in the supply base and this remains a focus, however, it is also important to invest in the market opportunities to achieve a sustainable future. In keeping with this, our major focus for the first half of next year will be on delivering Savour Australia 2013 and maximising this significant opportunity for the industry, to ensure the benefits for the sector continue long after the wine trade and media have left Australia. The forum will also lay the foundations for Tourism Australia s food and wine campaign, to build a higher premium perception of Australian wine and develop the country s food and wine offering to be more relevant to purchasing decisions and the decision making process for travel to, and within Australia. As we work to continue to influence our global network of wine trade and media, we will be working closely with Tourism Australia to influence the food and wine strategy and associated global consumer campaign, and broaden Australian wine s consumer reach. 10

11 Wine Australia will continue to innovate and find new ways to provide return on investment for levy payers through: exploring options to make the online export approval interface simpler and more user friendly; continuing to work with industry partners including wine producers, regional wine associations, state wine bodies and industry bodies to align industry resources and strategies and provide partnership opportunities through a global program of user-pays activities and events; working with WFA and WGGA to address issues of great importance for the sector and the community including ensuring balanced, evidence-based and rigorous debate is undertaken to achieve appropriate outcomes that support the development of a responsible drinking culture and address legitimate concerns about the misuse of alcohol; working with government bodies in Australia and around the world including Austrade, the Department of Foreign Affairs and Trade (DFAT), the Department of Agriculture, Fisheries and Forestry (DAFF) and Tourism Australia to pool resources and deliver favourable outcomes for the wine sector; working with governments and industry groups in Australia and around the world to assist the sector s competitiveness through lower tariff and non-tariff trade barriers; identifying new ways to communicate the latest data, market intelligence and analysis to help producers and growers identify sustainable business opportunities and understand the operating environment. It has been a tremendous honour to lead the team at Wine Australia over the last four years during a period of significant change. The Wine Australia team has achieved a great deal in that time. I have enjoyed the challenges of the role and am humbled by and grateful for the support I have received from our wine community, the Wine Australia board and the Wine Australia team. Wine Australia has a very hard-working and highly capable team working tirelessly to help industry maximise emerging opportunities for the sector. I wish Andreas and the team, and all our stakeholders, the very best as the industry moves towards creating a more sustainable future. Andrew Cheesman Chief Executive WINE AUSTRALIA CORPORATION ANNUAL REPORT CHIEF EXECUTIVE S REPORT 11

12 Year in Review STATE OF THE INDUSTRY 13 MARKET DEVELOPMENT 17 WINE SECTOR INTELLIGENCE 23 COMPLIANCE 26 TRADE 28 GEOGRAPHICAL INDICATIONS COMMITTEE 30 FINANCIAL RESULTS 30 WINE AUSTRALIA CORPORATION ANNUAL REPORT YEAR IN REVIEW MARKET OVERVIEWS 31 ASIA 32 UK/IRELAND/EUROPE 36 NORTH AMERICA 39 EMERGING MARKETS 44 12

13 STATE OF THE INDUSTRY Winegrape crush and purchase prices up in 2013 The Winemakers Federation of Australia s 2013 Vintage Report estimates the national winegrape crush at 1.83 million tonnes, up 10% on the 2012 crush of 1.66 million tonnes. The 2013 crush is the largest since The increase was driven largely by higher yields in the Riverina and Murray Valley-Swan Hill regions while results were mixed for other regions. Growing conditions were generally relatively benign with ample water for irrigation, however, the summer was hot and dry. Some regions experienced a dry winter and growing season which lowered yields. Both red and white categories recorded increases in the size of the crush. Red varieties increased 14% to 946,000 tonnes which was double the increase of white varieties which were up 7% to 888,000 tonnes. Once again Shiraz was the number one variety in Australia, accounting for 432,000 tonnes which was an increase of 14% over Cabernet Sauvignon was the second placed red varietal, up 14% to 250,000 tonnes. The other major red varieties, Merlot (up 6% to 132,000 tonnes) and Pinot Noir (up 24% to 42,000 tonnes) also recorded a larger crush. Together, these four varieties accounted for 90% of all red winegrapes crushed in Chardonnay remained Australia s flagship white variety and the second most crushed grape in 2013 accounting for 45% of the total white crush. The Chardonnay crush increased 7% to 397,000 tonnes. There were mixed results among the other major white varieties. Sauvignon Blanc (up 11% to 98,000 tonnes), Muscat Gordo Blanco (up 15% to 71,000 tonnes), Colombard (up 10% to 67,000 tonnes) and Pinot Gris/ Grigio (up 9% to 62,000 tonnes) recorded a higher crush than the year before. Conversely, Semillon (down 6% to 77,000 tonnes) and Riesling (down 4% to 31,000 tonnes) declined. Wine Australia s 2013 Winegrape Purchases Price Dispersion Report presents the distribution of tonnages purchased across the price spectrum. The data was collected from a relatively small sample of major winegrape purchasers and others that are significant in key regions but covered an estimated 80% of winegrape purchases. Over 31,000 separate transactions were collected and form the basis of the report. The report provides price dispersion read-outs and average purchase prices for varieties-by-region. The survey collated the pricing spectrum of 1,067,000 tonnes of winegrape purchases valued at $532 million, equating to an average purchase price of $499 per tonne. The average price was 9% higher than the previous year. It was the second year in a row that prices increased, albeit from a low base. Of the top 10 varieties, Shiraz, Cabernet Sauvignon, Pinot Gris and Pinot Noir all recorded an average purchase price growth above double digits. The average purchase price of Chardonnay, Merlot, Sauvignon Blanc and Colombard also increased but at smaller rates. Conversely, declines were recorded for Muscat Gordo Blanco and Semillon. Wine Australia s 2013 Vintage in Review provides a summary of the 2013 vintage from 49 of Australia s wine regions. In South Australia, dry growing conditions generally resulted in lower yields with great quality, however, regions with access to irrigation were able to sustain good yields. Yields were also up in the south of the state. Tasmania reported an extraordinarily good season, contributing to great quality and yields across varieties around the island. Late rains in Queensland complicated the harvest, particularly of red varieties. The difficult conditions are being better managed as the state s wine regions mature. New South Wales also experienced a dry growing season but other weather factors were generally favourable. The conditions contributed towards reduced disease pressure which was welcome relief for those regions that have had a run of difficult vintages. The wines produced from 2013 are reported to be of high quality with all regions identifying some exceptional varietals. Dry growing conditions also affected Victoria. Outside of Murray-Darling/Swan Hill the harvest was down in terms of tonnage, however, it was generally reported to be trouble free in terms of disease pressure. A common theme from the reports was that the wines featured great flavour with balanced, natural acid. Western Australia experienced a hot, dry summer followed by some rain events during harvest. The winter was also dry, which contributed to lower yields in the state s regions. The conditions were conducive for low disease pressure. Each region reported different standout varietals with overall high quality. Production and stock levels increase In , wine production increased by 108 million litres to 1.23 billion litres, the highest in four years. Wine inventories also increased to 1.7 billion litres, up 32 million litres over the previous year. The stocks to sales ratio edged up higher to WINE AUSTRALIA CORPORATION ANNUAL REPORT YEAR IN REVIEW 13

14 WINE AUSTRALIA CORPORATION ANNUAL REPORT YEAR IN REVIEW 1.45 which is still well below the 1.64 recorded in Australian wineries cleared 217 million litres of wine in the two years to , however, with inventories increasing in and a large crush in 2013, it is more than likely that wine inventories have crept higher again in Domestic sales flat According to the Australian Bureau of Statistics (ABS), domestic sales of Australian wine increased by 0.1% to 459 million litres in the 12 months ended March Red wine sales increased by 7.0% to 179 million litres while white wine sales declined by 5.2% to 222 million litres. Sparkling wine sales also increased to 36 million litres, up 2%. The increase in bottled sales was partially offset by a decline in soft-pack sales. Bottled wines increased by 1% to 51% while the soft-pack share declined by 5% to 28%. Sales in bulk increased strongly. In the domestic off-trade market, Nielsen reported a decline in total Australian sales of 6% to 227 million litres valued at $2.5 billion in the year ended February Despite the decline in sales volume, the average price of Australian wine increased over the year. In the bottled off-trade market, Sauvignon Blanc was the most popular varietal, up 10% to $508 million, however, much of this is of New Zealand origin. Shiraz was the second highest selling varietal, up 6% to $281 million. The multi-year decline in Chardonnay sales continued during the year, down 4% to $246 million. The decline in Chardonnay is predominantly at the lower end while sales of Chardonnay priced above $20 per bottle are growing at double digit rates. Other varietals recording value growth included Pinot Gris/ Grigio, Moscato and Semillon/Sauvignon Blanc. Meanwhile, sales of Cabernet Sauvignon and Merlot were flat and Cabernet/Merlot and Shiraz blends were down. Export volume down, growth in the premium segments In , the volume of Australian wine exports declined by 2.1% to 698 million litres valued at $1.82 billion (FOB). The average value of total exports was stable, however, the average value of bottled wine increased 2% to $4.50 per litre while bulk wine increased 0.7% to $1.02 per litre. The decline in volume was driven by red wine exports which were down 6.7% to 406 million litres, offsetting an increase in white wine exports which were up 5.3% to 277 million litres. This may be partially due to stocks of red wine declining in the year prior whereas white wine stocks increased. In other words, the industry started with less red wine in stock and more white wine compared to the previous year. Growth in exports above $7.50 per litre was offset by declines at the lower price segments, particularly below $2.50 per litre. Exports above $10 per litre grew 5.3% to 16 million litres while the $7.50 to $9.99 per litre category grew 2.3% to 14 million litres. It was the first financial year since that growth was achieved in the $7.50 to $9.99 segment. These segments accounted for just 4% of the total volume yet the value share was far more significant at 23%. In contrast, the segments below $2.50 per litre represented 56% of the volume but accounted for 23% of the value, the same value share as above $7.50 per litre. Exports of bottled wine declined 4.9% to 316 million litres while bulk exports increased marginally, up 0.4% to 375 million litres. The shift towards exporting wine in bulk as opposed to bottles over the past few years appears to have stabilised. The share of wine shipped in bulk increased by 0.3% to 54%. There were 1,367 active exporters in , up from 1,309 in the previous year. Just under 60% (798 exporters) recorded an increase in exports while the remaining 569 recorded a decline. Focus on China and Hong Kong continues with the number of exporters to these markets increasing to 1,042, the most to any destination. Singapore recorded the second highest number of exporters with 280, ahead of Australia s biggest volume destinations including the UK with 273 exporters, Canada with 253 and USA with 226. Australian wine was exported to 123 different countries, one country less than the previous year. 61 countries recorded volume growth while 62 countries recorded declines. Many of the export destinations recorded relatively low volumes: only 26 of the 123 export markets exceeded one million litres. The United Kingdom remained the number one destination by volume, accounting for 246 million litres. The United States accounted for 190 million litres while Canada (49 million litres), China (41 million litres) and New Zealand (32 million litres) rounded out the top five. Together, these markets accounted for 80% of the total export volume. Australia is well positioned in each of these markets in volume terms. Australia is the number one imported wine into the UK and New Zealand, second in the US, and fourth in Canada and China. Australia remained the world s fourth largest exporter by volume, behind Italy, France and Spain. Australia also ranks fourth among the world s ten biggest wine exporters in the average value of bottled wine exports, behind New Zealand, France and the US but ahead of Argentina, Italy, South Africa, Germany and Chile. 14

15 United Kingdom s excise elevator was still biting but has now ended According to Nielsen, total sales of wine in the United Kingdom off-trade market declined by 2.4% to 89.7 million cases in the year ended 5 January However, the average price of wine increased by 3.8% to 4.99 per bottle, offsetting the weakness in sales volume, hence the total value of sales increased by 1.5% to 5.4 billion. Not all of the revenue from increased sales was received by participants along the wine supply chain due to the increase in excise levy by the UK government. Excluding Value-Added-Tax (VAT), 2 from every bottle of wine sold went directly to the UK government. The increase in excise has resulted in the sub- 3 segment becoming unviable and sales accordingly declined by 51%. In 2010 this segment accounted for 8% of total sales but now accounts for just 1%. The excise effect has been impacting adversely on all price segments below 5 per bottle. Conversely, every price segment above 5 per bottle recorded growth. Furthermore, there appears to be a shift towards the premium end of the wine spectrum with the higher price points recording relatively stronger growth. Australia remained the market s number one supplier by both volume and value with its performance largely mirroring the overall market. The price segments sub- 5 per bottle declined while the majority of price segments above that price point recorded increasing sales. Australia s strongest growth was recorded in the 8.01 to 9.00 per bottle which grew 25% to 290,000 cases. US consumers seek premium wines Information Resources Inc (IRI) reported a 2% increase in total off-trade sales in the US to 132 million cases valued at US$10.9 billion in the year ended May The average price of wine increased strongly, up 4.3% to $6.80 per bottle. The increase was driven by consumers exiting the price segments below US$5 per bottle and increasingly seeking wines in the higher price segments. Sales of wine priced above US$20 per bottle increased by 15% to 2.5 million cases and the US$15.00 to US$19.99 segment increased by 9% to 4.6 million cases. Domestic product, which accounted for three-quarters of sales, was the primary driver of growth with value up 7% to US$8 billion. Italy, France, Argentina and New Zealand recorded strong sales growth while Australia, down 5% to US$656 million, recorded the weakest performance of the major suppliers. Despite weakness in the Australian category, Australia remained the second largest source of imported wine. Growth was mixed depending on the price range and there was a general shift towards Australia s premium offering. Strong growth was recorded in the US$15.00 to US$19.99 per bottle segment, up 15% to 190,000 cases, while sales above US$20 declined slightly. The US$5.00 to US$7.99 per bottle segment, which accounts for 83% of Australian sales, was relatively stable, declining by 1% to 7.2 million cases. The strongest rate of decline was recorded in the segments below US$4.99 per bottle. Australia under-performs in Canada The Association of Canadian Distillers reported 2% growth in Canada s wine market to 44 million cases. The growth was driven primarily by Alberta (up 8% to 3.7 million cases), British Columbia (up 3% to 6.8 million cases) and Ontario (up 1% to 13.3 million cases). The largest wine market in Canada, Quebec, recorded a marginal decline in sales to 16.4 million cases. Australia s performance was in perfect contrast with the market shifts outlined above with an overall decline in national sales, growth in Quebec, and a decline in the growing markets of Alberta, British Columbia and Ontario. In Quebec, Australian sales increased by 1% to 1.5 million cases, however, this growth was driven primarily by one brand. A number of other Australian brands recorded growth but generally most recorded declining sales. Australian value growth leading the world in China Global Trade Information Service (GTIS) reported that Chinese wine imports recorded the slowest rate of growth in five years, up 4% to 399 million litres valued at US$1.6 billion in The rate of growth was subdued due to declining bulk wine imports which were down 19% to 101 million litres. All of the major bulk wine suppliers recorded a decline in shipments with the exception of Chile, which recorded a 41% increase in bulk imports to 46 million litres. Chilean exporters benefit from a Free Trade Agreement with China which gives it a competitive advantage, particularly in the bulk segment. However, even after the duty is taken into consideration, the average price of bulk Chilean wine is higher than competitors such as Spain and Italy. The growth in bottled wine imports offset the weakness in bulk wine shipments, however, the rate of growth was the slowest in 12 years. Despite the weak rate of growth, the absolute volume of growth was still the fourth highest on record. Total bottled shipments increased by 14%, or 36 million litres, to 290 million litres valued at US$1.4 billion. Australian imports increased at a slower rate of 9% to 37 million litres. Australia s focus shifted towards the premium end and the average value WINE AUSTRALIA CORPORATION ANNUAL REPORT YEAR IN REVIEW 15