Accolade Wines has presented the CCW Co-operative in South Australia’s Riverland Wine region with an offer to buy-out their supply contracts. It says the scheme is the only option that will allow CCW growers and Accolade to remain viable.
There are 540 grape growers in the co-operative and members will vote on the proposal next month.
Accolade CEO Robert Foye echoed the industry’s narrative that it is in a “perfect storm” of “an unprecedented combination of external challengers”.
“As an industry, for us to continue as if no response is required simply isn’t sustainable. We have a shared responsibility to face into this challenge and respond.
“We’re wanting to take a constructive approach to the biggest industry challenge in many years,” Foye said.
As well as the market loss due to the tariffs in China, the industry experienced major growth in production, logistics bottlenecks from Covid, increased energy and freight costs, softening demand because of inflation, and structural decline due to changing consumer preferences, and a move to premiumisation.
The upshot of this is over supply.
In August last year, RaboResearch associate analyst Pia Piggott said even a best case scenario of China lifting its tariffs, which it did last month, would not be a panacea to an industry looking at a minimum of two years to work through its surplus.
At that stage, Australia’s wine over supply was more than two billion litres of wine, 2.8 billion bottles, or enough to fill 859 olympic swimming pools.
Piggott said Australia would remain in oversupply for “a considerable length of time”.
“To return to balance and profitability, acreage needs to be reduced, thus over the next five years we will see rationalisation of assets throughout the supply chain,” she said.
The six-point solution Accolade presented to CCW outlines a voluntary buy-out focused on red varietals, with Accolade buying a portion of CCW contracts for $4000 per hectare for those wishing to sell.
It would also buy out the Direct Contract bulk wine deal that CCW has for export, saying that would provide relief worth $11/tonne, with pricing set by the weighted district average.
Accolade would reduce its total contracted volumes with CCW to 150,000 tonnes, saying doing so would address structural challenges and provide “certainty for all”.
Its contract tenure with CCW would be 10 years with an option for additional terms of five years with substantial notice periods.
Previously, CCW had supplied red wine grapes to Accolade for more than 30 years under an evergreen contract. The proposed tonnage is about a 20 per cent drop in volume.
Participating growers would be free to keep their vines and sell grapes to others.
“We’re offering a voluntary and flexible solution that offers to buy out the contracts of growers who wish to exit the industry given the current challenges.”
“This package provides all growers with greater certainty and clarity. It allows us all to manage a difficult transition more smoothly, it allows those who wish to exit to do so with dignity and those who want to continue to do so with greater confidence.
“It also ensures that Accolade can operate sustainably and that there is an ongoing source of demand for grapes in the Riverland,” Foye said.
