ESG Focus: Australian Wine And Climate Change

Australia | Jan 10 2022

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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ESG Focus: Australian Wine And Climate Change

Climate change is set to rejig the global wine industry and Australia will need to get hopping to stay ahead of the curve.

-The Australian wine industry is highly vulnerable to climate change
-This is the case with the wine industry generally across the globe
-The threat to Australia’s wine industry also endangers the agricultural sector as a whole

By Ed Kennedy

It won’t be news to anyone that the Australian wine industry has been having a difficult couple of years.

Alongside the general challenges of covid-19, huge tariffs imposed by the Chinese government on Australian wine beginning late last year have brought major pain to the industry, though some developments such as the news of the AUS-UK FTA have proved bright spots.

Yet the reality is local wine makers have not just been facing down the challenge of a rough few years, but need to factor in the prospect of a rough ride in coming decades due to climate change.

The impact of climate change on the Australian wine industry – and the global industry as a whole – is complex and, while some silver linings can found, there are few simple solutions to the profound systemic shocks awaiting the sector locally and globally.

The Australian and Global Wine Industry at a Glance

The Australian wine industry enjoys popular acclaim near and far. It holds many iconic labels and regions which are recognised domestically and internationally as among the world’s very best.

The industry is big business. A 2019 report from Wine Australia holds the industry contributes $45.5bn gross output to the Australian economy annually.

The report estimates the global market for wine was worth US$326.6bn in 2020, and forecasts this will rise to US$434.6bn by 2027. 

The Particulars of the Climate Change Problem 

The battle of wine producers and regions with the weather is as old as wine itself.

Environmental variables from one year to the next help illustrate why certain wines from particular years are celebrated as outstanding, whereas others with the same label but hailing from a different year on the calendar are viewed as average.

Pinning hopes on next year’s harvest when a bad one arrives is part and parcel of viticulture. 

But when it comes to climate change, there is no prospect of simply ‘waiting it out’. 

If all human-caused emissions in the world were to stop today, global temperatures would continue to rise for multiple decades, according to scientists.

So even if the international community is able to form agreements which limit warming to an ‘acceptable’ target – such as the ambitious 1.5°C above pre-industrial levels – the problems wine businesses are facing, outside of the immediate dangers of bushfires, are unlikely to experience a quick resolution.

With colder winters and hotter summers, grapes are more easily frozen or burnt. Earlier budbreaks in spring – the event where green leaves appear and small buds on the vine become visible – have been occurring. The danger with this is the risk of vines being harmed by frost lingering in the spring season.

Then there is the prospect of smoke taint, where even if a vineyard is situated at a distance from a bushfire.

Some wine businesses are attempting to adapt to environmental conditions by moving their crops further up a hill in the pursuit of cooler conditions that suit certain varieties, or by growing new varieties altogether that perform better in altered conditions.

Yet the effectiveness of such actions are limited in many instances, given the difficulties posed by complex weather events, and given eventually many vineyards could run out of suitable land in which to relocate their crops. 

A Snapshot of Which Locales Stand to Benefit and Suffer Due to Climate Change

The big concern for Australian wine is the potential for temperatures to become too hot for wine to be produced in the way it is now.

One silver lining is that winemakers have plenty of incentive to make big moves, and recognise the need to do so. There is the hope and expectation that even if some of Australia’s famous wine regions do decline significantly, it should spur growth in promising areas such as northern Tasmania. 

Internationally, other nations famous for their wine such as Spain and Italy are set to encounter similar problems to Australia.

By contrast, countries such as the Netherlands, Germany, and Canada are viewing wine production with renewed interest, given areas across these nations will be able to more easily accommodate the rise in global temperatures, and indeed even benefit from it in certain instances. 

Climate Change a Critical Issue – But Also Not a ‘Catch-All’

While climate change is certainly a huge factor, it shouldn’t be regarded as a total ‘catch-all’ for every environmental issue that can assail the wine industry. Even if the future is not quite as dire as some predict, it is sufficient to keep the industry on the hop for several decades.

Pairing Wine With Australian Agriculture as a Whole

For anyone that is not involved in the wine industry or an admirer of its products, it may be tempting to ponder whether the sector’s climate-change woes will really impact your day-to-day life much.

Given it’s no secret the hurdles to producing good wine are harder to clear than other agricultural goods, the way in which Australians can successfully (or unsuccessfully) navigate climate-change issues in the wine industry will have a bearing on the country's broader agricultural industry.

Rising temperatures offer opportunities to grow new crops across the nation, but the years ahead are also set to bring more climate change-linked droughts, fires, and other environmental threats.

If Australia is to maintain its identity not only as a prestige producer of wine but also as a significant producer of agricultural goods, successful adaptation and resilience to climate-change-linked environmental events will be critical as the global agricultural industry realigns to the new normal.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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