Year in review: 2011 not a fine vintage for vineyards

According to research by Roy Morgan, Australians’ appetite for wine hit a four-year low in November 2011. 

The researchers could just have easily been speaking about local appetite for Australian vineyards.

The past 12 months have been one long hangover for wine property owners, characterised by forced sales and offshore buyers (particurlarly those from Asia), picking up once-prized Australian vineyards at bargain prices. 

The year looks set to end in the same fashion as it begun, with the Step Road Winery in Langhorne Creek South Australia the latest vineyard put up for sale by receivers, with Colliers handling the sale. 

In September Herron Todd White reported that any vineyard sales that have occurred have generally been forced sales and have shown no added value for the vines.

“In fact in many cases the vines were earmarked for removal,” says HTW.

“The problem remains the massive oversupply of wine in Australia and across the world, which is anticipated to continue for at least the next few years and could well extend beyond this unless there are significant reductions in the number of vineyards, particularly in the cooler climate regions.”

Fortunately, not all reports are as gloomy.

In a recent agribusiness and rural report, Colliers said the market had had hit rock bottom, meaning prices were likely to start heading up next year

“Property values in the wine/vineyard sector have been hit the hardest and are now well and truly at the bottom. There has been a significant amount of restructuring here and not just portfolio sell downs but demergers and consolidations,” the report says.

“Most of this is now complete… This sector should re-emerge in a stronger position in 2012 as it begins to consolidate. At this time, some expansion may occur as selective institutional investors reconsider increasing their exposure to the sector.”

One of the most significant forced sales of the year has been the offloading of the vineyard portfolio of ASX- listed Cheviot Kirribilly Vineyard Property Group.

Four of the six vineyards put up for sale by the indebted group in July this year will be sold by January 2012 for a combined value of $8.8 million, with bulk wine producer Yellow Tail thought to be the buyer.

Announcing the proposed sales, Cheviot chairman Sean Edwards highlighted the scale of the problems facing the group, and the industry as a whole, by describing the recent market environment in grape growing as “catastrophic”.

Edwards says that between 2008 and 2011, the price per tonne earned for its grapes fell by 43%, resulting in a 59% decline in revenue.

“There are very few fixed-cost businesses, with a level of financial gearing that can survive the type of change. Unfortunately we are no different.”

While the Cheviot vineyards are set to be acquired by an Australian producer, Asian and other offshore buyers have been prominent in other locations.

In November, Hong Kong-listed CK Life Sciences International acquired a South Australian vineyard from an Orchard Funds Management vehicle for $10.6 million. 

CK Life Sciences already has a strong footing in the local market, having acquired a controlling stake in the Challenger Wine Trust, Australia’s second­ biggest vineyard owner, for $33 million in December 2010.

In September, Chinese businessman Genghua Lin snapped up the Golden Grape Estate winery and restaurant at Pokolbin in the lower Hunter Valley of New South Wales for $2.8 million while in July, a Chinese investor spent about $2.7 million on the Hunter Valley vineyard Windsor’s Edge, with the buyers keen to shore up supplies of wine for bottle shop or liquor distribution in China.

According to PRDnationwide NSW research manager Oded Reuveni Etzioni the Hunter Valley has proved popular with “private Chinese tycoons who have been purchasing properties with the intention to produce their own wine label”.

Reuveni Etzioni says China, Korea and Japan have been the main players in the Hunter Valley, with the UK and US investing in larger properties in central NSW, and Swiss companies such as Glencore acquiring land around Bogan, the Riverina and Murray regions.

The most notable distressed listing remains the historic Pettavel and Strathmore vineyards near Melbourne, which are being sold by Knight Frank agents Michael Hede and Leigh Morris on behalf of receivers and were listed nearly six months ago.

Hede expects a price of between $5 million and $6 million for the Pettavel Vineyard and between $2 million and $3 million for the Strathmore Vineyard, both about 70 kilometres from Melbourne, but both have failed to find a buyer since being listed for sale in mid-July.

If Colliers predictions about a turnaround in fortunes in 2012 prove true, the vineyards may find a buyer in 2012 – and don’t bet against it being an offshore investor.