Wine production 2011 - big differences in production costs and revenues

Figure: Average total wine grape production cost and gross revenue in 2011 (EUR per ton)

The analysis of 12 typical wine grape farms in seven different countries reveals big differences in production costs and revenues in 2011. 

The figure shows that out of 12 typical farms 11 could cover their cash costs and depreciation with the revenues, though four only marginal. The Australian Riverlands farm incurred a loss of EUR 240 per ton. This is because it had to pay more than EUR 4,000 per ha for irrigation water due to drought conditions in the 2011 season which affected the majority of the farms in that region.

Considering only cash costs and depreciation and leaving out opportunity costs, three different cost levels of production costs can be identified:

• The lowest costs of less than EUR 300 per ton were calculated for Bulgaria, the two Spanish farms in La Mancha, the Italian as well as the South African farms. Economies of scale, efficient use of mechanization and low labour costs keep the production costs low in Bulgaria, La Mancha and South Africa. In Italy and South Africa high yields of up to 27 tons per ha on average contribute to the good performance.

• Three farms, the Spanish farm in La Rioja, the Australian Riverlands as well as the French farm produce wine grapes at a medium cost level between EUR 300 and 450 per ton.

• At levels between EUR 500 and 650 per ton, the production costs were highest in the Australian Barossa Valley and the German farm.  This is due to high expenditures on pesticides, hired labour, contractor, and establishment costs for young plantations, whereas yield levels are rather low.

Similar to the cost levels, revenues show significant variation, too. Most farms typically sell their produce to cooperatives producing bulk wine and receive rather low revenues with an average EUR 215-300 per ton.

However, the Spanish farm in La Rioja markets its Tempranillo under the denomination of origin and thus receives EUR 650 per ton. The Italian farm in Vento cultivates for instance a very profitable Prosecco variety. A bad harvest in the previous year drove up 2011 prices in Germany. The Australian Barossa Valley farm produces a low yield of high value crops which are hand-picked and earn a high price as well.

Five farms – all located in Europe could even cover their total costs, including opportunity costs, meaning that they were profitable long-term. Opportunity costs include mainly family labour, and have the highest impact on the rather small farms in Germany, France, Italy, the Spanish Rioja farm and the Australian Barossa farm. In the latter, as well as the South African farm in Paarl, also high land prices additionally contribute to relatively high opportunity costs.

In general, wine grape yields and prices vary between years, and thus the annual updating of the typical farms in the agri benchmark network will provide a much more comprehensive assessment of profits and competitiveness.

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