Australia's Largest Wine Producing Region Is Struggling

Back in 2000, Sam Koutouzis bought a vineyard along the Murray River, in a part of South Australia known as the Riverland. He was going to grow grapes, just like his brother, and like their parents before them. In the late 1990s the US got a taste for Australia wine, and the Riverland, which produces nearly a quarter of the country's commercial grapes, was absolutely booming. Wine families who'd been doing it tough for years had suddenly become millionaires. And at the time, there was a sense anyone could get a cut.

When Koutouzis bought his farm, wineries were paying $900 a ton for chardonnay grapes. This was what he got the first year, until a drought hit in 2001 and the price of grapes dipped. By 2006, they had fallen to $400, which was tailed by the Global Financial Crisis in 2008. A lot of the world stopped buying wine while the Australian dollar rose off the back of the mining boom. A year later, Australia had such a backlog of grapes that wine was selling cheaper than soft drinks.

To pay his bills, Sam had to look around for other ways to make money, so he did like everyone else and sold off his water allocation, leasing back what he needed to irrigate his vines. It was only meant to be a stopgap until things got better.

But things didn't get better. Now Koutouzis, 41, has four kids, a debt that keeps growing, and this year the wineries were paying around $230 a ton for his fruit. "It's gone down again," says Koutouzis. "It keeps going down, this year it went down by 15 percent. They're telling us to diversify, grow something different. But people don't have the funds. You can't just go to the bank and grow something different. You got to go to the bank, take out a loan, and wait four years to get a crop. If I have one bad year, that's it. If something goes wrong, if we get a bad weather event…"

Koutouzis doesn't finish the sentence. He doesn't have to. His story is the same for many other growers in the region. Everyone who could, sold up years ago, while those left behind have watched the value of their property drop to below what they paid. Over time, the area has built the kind of social pressure associated with drought-stricken Queensland. As a local ominously inferred, "people keep it pretty quiet when someone commits suicide."

Instead they talk about the boarded up shops in town, how house prices have fallen to where they were at the start of the 90s, or how there's no future for their kids in farming. Above is a photo of the old Renmano cellar door. Renmano was once one of Australia's largest family wineries, until the company was merged out of existence in 2003. Ownership of the building was transferred time and time again until it fell into disuse, and served to remind people of the area's downturn.

If you buy wine from a bottle shop and spend less than about $80, there's a very good chance the grapes are from the Riverland, and especially if the winery is in South Australia. But as Chris Byrne, Executive Officer of Riverland Wine explains, the number of Riverland grape growers has actually fallen from 1300 to about 300.

Byrne says that despite the decline, the average size of each holding has grown and this kind of restructuring has put the region in a better position to take advantage of the next "wine renaissance." And while this may have been good for the region's industry, it's been hard on its people. It's gotten so bad that a Senate Committee has been established to look into the wine industry's profitability.

Wine is worth about $1.6 billion to Australia. Across the country it employs about 16,000 people directly, across 2,400 businesses with flow on benefits for anyone with anything to do with wine.

Almost half that industry operates out of South Australia. The state makes everything from cheap goon right up to the $100 bottles high rollers buy at white linen restaurants. This is also why the state's Premier Jay Weatherill has made the industry a centerpiece of his plan to save South Australia from rusting when the car factories close in 2017 and a projected 23,903 people are put out of work.

Catch is, for the last half decade, the Australian wine industry has been working to pull itself out of a rut after years of downturn which has seen growers sell their fruit at cost, meaning it was cheaper to let their fruit rot on the vine. Just last year, Sam Koutouzis' brother, John, dumped his worthless grapes on the steps of Parliament house to make a point.

And according to this year's vintage report, things are still pretty bad with 85 percent of Australia's vineyards, and 92 percent of warm inland vineyards, considered unprofitable. However not everyone agrees with these figures. Some say it is just a snapshot or an indicator of the overall trend. Others reject the result entirely, pointing to how they are based on averages. If it were true, they say, Australia wouldn't have a wine industry at all.

Which is also why it is hard to get a clear picture about what is happening on the ground. There are different regions, producing different types of grapes, in different climates, with different access to water. There are different personalities and operations within these regions, each with different levels of debt and different methods of doing business. What's true for one, is not always true for another.

"Many people talk of two industries," says Paul Evans, CEO of the Winemakers Federation. "You've got the fine-wine industry which represents about 15 percent of what we produce. And then you got the commercial end of the market which is quite large. The business models between fine wine and commercial are very different." Yet despite these differences, he concedes that, "it's a very, very difficult time ahead with our commercial segment."

And as the country's single largest producer of commercial wine grapes, the Riverland is at the heart of the commercial sector in South Australia with almost 60 percent of the region's local economy tied to wine.

Still, change may be on its way. Hope lies in export dollars and lately, the Chinese middle class are buying more wine than ever. Australia looks like it will sign a Free Trade Agreement with Asia, while the Australian dollar continues to fall. On top of this, the Barossa has seen good prices for Shiraz grapes this year and is punching well-above its weight in exports. As the industry's flagship wine industry, where the Barossa goes, other regions tend to follow.

The biggest unknown, however, is the 85 percent chance a "Godzilla" El Nino event will hit and last until at least next April, leading to drought conditions. A drought in the Northern Hemisphere would mean good things for Australian wine, just as the Californian drought has done good things for South Australia's almond and citrus industries.

But a drought closer to home may push many grape growers like Koutouzis over the edge. If it gets to that, he says, he doesn't know what he will do. He's already looking for an opportunity to walk. All it would take is one more bad year.

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