From the WSJ:
Australia’s commodities boom created the $200,000 high-school dropout, theworld’s richest woman, and the least affordable housing market on earth. And it could soon put a dent in the makers of Yellow Tail, the best selling Australian wine in America. From the WSJ’s Caroline Henshaw:
Australia’s largest family-owned winery relies on the U.S. for three-quarters of its sales, but the Australian dollar’s rise against the U.S. dollar has made its products less competitive against wines from rival regions such as California’s Napa Valley and South America.
Casella Wines is looking to shave costs and secure a deal with lender National Australia Bank ahead of an extended Jan. 30 deadline. A failure to secure a new loan could force the company to sell off vineyards or other assets, Chief Executive John Casella told The Wall Street Journal.
Casella recorded a loss of 30 million Australian dollars (US$31.6 million) in the last financial year, down from a A$43.5m profit the year prior.
The Australian dollar has strengthened by about 50% against the U.S. dollar since the beginning of 2009, and that’s a big problem for Casella, which can credit the massive success of its Yellow Tail brand in the U.S. to its sub-$7 price point. There isn’t a lot of room to raise prices on a product best known for its price, and the company says Yellow Tail is still selling like hot cakes — it just isn’t profitable any more. The plan is to wait it out and hope the Aussie dollar returns back to earth.
“Provided we have the support of our financiers, we can make little or no money for a year or two,” Casella’s CEO Joan Casella told the Australian Financial Review. “I’m hopeful the dollar is overvalued and we can return to some normality.”
I also head a story yesterday about the publisher, Lonely Planet, another former tearaway export success. You may know it was bought by the BBC a while back. What you may not know is that since then its operations have been stripped back and sent somewhere cheaper. The Lonely Planet office in Melbourne occupies the old Bradmill office on the Marybyrnong. An elegant illustration of the transformation from protected textiles to an intellectual property driven services industry that is now being crushed by the high dollar.
The longer you leave the former battler where it is, the worse this gets. At some point, perhaps already in the rear vision mirror, there’s nothing left to rebound when the currency finally falls.
I used to commute past the Lonely Planet offices all the time and I used to wonder about the ongoing viability of the whole shebang given that they really only did one thing.
Is there anything our high dollar ISN’T wreaking?
Global currency speculators.
Fuel prices.
Anything we import.
Oil price movement != bowser price movement != dollar movement. There must be a super-complicated, possibly magical, non-linear algorithm they use to determine the price.
Algorithms or not, if the AU was at 80cUS, one thing you could bank on is fuel prices high enough to make your eyes water.
I’ll be laughing when petrol hits $2 a litre – I ride my bike to work every day.
In fact the roads being a bit emptier would be lovely…
But imported goods are not cheap in Australia.
We are taught that a high currency makes imports cheap but that doesn’t seem to be the case. Just one example of many – how come a Nike jacket is $130 at Rebel sports but the identical jacket can be bought for £30 in the UK (and sterling is very weak at the moment)? At the current exchange rate that is $45AUD!!! Australian consumers are not benefiting from the high AUD at all, just being ripped off, whilst Australian industries are being crippled.
Have to agree with Annie. The persistently high AUD isn’t filtering down to lower prices on most consumer items. As for fuel, don’t even get me started about how badly oil companies gouge our market.
On the bright side, champagne is cheap
The comparative high Oz retail price isn’t just driven by the exchange rate, we have always been a high margin destination for imports compared to OS as well as having high level rental gouging people like Westfield.
This story is typical of our once proud wine export industry. Sad times.
They should get with the times and sell ‘em the dirt instead.
Pretty soon dirt will be worth more per tonne than what the grower gets for wine grapes. Might be true already for some unwanted varieties.
The coal industry even offered the W.A. wine industry a helping hand by saying they can dig up large tracts of the margaret river region for the coal there.
The ungrateful sods stated they didn’t want mining activity.
Way to look a gift canary in the mouth.
lol
A comment I heard from a Victorian valuer on valuation of vineyards.
“How to you value them? The value of farmland minus the cost to hire a bulldozer to get rid of the vines.”
Was this post inspired by my comment in the bull trap thread?
Seriously though, it is sad to see yet another Australian icon biting the dust owing to the high dollar and disturbing to think that there is less and less to replace them.
I am not sure I grasp the meaning of:
“The longer you leave the former battler where it is, the worse this gets.”
particularly after making the point that Lonely Planet was bought out by OS company.
We used to call the Aussie Dollar the “Battler” because it was always falling down the elevator and then climbing back up the stairs…this period of strength over the past couple of years is unprecedented in the float era.
Hence the “former battler”
And the longer the Aussie stays up here the worse it is for Australian industry and the more once profitable companies with solid business will need to call in the bankers, recievers or liquidiators
Was not ‘pellicle’ referring to the fact that Lonely Planet now being English owned, how does that impact apon it AUD wise? compared with the Pound.
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Obviously the Australian based office would suffer with the high AUD, although being English owned its global brand would still stand up, would it not. I know I can buy LP books far cheaper from the UK than here anyhow. Another example of being fleeced even for a home grown product!
It’s irrelevant that it is owned by the British.
What’s relevant is Australia is no longer a cost effective location to produce the publication from hence the owners have gutted the Australian office and sent the jobs offshore.
Selling a low-value-added commodity product with huge local (US) competition??
That’s right, their losses can all be blamed on the exchange rate! lol
Didn’t you read the article? It’s a popular product that people in the US expect to be cheap. That is it’s brand and market. They can’t keep selling it cheaply at these exchange rates and still make a profit. And they can’t increase it’s price without destroying the brand.
Yes – they are trapped at the cheap end of the market. In the US it is a ‘Walmart Wine’, successful at a limited price point only.
Then again, do we know enough to be confident the AUD was the only factor. Yellowtail had a major (for a wine co) advertising presence, wines drift in an out of favour.
Nokia used to be the Numero Uno in mobile phones…
Quite rightly we don’t know enough about their business to make a judgement either way.
My thoughts would be around how and why they’ve come to position their product at the bottom end of the market. Sure, if you have a reliable structural advantage, you can maintain cost leadership and, let’s face it, for an age we held a steadfast belief that the AUD was such an advantage for export facing industries. As with any advantage however, it only is one until it’s not, and if you can’t control it, you should plan to do without it at some point.
Waiting out the cycle may suggest that no workable plan exists to cater for this situation, or that something has stopped them making the decisions needed to right the ship – be that pride or a reluctance to act due to the cost in terms of money and jobs.
I just remember a quote from one of my lecturers some years ago. He said “Only one person can be lowest price, everybody else has to find something else to do…”
I hope for their sakes that they can do just that, because I wouldn’t bet on riding anything out right now.
This is just part of The Plan….weaker US$; Americans stop buying Aussie wine ( and anything else that is dollar dependent, from anywhere and everywhere that isn’t the USA) and buy Nappa Valley etc. Why are we still surprised ?
Thats spot on. And they are winning at it too.
I am guessing you havent actually tasted it.
I think they have their own special fermentation process which involves a tramps vest and a plastic funnel
Actually for the price it’s not a bad little quaffer.
Agreed
At sub $7, Jus de Tramp would taste good.
I believe the description by wine critics is…
“alcoholic pineapple juice”
perfect for US
We shouldn’t be surprised, we should adapt.
McKibbon had it right.
Print AUD, and exchange it for the USD currency speculators and carry traderes are throwing at us…. and BUY the Nappa Valley.
We’ve got unearned, extraordinary buying power. Exploit it.
+1
It’s the global force du jour right now and unless we depreciate our currency in line with theirs, we’re going to either rise or at least stay unnaturally high.
The only point I’m not sure of is that it is unearned. I’m thinking that it is entirely earned and that we are paying for it with our future. We squander this rare opportunity for the sake of more “stuff” from China.
I’d really like to hear of some good stories of Aus owned enterprises who are doing this (excluding Aus manufacturers who are simply setting up shop in China by the way!) It would give me some hope…
+1 this.
Paul Wallbank wrote a good piece about YellowTail and the Dutch Disease a day or so ago too.
http://paulwallbank.com/2013/01/14/australian-export-businesses-like-cassella-wines-and-the-dutch-disease/
The little Aussie Battler is currently dancing with the global capital floozies and getting head spins from trying to drain the hills of dirt as fast as possible.
Certainly, the Aussie is running with a rough crowd and eventually will be dumped from the back of the currency ute with little of long term substance to show for it.
But the alternative is actually doing some hard work and most of the pollies don’t sell that product and most of the economic commentators either still believe in the magic pudding or make a buck from the debt industries.
1. Manage the capital flows
2. Moderate the rate of dirt selling
3. Start generating our own investment capital and get used to the interest rates require to generate it.
The $200K school dropout! The boom has provided financial opportunity to many that may never have had the chance. Good old Oz egalitarianism at work. Bravo.
Yeah and they will let it all slip through their fingers on toys and the good life while it lasts..then most of them will be back for government support when they run dry…very few IMHO will create anything with their lucky windfalls that will support them or a small business as life goes by…maybe even include Tinks in this too! Now the phrase” Lucky Country “is fully exposed once again. These guys are the Steven Bradleys of today.
Couldnt agree more…
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The lack of education will be the downfall of many.
Steve Bradbury is a poor metaphor. The guy trained damn hard and performed at the World Champs. He has his own business and his attitude is free spirited without any of the threat or malice you can find among the ubiquitous bogan hordes. He has a bar in japan in the Alps where his demeanor & kindness is loved by all.
Rubbish.
The boom has provided an incentive for people to reject education.
So? Not all are academically inclined. A skilled tradesman is a valuable member of the community. You need truck drivers and machine operators and labourers just as you might need accountants and financial planners and other mid-tier skills.
You need truck drivers
Except if you’re Gina.
Hasn’t she been the driving force behind the technology behind the driverless, GPS guided quarry trucks now?
Rio.
You’re talking at cross purposes. I don’t dispute the importance of those types in community. (I would also add that skilled tradesmen have undertaken education; I wasn’t referring only to University education).
You can’t deny that the boom has deterred people who under normal circumstances would view further education as a useful or necessary path to improving their financial position/earning capacity, from doing so.
Ben,
If they’re smart they can do both. Make use (useful use, that is!) of the high income while it’s there and do the education bit when it’s died down and likely that they would be finishing their degree as the economy is improving.
Not all are frittering it away, while there are also well educated people who are pissing their hard earned against the wall.
In other words, the ‘BOGAN BOOM’.
Marvellous isn’t it! Trust me, they delight as much as any other in picking up their $2500-$4000 post tax dollars every week.
Work hard, play hard, earn good. Got to love it while it lasts. Ask any one of these workers and at this particular point, they are unlikely to regret leaving school without a degree – in fact – many have degrees in other areas and are grateful for the opportunity to double or triple their income (via long hours) for a few years at least or for long as it lasts.
It’s all an experience.
I think your implication that ‘many’ are just enjoying this purple patch while it lasts, and are fully aware of its finite duration, is totally misleading.
Ben, the big money for intermediate skills is in construction phase. They know every job is finite, especially those in the field for some time and they are the ‘many’ I refer to. No doubt others think it will never end…like the housing boom.
Followed by the Bogan Bust you might add,
Couldn’t help thinking about the recent victims of the bush fires who have lost everything particularly Tassie which has missed out on the direct benefit of the Bogan boom…..the best Juliar can do is promise them $1000….yeah “fair go” my ass
Sorry about being a bit off subject but….
A recent study has proven that anytime a tired cliched phrase like “Juliar”is used the speakers IQ drops a point.
Only 1 point – you’re being generous.
1 point off 150 = not so bad.
1 point off 70 = being able to tell the difference between chocolate covered sultanas and rabbit poo.
In other words, the ‘BOGAN BOOM’.
Indeed. Even before the mining boom Australia was already a tradies paradise, thanks to the housing boom. The mining boom has only reinforced that trend.
The Clever Country is well and truly dead.
The bottom line is that at least half of the FIFO bogans under 30 are blowing it all on jet ski’s, souped up cars, alcohol, drugs, hookers and “holidays” to bali and thailand.
So it’s all good if:
- you operate a business modyfying cars.
- are a hooker, or drug dealer here or in Asia.
- are a half attractive barmaid who can extract $300 worth of tips from bogans in one evening (this happens in Perth)
- a seller cars or jet ski’s
The bogan money swirls around in the economy quite a bit, sadly though half these FIFO workers, after the boom ends won’t have much to show for it other than an STD or a drug addiction.
mmm… sub $US7 price point.
So Casella are charging us a premium for buying Australian grape juice in Australia.
Yeah, I’m crying in my Merlot.
So Casella are charging us a premium
Technically they are offering it at a premium and we are accepting it.
Australians would be well advised to exert more downward pressure on prices by saying ‘no’ to consumption now and then.
“Technically they are offering it at a premium and we are accepting it”
based on latest financial results I would say that “we are not”
Hehe point taken, let’s call it a multi-decade trend then.
On a recent trip to the UK I found that you couldn’t find a bottle of solid Aussie plonk for love nor money.
Chillean is all the go with some South African kicking around.
Frankly the Aussie product out classes what was on offer imo with my one working tastebud.
But money talks BS walks. 2005 the AU$ got me 2.6 to the pound. Now its around 1.5 ill hold my capital off shore for now thanks.
Muzz,
Watch the ATO on the transfer! Just got a huge and I mean HUGE amended assessment from the ATO on a capital transfer from 2 yrs (LOL payout and savings). So off to battle we go.
Could you link please mate.
In the UK interest rates are pants and I’m trying to balance a possible correction in the AU$ against the comparatively high interest rate here.
Muzz, I’m guessing that your request is directed to me.
When you move money back here it’s tracked by a Gov department, eventually it will be reported to the ATO, who will write to you giving you 28 days from the dated letter to “prove” the source of the funds are not income related or an amended assessment will arrive in the mail, possibly with penalties, definitely with interest and medicare levy to boot (5K for me, where does med cost 5k!!)
So I can only suggest you speak to your accountant how to deal with that which is mainly a paperwork issue. Otherwise a lot of stress.
If you still have a foreign credit card, try bringing it in through credit card cash advances (eg: at an ATM) or (even better) purchases (buying anything big like a new car ?).