Smaller harvest (TWE-ASX)
Australia’s wine trade group estimates the overall vintage in the country will be 1.32M tons, 26% below the 10-year average. It would be the lowest vintage recorded since 2000. Farmers said the growing conditions were the most difficult in at least two decades. The combination of the wettest year since 2011 and the coolest year since 2012 led to lower yields, delayed ripening, more plant disease, and difficulty accessing the vineyards. Inventory pressures also resulted in yield caps. The red grape crush is estimated to be 26% lower than the prior year and the white grape crush is estimated to be 22% lower.
The favorable news for the industry is the cool weather should lead to high-quality grapes for premium wines. The top export market for Australian wine is the U.S. after China imposed exorbitant tariffs in 2020 in retaliation for the prime minister calling for an investigation into the pandemic’s origin. Treasury Wine Estates (TWE-ASX), Australia’s largest winemaker has cited the combination of price increases negatively impacting demand for commercial-grade wine and inflationary pressures on packaging weighing on sales and margins. The company is exploring asset sales and winery closures as it right sizes operations without the Chinese market.
Lower ABV beers on the way in the U.K. (BUD, TAP)
Carlsberg announced it will lower the alcohol content of its Danish Pilsner from 3.8% to 3.4% due to the tax increase set to begin on August 1. The U.K. is raising the duty for drinks with an ABV above 3.5% from £9.27 per liter to £21.01, a 127% increase. The tax increases are part of a larger package of alcohol duties also impacting beer, cider, wine, and spirits. The U.K. government has said the tax changes are an effort to modernize and simplify the existing system. Spirits are in line for a 10% duty increase while wine is in line for a 20% increase. The tax on beer sold in pubs will be lower than the duty in supermarkets, an effort to support the hospitality industry. The Wine and Spirit Trade Association has said the duty on a bottle of table wine will increase by 44p and a bottle of spirits by 76p. Reformulations were part of the point of the new tax increase. Sales of low-alcohol beers were already growing in the U.K. before the tax change. In the U.K. Stella Artois has an ABV of 4.6% while Carling has an ABV of 4%. Stella’s ABV has been reduced from 5.2% to 4.8% to 4.6%. BUD has not announced a reformulation of Stella Artois. A further reduction below 3.5% could be more than customers could countenance.
Wheat woes (FLO)
Russia is refusing to extend the Black Sea Grain initiative that allowed for international shipments of corn, wheat, barley, and other food items from three designated ports in Ukraine. The deal was set to expire on Sunday and the Kremlin’s spokesperson said it “ceased to be valid” on Monday. Russia suspended its participation in the deal in October for a few days. There are hopes a new deal can be reached with Russia saying it would rejoin if demands are met. The U.N. has credited the deal with easing a global food crisis. Ukraine’s exports of wheat and sunflower oil have had the biggest impact on global agricultural prices. Wheat prices increased 3%+ yesterday due to the deal breakdown, before fading the news. Flowers Foods has its toughest comparisons in the first half of the year due to lapping favorable grain hedges in the prior year.
