North East wine zone: A bubbly future ahead?

THIS special report is by guest writer Dennis O'Neill. The Glenrowan resident was chair of the Wangaratta Economic Development and Tourism Advisory Committee for two years after a varied public and private sector career, including 11 years as CEO of the Australian Council for Infrastructure Development covering policy and investments in energy, water and transport sectors. *** REPORTS late last year that China will review its punitive tariff regime on Australian wine imports and that Australia has walked away from negotiations over an EU Free Trade deal are a timely reminder of the serial challenges impacting the North East wine zone since 2019. The zone, covering both viticulture (grape growing) and winemaking, comprises six geographical indicators (or GI’s) – Alpine Valleys, Beechworth, Glenrowan, King Valley, Rutherglen and ‘other’, with a total economic output in 2021 of $331.5m, 70 per cent of which is from the King Valley. So how have our regional grape growers and wineries managed following the accumulated trauma of bushfires, COVID, China’s imposition of wine tariffs and the efforts by the EU to constrain the use of the term ‘Prosecco’ to all but Italian producers of that iconic bubbly drop? Unlike the recent bushfire experience of some Adelaide Hills vineyards, where vines were fire damaged or lost, the threat to North East vineyards came primarily from smoke, sometimes conveyed over long distances. As North East vineyard fruit began to mature in late 2019 and into early 2020, fires in the alpine areas resulted in the absorption of unwanted chemical components of the smoke into the grape skins leading to undesirable impacts on the taste of any resulting wine. Not a new phenomenon, smoke taint hit Rutherglen grapes in 2003 after the Black Saturday fires and remains a regular threat even from fuel reduction burns in adjacent national parks. That impact led to early technical efforts to understand chemically how smoke impacts grapes and adds unwanted flavours to wines produced from affected grapes. Some winemakers made wine in 2003 and this wine found a market for blending in small proportions with better wine, eventually released to market in the lower quality price bracket. However premium winemakers had no tolerance for any compromise on quality and elected to plough tainted grapes into the ground. The knowledge gained over the past 20 years of research now contributes to a better understanding of the potential remediating role of insurance and how broadly to seek coverage. However, if fires occur, it becomes a matter of good fortune and meteorology as to what impacts may be incurred. In general only three days of smoke exposure may lead to terminating grape contracts, something that is now more accurately measured with an array of sensors in vineyards. There is also new technology that may be applied to impacted wine to remove unwanted taint chemicals. The resulting ‘cleaned’ wine is of lower quality and possibly only for distillation to produce wine spirit. There is no silver bullet. Alpine Valleys, Beechworth and upper King Valley vineyards remain most at risk with red varietals generally more at risk than white. Recovery from the 2019 fires is still under way, with some vineyards losing a complete 2020 vintage, and the recovery process expected to take up to 10 years. Beyond the regular threat of fires and smoke, the key strategic threat to North East region grape growers is climate change. On a year by year scale, some growers say that there is little evidence of change given the natural variability of annual weather patterns. On a longer time scale, however, it is becoming clear that vintages are advancing steadily, fruit is maturing earlier and harvest time arrives earlier, creating labour challenges. Adding to this is the shortage of regional short-term accommodation. Increasingly water is also a key issue, with increased evaporation the problem. Work has already commenced to plant less sensitive grape varieties. As to future investment, there is insufficient suitable land for large scale expansion. If there were a 25 per cent increase in vineyard areas, there would be insufficient water in drought years. The impact of the fires and the loss of cellar door trade was rapidly reinforced as COVID took hold in 2020 and visitors disappeared. Pre-COVID visitor numbers are just beginning to restore in late 2023. But the market is hesitant and cost of living inflationary impacts are being reinforced by lower price point pressures as retailers seek more value. A solution might lie in targeting restaurants and hotels based on the boutique and quality appeal of smaller North East region wineries. During COVID, the export market to China disappeared as Chine imposed tariffs on Australian bottled wine. Collectively, the North East region was not impacted as much as some other wine regions in Australia. Although redirected to a small extent to other export markets, the bulk of the wine originally destined for China, 99 per cent of which is red wine, remains in tanks, still to be bottled. It will likely add to a growing wine glut for the Australian domestic market, yet another point of price pressure for our regional wineries. Although the wine war with China may be approaching a cease fire, recovery of this market for Australian wine is unlikely to return exports to the level and product mix seen previously. The Chinese domestic economy is changing - COVID had an impact there. Inflation and reduced manufacturing exports to the West have changed Chinese domestic buying power and discretionary spending. Some wineries will have retreated with burnt fingers and may be unwilling to take the risk of re-entering China. The quality end of the market, a feature of Australian wine exports to China, might endure. The biggest unresolved risk in the region remains the use of the Prosecco descriptor, with potentially huge impacts for King Valley wine-makers, in particular. Having walked away from negotiations with the EU over a Free Trade Agreement, Australia has maintained its position in favour of continued wide use based on use of the relevant grape varietal. The EU wants this limited to wines made from Prosecco grapes in two regions of northern Italy near Venice. This is a make or break issue for the Australian industry with tens of millions of dollars of potential new vineyard investment in the North East region, especially the King Valley, hanging on the final outcome. The wine industry in general is very sensitive to emerging social and political pressure associated with sharpened concern about the health impacts of alcohol consumption. Some winemakers who provided background for this overview can see potential for campaigns like those commenced over 50 years ago targeting cigarettes, starting with punitive taxation regimes based on alcohol content, as in the UK. So as the sector surfaces for air after the triple blows of fires, COVID and China, it must don new protection against a growing health-dominated challenge.

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