‘State our case to the US wine consumer’
Winemaker Chester Osborn has called on the federal government to invest more in selling “brand Australia” in the US, with the hoped reopening of China not the cure to Australia’s chronic wine glut.
The fourth generation winemaker at d’Arenberg in McLaren Vale has warned that Australian wineries are sitting on at least a year’s worth of extra wine, and that is putting downward pressure on prices and reducing the value of inventories.
This is an issue that has caused Mr Osborn’s familyowned d’Arenberg wines some heartache, with the company’s latest accounts showing sharp writedowns of its wine inventory, fuelling a $5.7m loss for 2023 and seeing its bankers, ANZ, waive some covenant conditions as it restructured a $26.55m loan to the wine business. The bank loan of $26.55m is up from loans of $20.4m in 2022.
“We did write down a whole heap of stock, that’s where most of the loss came from, it was an accounting treatment. We also had very low crops in 2019 and 2020 and most of the reds we are selling are those reds and they were more expensive (to produce),” Mr Osborn said.
“We have addressed the issues. Our balance sheet is very good, we have a lot of assets in our wine in the tanks, so we are solvent.”
According to the d’Arenberg accounts, the ANZ removed the financial covenant relating to the winemaker’s earnings interest cover ratio in July 2023 and in September approved new finance facilities.
The company’s lurch into the red of $5.7m in 2023 was against a slim profit of $70,000 in 2022 and a much better profit of $10.5m in 2021, as the shuttered Chinese market brought about by crippling high tariffs on Australian wine robbed d’Arenberg of a key export customer.
“China was about 11 per cent of our volume and about 20 per cent of our dollar value, so obviously quite high, and probably around 30 per cent of our annual profits. Then with Russia and other places in war, it is all taking its toll on profitability in international markets, although the local market has held up pretty well,” Mr Osborn said.
The wine group also saw the investment of $9m in its vineyards, higher interest rates and the recent purchase of the nearby Settlers Spirits weigh on its accounts.
Mr Osborn, whose family started making wine in McLaren Vale in 1912, said he was hopeful Chinese tariffs could be dismantled as trade tensions between Beijing and Canberra eased, but a slowing Chinese economy meant it couldn’t soak up the volumes it once did when Australia exported $1.3bn worth of wine.
This created a challenge for winemaker.
“There is a surplus of red wine right now, about a year of extra stock than usual. Normally the ratio of stock (held by wineries) to sales is about 1.6 and right now it is about 2.6 and everyone is carrying an extra year’s worth of stock. It makes competition tough.”
Mr Osborn said it would help if the Australian government renewed its focus on the US market which could be a huge export market, but needed more money invested into it to educate and excite drinkers about Australian wine.
“Australia only sells around 0.4 per cent of all the wine sold in America, which is almost insignificant, and it is the biggest market in the world, and we were doing pretty well there and there is no reason why we can’t get that back.
“We need to do more marketing there, more effort, and it’s where I think the money should be spent,” he said.