Aussie wine industry is all dried up by drought

IN THE early 1980s, if you turned up to a dinner party with a bottle of Kanga Rouge or Wallaby White, there was a fair chance you would not be invited back. Once reviled as cheap plonk, strictly reserved for student parties, Australian wine has undergone a remarkable transformation.

In recent years, Australia has edged past France to become the primary supplier of wine to the UK by both volume and value, with affordable brands such as Jacob's Creek and Koonunga Hill chardonnay dominating supermarket shelves. Between 2001 and 2005, imports of Australian wines to the UK rose by 51.7 per cent.

But it seems the good times may have dried up, as Australia, the world's most arid continent after Antarctica, is in the grip of its worst drought in a century, with the crisis expected to cut the 2008 vintage by more than half.

Hundreds of winemakers may go out of business and an annual export business of 1.3 billion, a big chunk of which goes to the UK, will be drastically cut. Industry experts say the 2008 vintage is likely to fall to between 800,000 tonnes and 1.3 million tonnes, compared with a normal seasonal crop of some 1.9 million tonnes.

"Some growers will not be able to recover, and some vineyards will be lost as a result of the drought," Mark McKenzie, the executive director of Wine Grape Growers Australia, said.

"We think some 800 growers are in immediate financial peril, with up to 1,000 at risk over time. They are broke. We couldn't possibly underestimate the impact, and the reality is they are leaving [the industry] already."

So is this the end of cheap, accessible booze for the British wine-lover? Rose Murray Brown, The Scotsman's wine critic, believes shoppers may be faced with a stark choice of either paying more for their favourite tipple or choosing New World alternatives from South America.

"There has been a massive increase in how much Australian wine we drink in Britain," she said. "Australia was the first to promote wine as a New World country, and the price has always been attractive for the British.

"The price will have to rise because of supply and demand, but there is so much choice now.

"I think, to a certain extent, people will vote with their feet. Chile and Argentina are right behind Australia. The quality and consistency are not there, but they are improving and are fiercely trying to get into our markets."

Australia has more than 7,000 individual grape-growers, and some of the most productive areas depend heavily on irrigation water from the Murray-Darling river system, in the south-east of the country. There, water allocations for irrigation are as low as 10 to 16 per cent of their normal level because of the drought. It is possible to buy water, but many producers simply cannot afford it.

Mr McKenzie said: "They don't have the capacity to buy water and they are at serious risk because their ability to borrow has peaked."

He said many growers were waiting for their next official water entitlement, so they could sell it on to others in agriculture and then leave the industry altogether.

The Murray-Darling basin supplies 60 to 70 per cent of Australia's wine-grape production, but growers in Victoria's Murray Valley and South Australia's Riverland - the home of renowned varieties of chardonnay, shiraz, cabernet sauvignon and merlot, as well as emerging varieties such as sangiovese, voignier and pinot gris - have been working with 10 per cent and 16 per cent of their water allocations respectively. The long-term prospects do not look good, with growers warning they will need five years of above-average inflows to get to comfortable reserves.

Australian scientists have predicted global warming will force wholesale changes to the wine industry, which is worth 2 billion a year. Much of the south of the country has been in drought for seven years, with the whole farming sector badly affected.

Last week, John Howard, the Australian prime minister, said it was not an exaggeration to describe the situation in the Murray-Darling basin as a crisis. Future climate change could threaten the very existence of some varieties of grape, with temperatures in most wine regions projected to rise by up to 1.7C by 2030.

This is not the first time Australian wine exports have threatened to run dry. In 1996, the importer of Jacob's Creek Dry Red was desperately trying to eke out remaining supplies of the 1994 harvest until the next vintage arrived in September. Penfolds was out of all its basic lines from June until late September, with no Rawson's Retreat for about three months, and the 1995 vintage of Lindemans Cawarra Colombard Chardonnay ran out. The situation prompted the managing director of Southcorp Europe - the parent company of Penfolds and Lindemans - to declare: "I haven't any wine to sell."

On that occasion, the scarcity was due more to poor planning than unpredictable weather. The Australians and their importers knew they were going to be stretched, after a desperately poor 1995 harvest (620,000 tonnes instead of an expected 800,000), but what they did not anticipate was the apparently insatiable British thirst for Aussie wine.

The more dire predictions they issued about shortages and price rises, the more the British stocked up. In a year when Australian wine expected, and needed, to stand still, sales rose by 9 per cent. And at Christmas, instead of reverting to classic French wines, the British splashed out on more and better Australian varieties - some 40 per cent of all wine sold, compared with less than 32 per cent in 1994.

Will Bain, from the wine merchant Villeneuve Wines, said it was not the first time Australian vineyards had been hit by severe weather, but he is confident the industry will survive.

"Bad harvests and bad vintages are something the Old World countries have had to deal with for centuries. In 2002, Tuscany's vintage was abysmal and everyone was affected.

"The problem is the drought does not discriminate on quality. Australia had a couple of bad vintages in the 1970s, but they survived it. This drought will favour the larger companies. They can afford to lose a year's profits and weather the storm."

• Additional reporting by Tom Curtis in Australia.

Cooler island state may help plug the production gap

DEVOTEES of Australian wine may soon be looking to Tasmania to fill the gap, as viticulturists on the mainland struggle to cope with increasingly severe droughts and heatwaves.

Tasmania has a cooler climate, aided by Antarctic currents and westerlies off the Southern Ocean. Although there are only about 100 producers on the island, critics have been impressed in recent years and in a series of tastings its sparkling wine has proved popular.

New South Wales and South Australia produce the bulk of Australian wine, but growers fear the best years may be behind them as the country endures its worst drought. The industry faces a dramatically different future, as global warming compels vineyards to shift to cooler climates.

A major concern is that rising temperatures make grapes ripen earlier, leading to a loss of flavour.

But grape ripening on Tasmania is said to be slowed by winds off the Bass Strait, making it perfect for sparkling wine ingredients and cool-climate varieties such as Riesling and pinot noir. They thrive in Tasmania, while most of mainland Australia is too hot.

Ironically, an unintended consequence of the drought has been an increase in the quality of recent yields as a result of the harsh weather, as vines produce better wine under stress.

Rising temperatures and lower rainfall levels could even force world-renowned wine producers to switch to new varieties of grape or move from hot and humid areas such as Queensland to more temperate regions such as Tasmania.

The variation in climate between Tasmania's various wine sub-regions is unusual for an island which is only the size of Ireland.

Chardonnay, much of it used for sparkling wine, is the island's most planted grape variety.

But while Tasmania may go some way to plug the gap, the bad news is that most of its wineries are small.