378 Accounting: Business Reporting for Decision Making
The 2015 crush was up 0.4 per cent Australia-wide, but is still slightly below the eight-year
average of 1.7 million tonnes. The industry’s health was detailed in the Winemakers’ Federation
of Australia Vintage Report for July 2015. When it came to profitability, the Hunter Valley was up
3 per cent, although the majority of the region’s growers were struggling. Further inland, in the
Mudgee area, zero profitability was experienced, while the Canberra area, which is also a cool
climate growing region, had 1 per cent growth. Long time Canberra winemaker Ken Helm and his
colleagues in the region are adamant that it is fatal to be price driven.
‘Once you discount your wines, in the consumer’s minds the wine is not worth what was orig-
inally asked and therefore it was overpriced,’ he said. ‘We have not fallen for that trap, we have
maintained our prices which we believe are fair and reflect the quality of the wine. If we continue
along that line we believe the industry will continue to grow and get the respect of the consumer.’
Across the range, a number of Mudgee growers are pulling out vines, as demand for their wine
has slumped. This is contrary to the Canberra region where, Mr Helm points out, more land is
being sought by the local growers and winemakers.
Mudgee viticulturist, David Lowe, also looks to producing premium wines as the key, as the
other areas associated with production have been exhausted. ‘As an industry we have a lot of work
to do,’ said the former NSW Wine Industry Association President.
‘I guess much of the focus over the past 10 years has been on cutting our costs, minimising our
labour costs, more mechanisation. We have probably reached what we can; we can’t increase the
crops, our yield. That could lead to a lesser wine quality and therefore not receive the price you
want for quality. The only solution I guess is to increase market demand and increase the price of
our wine; the top down approach.’
‘When the Australian dollar came into parity with the US dollar, it became, it made it unprofit-
able to export,’ Mr Helm said. ‘[This hurt] areas which focussed on export, rather than focusing on
the premium end of the market, both domestically and export.’
Source: Cavanagh, M, Saunders, D & Pritchard, M 2015, ‘Predicting fashion and no discounting key to profitability say
New South Wales winemakers, ABC, 21 July.Required
a. Discuss how premium winemakers have maintained their profitability in recent years.
b. Explain why a discounting strategy may not be in a winemaker’s best interest.
c. The article refers to the Winemakers’ Federation of Australia Vintage Report for July 2015.
Locate this report and identify any financially based ratios reported.
d. Summarise the Production Profitability Analysis in the report.
e. Discuss the factors considered when predicting the future health of the Australian wine industry.References
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