On summer vacation, one of the escapes from the city is to drive around an area where grape vines are grown. All over the world grapes are grown and all over the world people enjoy having a glass of wine. It is a good match and governments around the world encourage the grape production and most wine needs some level of exports for the grape growers to make money.

In an article by Peter Hobson of Reuters, Australia is the world’s 5th largest exporter of wine behind Italy, Spain, France, Chile and Australia. Other countries grow grapes to turn into wine but countries similar to China and the US export very little as they have large domestic consumption.

In Australia, they have 2 billion litres or about 2 years’ worth of wine of production in storage in mid-2023. The biggest export market of China has slowed down consumption of wine or there is no growth in the market.

In Australia, the price of grapes fell to $271 a ton last year, the lowest in decades and down from $587 in 2020, data from industry body West Australia show.

Much of the grapes are grown around in land lands such as the town of Griffith where Italian migrants in the 1950’s started growing grapes. Now the owners are 4th generation wine growers.

Jeremy Cass, head of Riverina Winegrape Growers Association, believes that up to a 25% of the vines need to be taken out of production which will result in less supply and increase prices. Since most wine owners are small operations, everyone knows what should happen, but few want to reduce their vineyards, unless there are government incentives to help out.

Around the world, people are drinking less wine and when they do, they tend to reach to a pricer bottle. Australian in not alone in the oversupply, Chile, France and the US have the same problem.

Linking to dividend paying stocks, in many industries the simple equation is what is happening with supply and demand for the base commodity. If you invest in companies that are based on commodities it is important to look at the commodity. Growth tends to mean an increase in demand, but are there alternatives? It is important to bring back your investing to simple equations such as profits = revenues – expenses are revenues higher than expenses, should you look for alternatives?

There are more questions than answers, till the next time – to raising questions.