australian grape and wine authority economic contribution ... · tourism experience, as well as the...

AustralianGrapeandWineAuthority

Economic Contribution of the Australian Wine Sector Report:18December2015

Contactforprojectmanagement:GillespieEconomics AgEconPlusPtyLtdABN13317461682 ABN41107715364DrRobGillespie MichaelClarke P:(02)98048562 P:(02)98175888M:0419448238 M:0438844024W:www.gillespieeconomics.com W:www.AgEconPlus.com.auE:[email protected] E:[email protected]

TableofContents1. Introduction...................................................................................................................................1

2. AustralianWineSectorBackground...............................................................................................2

2.1 Locality...................................................................................................................................2

2.2 WineGrapeGrowing..............................................................................................................3

2.3 WineMaking..........................................................................................................................6

2.4 WineTourism.......................................................................................................................11

2.5 IndustryStatusandOutlook.................................................................................................12

2.6 IndustryStatistics.................................................................................................................14

3. InputOutputModelling...............................................................................................................15

4. Revenue,ExpenditureandEmploymentProfilesoftheWineSector..........................................18

4.1 WineGrapeGrowing............................................................................................................18

4.2 WineMaking........................................................................................................................19

4.3 WineTourism.......................................................................................................................20

5. DirectandIndirectImpactsoftheWineSectorontheAustralianEconomy...............................22

5.1 GrapeGrowingSector..........................................................................................................22

5.2 WineMakingSector.............................................................................................................23

5.3 WineTourism.......................................................................................................................25

5.4 TotalWineSector.................................................................................................................27

5.5 ContributiontoTaxReceipts................................................................................................27

6. Conclusions..................................................................................................................................30

References............................................................................................................................................31

Attachment1AssumptionsandInterpretations,Input-OutputAnalysisandMultipliers.................332

AbbreviationsABS AustralianBureauofStatisticsAGWA AustralianGrapeandWineAuthorityAWBC AustralianWineandBrandyCorporationCGE ComputableGeneralEquilibrium(model)DoAWR DepartmentofAgricultureandWaterResourcesEU EuropeanUnionFOB FreeOnBoardFTE FullTimeEquivalentGDP GrossDomesticProductGI GeographicalIndicationIO InputOutput(model)OIV InternationalOrganisationofVineandWineTRA TourismResearchAustraliaWFA Winemakers’FederationofAustraliaWGGA WineGrapeGrowersAustraliaAcknowledgementsAgEconPlusandGillespieEconomicswishtothankthefollowingindividualsandorganisationsfortheirassistancewiththeresearch:PeterBailey,ManagerMarketInsights,AustralianGrapeandWineAuthorityGeoffTurner,ManagerResearch,StrategyandResearch,TourismAustraliaPaulEvans,ChiefExecutive,Winemakers'FederationofAustraliaNickPalousis,ChiefExecutiveOfficer,2XEJamesMcIntyre,Associate,2XE

ExecutiveSummaryThisreportisaneconomicimpactassessmentofthewinesector’sdirectandflow-oncontributiontotheAustralianeconomy.ItwaspreparedfortheAustralianGrapeandWineAuthority(AGWA/WineAustralia).TheAustralianwinesectorincludesgrapegrowing,winemakingandwine-relatedtourism.Thewinesectormakesadirectandsignificantcontributiontooutput,grossdomesticproduct(GDP)andemployment.Inadditiontothewinesector’sdirecteconomiccontribution,thesectoralsomakesaflow-oncontributionviastronglinkagestootherbusinessesthatsupplygoodsandservicesrequiredforgrapegrowing,winemakingandthewinetourismexperience,aswellasthegoodsandservicesdemandedbyemployees.WinegrapesaregrownineveryAustralianstateandterritorywithSouthAustralia,NSWandVictoriabeingthelargestwinegrapeproducers.Winegrapegrowingisanefficientuserofscarceirrigationwaterwithahighgrossvalueofproductionperlitreofwaterused.In2014-15therewere5,160winegrapegrowerswithavineyardareaof135,178hageneratingagrosssalesvalueof$0.773billion.Australianwineisexportorientedwithapproximately60%ofoutputheadedforwinemarketsinEurope,NorthAmericaandAsia.WineisAustralia’ssixthlargestagriculturalexportindustry.RecentAustralianGovernmentdataindicatesthatthereare2,900Australianwineries.Totalannualwineproductionhasbeenestimatedat1.2billionlitreswithagrossvalueof$5.9billion.Internationaltouristsidentify‘greatfood,wine,localcuisineandproduce’asamajorreasonforvisitingAustralia.TourismResearchAustraliaestimatedthatin2014-15therewere15.8milliondomesticvisitornightsand44.2millioninternationalvisitornightsassociatedwithAustralianwineries.Overallwinerelatedvisitorexpendituretotalled$9.2billion.Revenue,expenditureandemploymentprofilesweredevelopedforeachofgrapegrowing,winemakingandwinerelatedtourism.Input-Outputanalysiswasthenusedtoquantifybothdirectandflow-onoutput,value-added,incomeandemploymentforeachofgrapegrowing,winemakingandwinerelatedtourism.Totaldirectandflow-onimpactwasadjustedtoeliminatedoublecountingwheneachindustrywithinthesectorwassummedtoestimatetotaleconomicimpact–TableE1.TableE1DirectandIndirectImpactoftheTotalWineSector DirectEffect Production

InducedConsumption

InducedTotal

Flow-onTOTALIMPACT

OUTPUT($’000,000) 13,347 12,417 14,449 26,867 40,214Type11ARatio 1.00 0.93 1.08 2.01 3.01VALUE-ADDED($’000,000) 6,224 5,484 7,993 13,477 19,701Type11ARatio 1.00 0.88 1.28 2.17 3.17INCOME($’000,000) 3,324 3,233 3,854 7,086 10,411Type11ARatio 1.00 0.97 1.16 2.13 3.13EMPLOYMENT(No.) 68,395 45,286 59,055 104,341 172,736Type11ARatio 1.00 0.66 0.86 1.53 2.53

BecauseInput-Outputmodellingonlyexaminesbackwardlinkagesthisanalysisdoesnotcapturemarginsonwinesalesthroughwholesale,retailandrestaurantsales.Valuesforwinesalesandgrapesalesareatthewinery/farmgate.Inclusionofwholesale,retailandrestaurantsaleswould

maketheestimatesoftotaldirectandflow-oncontributionhigher.ForexamplethedomesticwholesalevalueofAustralianwineis$2.4billionandretailvalueis$7.4billion.Input-OutputanalysishasshownthattheAustralianwinesectordefinedaswinegrapegrowing,winemakingandwinerelatedtourism:

• Contributes$40.2billioningrossoutputtotheAustralianeconomy.Grossoutputincludes$19.7billioninvalue(value-added)and$10.4billioninwagesandsalariesfromfullandparttimeemployment.

• Supports172,736fullandparttimejobs1mostofwhicharelocatedinregionalAustralia.Jobssupportedbythewinesectorincludedirectemploymentof68,395withinthesectorandafurther104,341fullandparttimejobsduetoflow-oneffects.Estimatesoffullandparttimeemploymentareassociatedwitheconomicactivitylinkedtograpegrowing,winemakingandwinetourismanddonotincludeforwardlinkagessuchasemploymentintheretailsector.

UnlikeComputableGeneralEquilibriummodelling2,Input-Outputanalysisdoesnotgeneratetaxationindicators.InputOutputanalysisaccountsfortaxpaidoninputspurchasedbygrapegrowers,winemakersandthewinetourismsectorandthistaxpaidiscapturedinestimatesofvalue-added.Bywayofexampleofthequantumoftaxpaidbythewinesector,netWineEqualisationTaxpaymentswere$792millionin2014-15andareforecasttoincreaseto$920millionby2018-19(AustralianGovernment,December2015).Input-Outputanalysishasshownthattheaverageeffectsofacontractionorexpansionwithinthewinesectorsuggests:

• Theeconomywouldgainanextra$2.01millionforeveryadditional$1millionofgrossoutputgeneratedbythewinesector.

• Theeconomywouldgainanextra$2.17millionincontributiontovalue-addedforeveryadditional$1millionofvalue-addedgeneratedbythewinesector.

• Thewidereconomywouldgainanextra1.53jobsforeveryjobgainedinthewinesector.TheAustralianwinesectorgrewrapidlythroughthe1990sandexperiencedaseriesofshocksinthenewcentury.Therewerelargedeclinesinpricespaidforwinegrapes,cutsintheprofitabilityofwinemakingandanexchangerateinducedcontractioninwinetourism.Estimatesofeconomiccontributionpreparedforthisstudyreflectaperiodofsubduedeconomicactivity.In2015theoutlookfortheperiodto2021isforareturntomodestgrowth.

1 As defined in the Australian National Accounts 2012-13 as ‘Full time and part time employees, employers, own account workers and contributing family workers’ 2Computable General Equilibrium (CGE) analysis is unsuitable for providing a ‘snapshot’ of an existing industry and its inter-sectoral linkages and is more applicable to assessing the effects of a change or shock to the economy. For instance, NZIER (2014) ‘The economic contribution of the New Zealand wine sector, the impact of growth since 2008’, used CGE to examine the impact of growth in the wine and grape industry in New Zealand compared to if growth had stagnated at 2008 levels. Consequently, for this Australian study which is focused on providing a ‘snapshot’ of an existing industry, Input-Output analysis was preferred.

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1. IntroductionTheAustralianwinesectormakesasignificantcontributiontotheAustralianeconomy.Thisincludestheeconomicactivityassociatedwithgrapegrowinginvineyardsandwineproduction,andextendstotheeconomicactivityfromwinerelatedtourism.ThesethreecomponentsoftheAustralianwinesectoralsohavestronglinkagestoothersectorsoftheAustralianeconomy,inparticularthebusinessesthatsupplythegoodsandservicesrequiredforgrapegrowing,winemakingandthewinetourismexperience,aswellasthegoodsandservicesdemandedbyemployees.Consequently,thecontributionoftheAustralianwinesectortotheAustralianeconomyisgreaterthanjustitsdirecteffects.Thisreportisaneconomicassessmentofthewinesector’sdirectandindirectcontributiontotheAustralianeconomy.ItwaspreparedbyAgEconPlusandGillespieEconomicsfortheAustralianGrapeandWineAuthority(AGWA/WineAustralia).Section2ofthereportlocatestheindustrygeographicallyandprovidesanoverviewofthenatureandscopeofthecomponentsofthewinesector.Section3outlinestheinput-output(IO)modellingmethodusedtoexaminethedirectandindirecteconomiceffectsofthewinesector.Section4combinesavailabledatatodeveloparevenue,expenditureandemploymentprofileforthegrapegrowing,winemanufacturingandwinetourismsectorsoftheAustralianeconomy.Themodellingofthesesectorstoassesstheirflow-oneffectsfortheeconomyisthenreportedinSection5.ConclusionsareprovidedinSection6.

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2. AustralianWineSectorBackground

2.1 LocalityWinegrapegrowing,winemakingandwinerelatedtourismoccursinallstatesandterritoriesofAustralia.Australiahasseventyonewineregions3.ThemainAustralianwineregionsareshownonFigure2.1.Figure2.1WineRegionsofAustralia

Source:WineAustraliaTherelativescaleofdirecteconomicactivitybystateandterritoryisindicatedbyAustralianBureauofStatistics(ABS)2011employmentlevelsintheGrapeGrowingSector4andWineandOtherAlcoholicBeverageManufacturingSector5-seeFigure2.2.FromthisdataitisevidentthatthewinesectorismostsignificantinSouthAustralia,VictoriaandNSW.EmploymentintheNorthernTerritoryandAustralianCapitalTerritoryis9and29,respectively.

3 This includes 63 distinct Geographical Indication (GI) regions plus 8 distinct GI zones that do not have any distinct GI regions attached to them, such as Tasmania and Gippsland (Wine Australia, May 2015) 4 Employment estimates include wine grape, table grape and dried grape production 5 Employment estimates include wine making, wine blending, wine vinegar, fermentation of cider and alcoholic beverages not elsewhere classified.

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Figure2.2EmploymentinGrapeGrowingandWineMakingbyStateandTerritory

Source:ABS2011CensusofPopulationandHousing-4digitemploymentby

NoABSemploymentdataisavailableforwinetourismbecausethereisnospecifictourismindustrysectorintheAustralianandNewZealandStandardIndustrialClassification.The‘tourismsector’ismadeupofcomponentsofseveralindustrysectors,includingtransportation,accommodation,foodandbeverage,recreationandentertainmentandtravelservices.Economicactivity,includingemployment,forthetourismsectorneedstobegeneratedbasedonvisitationlevelsandexpenditure.ThisisdiscussedfurtherinSection3.

2.2 WineGrapeGrowingWinegrapesaregrownandcrushedineveryAustralianstatewithSouthAustralia,NSWandVictoriabeingthelargestwinegrapeproducers-Table2.1.Table2.1GrapeCrushbyState–Tonnes(2014-15)FreshGrapesCrushed Red White TotalNewSouthWales 211,382 284,408 495,790Victoria 156,436 163,035 319,471Queensland 615 404 1,019SouthAustralia 453,913 285,441 739,354WesternAustralia 18,172 26,163 44,335Tasmania 3,732 4,453 8,185

Total 844,250 763,904 1,608,154ABSCatalogueNo1329.0In2014-15therewereanestimated5,160grapegrowerswith135,178haofgrapegrowingarea(ABS2015)producing1,670,000tonnesofgrapecrush(WFA,July2015).Thecostofgrowingwinegrapesvariesaccordingtothesizeofthevineyard,thedegreeofmechanisationandthemethodofirrigation.Harvestingcanbelabour-intensive,althoughmechanisationisincreasingwithintheindustry.Thelocationofthevineyard,fluctuationsinyieldsachievedandpricesreceivedalsocausevariationsincoststructure.Approximately80%ofAustralianwinegrapegrowingenterprisesoperateonlessthan50ha(IBISWorld,May2015).MajorgrapevarietiesgrownbytheAustralianindustryincludeShiraz,Chardonnay,CabernetSauvignon,Merlot,Semillon,PinotNoir,Riesling,andSauvignonBlanc.In2015Shiraz(25%ofproduction)andChardonnay(21%ofproduction)dominate.Theindustrycanbesplitonproductionvolumeinto60%‘warminland’and40%‘therest’.‘Therest’isdominatedbyhighvaluecooler

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1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

NSW Vic QLD SA WA TAS NT ACT

Empl

oym

ent

No.

State or Territory of Usual Residence

Wine and Other Alcoholic Beverage Manufacturing

Grape Growing

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countrywinegrapeproduction.Byvalue‘warminland’accountsforbetween50%and55%ofindustryvalue.HighestwinegrapepricesarereceivedincoolclimateTasmaniaandlowerpricesarereceivedintheRiverinaandSwanHill(Andersonetal2010).Averagenationalgrapepriceshavebeenonageneraldownwardtrendsince2001whenthenationalaveragewas$933/tonne.Thenationalaveragewinegrapepurchasepricein2014was$441/tonne(WineAustralia,May2015).In2015averagegrapepriceswere$463/tonne(WFA,July2015).

Winegrapegrowingareaunderwentarapidexpansioninthe1990sincreasingfrom60,000haatthebeginningofthatdecadetoapproximately140,000haby2000,increasingagainto145,000hain2012,148,509hain2013beforecontractingto135,178hain2014.Figure2.3showsthehistoricrapidincreaseinAustralianwinegrapegrowingareathroughthe1990s.Figure2.3WineGrapeGrowingArea–HistoricalAnalysisAustraliaandSouthAustralia

Source:Andersonetal(2010)Mostwinegrapesaregrownwiththeassistanceofirrigationwaterandthewinegrapeindustryisanefficientuserofthisnaturalresource.Comparedwithotherfarmenterprises,wateruseperlitreofproductionvalueforgrapesisgreaterthanforotherfruitsorforvegetablesbutitismuchlessthanforsugar,cotton,riceordairying.Inaggregateterms,grapegrowersuselesswaterthanallthoseenterprisesexceptvegetablegrowing-Table2.2.

Table2.2WaterUseperDollarofGVP,GrapesandOtherAgriculturalProducts(litres)Commodity LitresUsedperDollar

ofGVPCreatedTotalWaterUse(Giga-litres)

Grapes 463 626OtherFruit 266 675Vegetables 164 451Sugar 1,045 1,104Cotton 1,838 1,746Rice 4,817 1,230Milk 859 2,871

Weightedaverage 711 1,350Source:Andersonetal(2010)

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Thegrapegrowingindustryhasworkedhardtoimproveitswateruseefficiencyandbythemid-2000shadallbutphasedoutfloodirrigation.ABS(2015)reportsthatmostwinegrapesarenowwateredwithefficientdripormicrospray–Figure2.4.Figure2.4IrrigationMethod–AustralianWineGrapes

Source:ABS2015Figure2.5identifiesthetop15regionsinAustralia(ABSStatisticalArea4,2011)foremploymentingrapegrowing.Figure2.5RegionalEmploymentinGrapeGrowing

-200400600800

1,0001,2001,4001,600

Source:ABS(StatisticalArea4,2011)Grapegrowingcontributesmorethan1,300jobstotheeconomyofSouthEastSouthAustralia.

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2.3 WineMakingThereareapproximately2,900wineriesinAustralia(DepartmentofAgricultureandWaterResources(DoAWR)Levies,2014,datasuppliedbyWineAustralia).Winemakersgrowtheirowngrapesandpurchasegrapesfromwinegrapegrowers.Winemakersalsosellgrapes,bulkwine,andmerchandiseatthecellardoor.Winemakerscontractcrushandpackforotherwineries(WineAustralia&WFA2007).Benchmarkingguidesclassifywinemakingbusinessesintosmall,mediumandlargeenterprisesonthefollowingbasis–Table2.3.Notethestrongrelationshipbetweenenterprisesizeandwineprocessingcost.Table2.3CharacteristicsofWineMakingBusinesses–Small,MediumandLargeCriterion Small Medium LargeOwnership Typicallyanowner

operatedbusinessPredominantlyowneroperated.Mayhavefulltimeemployees

Publicorprivateownership

Productionfacilities Singleproductionsiteproducingbrandedproduct

Thebusinessowns/controlsitswinemakingfacilityandhasacombinationofestatevineyardsandcontractedgrapepurchases

Singleormultipleproductionsites,somecontractcrushing,mixbetweenbrandedproductionandbulkwineproduction,mixbetweenownandpurchasedgrapes

Capacity Annualprocessingcapacityoflessthan750tonnesofwinegrapes

Processingcapacityisbetween750and5,000tonnesofwinegrapes

Processingcapacityexceeds7,000tonnesandmaybeinexcessof120,000tonnes

Salesturnover Winesalesoflessthan50,000casesand$5millioninsalesrevenue.Doesnotincorporaterevenuefromcellardoormerchandise,saleofgrapes,bulkwineorprocessingandpackaging

Winesalesofbetween50,000and350,000casesandbetween$5millionand$20millioninbottledwinesalesrevenue.Mayincludeincomefrommerchandise,bulkwine,processingandpackaging

Grosscasesalesrevenueexceeding$20millionand200,000cases.Extra-largewinemakersmayhavesalesof500,000casesorbulkwinesalesinexcessof100millionlitres

Market Directsalesviacellardoor,websiteandlocalrestaurants

Salestargetedtoarangeofmarkets.Likelytohavea‘marketingteam’.Useadditionalincomesourcestosupplementrevenueandprofitability

Predominantlyabrandedproductionbusiness.Extra-largebusinessesincludebulkwinesales

Processingcost($/litre) $3/litre,micromaker$2/litre,smallwinemaker

$1/litremediumsizedwinemaker

$0.50/litre,largemaker$0.25/litre,extra-largewinemakingbusiness

Source:WineAustralia&WFA(2007)Winemakingischaracterisedbyalargenumberofsmallbusinesses.Forexample,411from523responsestotheWinemakers’FederationofAustralia(WFA)2015VintageSurveywerefromwineriesthatreportedatotalcrushoflessthan500tonnes(WFA2015).Winemakingisaregionallysignificantindustry.Thetop15regionsinAustraliaforemploymentinWineMakingareshowninFigure2.6.

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Figure2.6RegionalEmploymentinWineManufacturing

Source:ABS(StatisticalArea4,2011)Australiaistheworld’ssixthlargestproducerofwine,withproductionataround1.2billionlitresperannum(InternationalOrganisationofVineandWine(OIV)2015).Australianwinesalesincreasedsignificantlyfromthe1990sbuthavedeclinedmarginallysince2006-07–Figure2.7.Figure2.7AustralianWineSales(billionlitres)

Source:WineAustralia(February2015)Wineproduction,domesticsales,domesticsalesvalueandaveragepricereceivedbythewinemakeraresummarisedinTable2.4.

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Table2.4DomesticSalesofAustralianWinebyWineMakingBusiness(2012-13)Beveragewineproduction(millionL) 1,231DomesticsalesofAustralianwine(millionL) 487.7DomesticsalesvalueofAustralianwine($’million) 2369.2Averagepriceperlitre($/L) 4.86Source:ABSCatalogueNo1329.0Domesticsalesaccountforapproximately40%ofwineindustryproductionandsaleshavebeenrelativelyflatfortheperiod2010to2015.Domesticsalesgrowthhasbeencapturedbyimportse.g.NewZealandSauvignonBlancandFrenchChampagne.ThetopwineimportcountriestoAustraliaarelistedinTable2.5.Table2.5AustralianWineImports–Top5Countries2013-14ImportCountry ImportsbyValue($’million) ImportsbyVolume(millionL)NewZealand 334.9 52.2France 205.9 13.1Italy 51.0 8.5Spain 15.0 2.6Chile 4.3 1.1

Total(allcountries) 634.3 81.8SourceDepartmentofAgricultureandWaterResources(DoAWR)2015TheAustralianwinemakingindustryisexportoriented.MorethanhalfofAustralianwineexportsaredestinedforEurope,athirdforNorthAmerica,12percentforAsiaandtheremaining5percentfortherestoftheworld.Asia,includingChina,isagrowingdestinationforAustralianwine(WineAustralia,May2015).TheimportanceofindividualexportmarketsforbottledwineisshowninFigure2.8andbulkwineisshowninFigure2.9.Figure2.8AustralianBottledWineExportsbyTop15Destinations($’million)forMAT#Sept.2015

Source:WineAustralia,ExportReport,September2015#MovingAnnualTotal

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Figure2.9AustralianBulkWineExportsbyTop15Destinations($’million)forMAT#Sept.2015

Source:WineAustralia,ExportReport,September2015#MovingAnnualTotalIncreasinglyAustralia’swineexportsareshippedinbulkshippingcontainers.In2015approximately60%ofAustralia’swineexportswereshippedasbulkandthebalancewasexportedinbottles.Analysisofexportdatashowsthattheaveragepriceforexportwineislowerthaninthepastbutthisispartiallyexplainedbybulkshippingofalowervalueproduct-winewithoutthecostofabottleandbottling.Bulkshippingandbottlingin-marketisparticularlycharacteristicofsalestotheUnitedKingdomwherebulkwineaccountsfor85%ofAustralia’sexportsales(WineAustralia,May2015).AverageFreeOnBoard(FOB)priceforexportwineisapproximately$3/litre(WineAustralia,ExportReport,September2015).WineisAustralia's6thlargestagriculturalexportindustry–Table2.6.

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Table2.6Australia'sTop10AgriculturalExports(byvalue)–2012-13financialyear

AgriculturalCommodity $’million %

Wheat 6,749 17.6

Beef 5,051 13.2

Cotton 2,695 7.0

Wool 2,470 6.4

Canola 2,094 5.4

Wine 1,865 4.8

Lambandmutton 1,637 4.2

Sugar 1,480 3.8

Barley 1,266 3.3

Milkandcream 996 2.6

TotalofAustralianAgricultureexports 38,268 100%* * Based on the WTO definition of agriculture, which excludes fisheries, forestry and rubber. The value of Australian fisheries, forestry and rubber exports in 2013 was respectively: $1,024, $1,089 and $234 (million). http://dfat.gov.au/trade/topics/pages/agriculture.aspxExportwinevolumesgrewrapidlyovertimefromthe1990sto2007andhavesincedeclinedfromapeakof807millionlitresinJuly2007to734millionlitresinSeptember2015.ThedeclineinexportsreflectsamarginaldeclineinAustralianproduction–Figure2.10.Figure2.10AustralianWineExportVolumesOverTime

Source:WineAustraliaSeptember2015

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Encouragingly,inthetwelvemonthstoSeptember2015,AustralianwineexportsrecordedtheirstrongestperiodofgrowthsincetheexportvaluepeakedinJuly2007(WineAustralia,ExportReportSeptember2015).TheeconomicstatusandoutlookforAustralianwineisbrieflyreviewedinSection2.5.

2.4 WineTourismTourismResearchAustralia(TRA2015)estimatethattherewere15.8milliondomesticvisitornightsand44.2millioninternationalvisitornightstoAustralianwineriesin2014-15.Overalltheirexpendituretotalled$9.2billion.BDAMarketingconductedconsumerresearchacross15keyAustraliantouristmarketsforTourismAustralia.Theresearchshowedthat‘greatfood,wine,localcuisineandproduce’wasamajorfactorinfluencingholidaydecision-making(38%),rankingthirdaheadof‘worldclassbeautyandnaturalenvironments’(37%)–Figure2.11.Figure2.11InternationalTouristReasonsforVisitingAustralia

Source:http://www.tourism.australia.com/documents/Food_and_Wine_Fact_Sheet.pdfTourismAustraliahasrespondedtothisresearchwithamajorinternationalmarketingcampaignhighlightingAustralia’sfoodandthewinetravelexperience.

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2.5 IndustryStatusandOutlookFromthe1990sAustralialedawaveofwineexporterswhotransformedworldwinemarkets.Australiaproducedanddeliveredwellpricedwineofconsistentquality.InsodoingAustraliasecureditsplaceasamajorwineexporter.Newworldcountries,especiallythoseinthesouthernhemisphereadoptedthe‘Australianmodel’,theEUexpandedproductionandtheworldwinesupplygrew.InthenewcenturyaseriesofshockshittheAustralianwinesector.Anderson(2015)identifiedtheseshocksasincluding:

• Adecadelong,mininginducedappreciationoftheAustraliandollar–makingAustralianwinerelativelyexpensiveinexportmarkets

• Amulti-yeardroughtwithsevereconsequencesfortheavailabilityandcostofessentialirrigationwater

• Theglobalfinancialcrisisthatbeganin2008andcurtailedexportdemand• ThetighteningofwinedistributionregulationsinCanada,theUSandScandinavia• Thelaunchofanausterityandanti-corruptiondrivein2012byanewChineseGovernment

thateffectivelyreducedgovernment-fundedbanquetingandgiftingofwine• Theriseofsupermarketretailingofwineandtheirpreferenceforbulkpurchasedand‘own

brand’labelledwine• WinefashionswingsthatworkedagainstAustralianwineinUKandUSmarketsandforNZ

SauvignonBlancinthedomesticmarket.Asaconsequenceoftheseshocks,theAustralianwinesectorexperiencedlargedeclinesinthepricespaidtograpegrowersfortheirwinegrapes,cutsinwinemakingprofitsandanexchangerateinducedcontractioninwinetourism.InventoriesofAustralianwinepeakedat2.4billionlitresin2006andproductionandsalesarenowmorecloselyaligned–Figure2.12.OfnoteisanupwardtrendinAustralianwineinventorypost2011andaclosinginventoryof1.8billionlitresin2014.Figure2.12AustralianWineSupply,DemandandInventoriesOverTime

Source:WineAustraliaMay2015

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Despitetwentyfirstcenturysetbacks,theAustralianwinesectorhascautiousreasonforoptimismandthereareseveralpositivesignsemerging.OneiseconomicrecoveryintheUSandpartsoftherecessedeconomiesintheEU.Asecondencouragingsignwasthesubstantialtake-upoftheEU’soffertopaywinegrapegrowerstoremovevinesduringtheperiod2009to2011.TherehasalsobeensomeremovalofvinesinthewarmirrigatedareasofCaliforniaaswellasinAustralia(Anderson2015).Third,expecteddemographicchangesintheUSoverthelongertermsuggestwineconsumptionwillgrowfasterthanoverallpopulation.Fourth,theAsianmarketisgrowingsteadily.Notonlyisthepopulationexpectedtoincreaseby700millionpeopleby2030butAsia’sshareofglobalincomeisexpectedtodouble.AlreadythemiddleclassinemergingAsianeconomiesareconsumingmediumpricedandhighpricedfinewines.Duringtheperiod2011to2014AustralianwineexportstoAsiaaveraged$6.40/litrecomparedtolessthan$2.20/litreforallotherdestinations.EvenAustralianexportstoChina,byfarthebiggestAsianwinemarket,averaged$5.70/litreduringthisperiod(Anderson2015).Australia’sexportprospectsdependonexchangeratemovements.WiththerecentdevaluationoftheAustraliandollar,prospectsforexportwinesaleshavebrightenedandimportsofwineintoAustraliahavebecomelesscompetitive.FinallyitneedstoberememberedthattheslowdownindomesticgrowthfollowingtheendofthemininginvestmentboomwillalsoslowAustralia’spercapitaincomegrowthanddampenthegrowthindomesticdemand(Anderson2015).IBISWorld(May2015a)forecastsstrongerwinesectorgrowthforthefive-yearperiodthroughto2020-21thanhasbeenexperiencedinthefiveyearsto2015-16–Figure2.13.Figure2.13OutlookforAustralianWineSectorto2021(IBISWorld,May2015)

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2.6 IndustryStatisticsKeyAustralianwineindustrystatisticsassembledwiththeassistanceofWineAustraliaaresummarisedinTable2.7.Table2.7-AustralianWineSectorStatistics(variousyears)Measure Year Quantity UnitWineGrapeGrowing Winegrapegrowers 2014-15 5,160 numberWinegrapevineyardarea 2014-15 135,178 hectaresWinegrapecrush 2014-15 1,670,000 tonnesGrossvalueofwinegrapesales 2014-15 773,210,000 $Directemploymentingrapegrowing 2011 7,567 numberWineManufacturing Winemakingenterprises 2014 2,900 numberWineproduction 2012-13 1,231,000,000 litresDomesticsalesofAustralianwine 2012-13 2,369,200,000 $Domesticsalesofimportedwine 2013-14 634,300,000 $ExportsalesofAustralianwine 2012-13 1,865,000,000 $Directemploymentinwinemaking 2011 14,814 numberWineTourism Domesticvisitornights 2014-15 15,801,000 numberDomesticvisitorexpenditure 2014-15 3,466,800,000 $Internationalvisitornights 2014-15 44,178,000 numberInternationalvisitorexpenditure 2014-15 5,740,800,000 $Source:variousSummarystatisticsprovideafoundationforanalysisoftheeconomiccontributionoftheAustralianwinesector.

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3. InputOutputModellingTherearetwomainmethodsthatcanbeusedtoanalysetheeconomiccontributionofanindustry,theyare:

• Input-output(IO)analysis;and• Computablegeneralequilibrium(CGE)analysis.

However,themostappropriatemethodtousedependsonwhattypeofimpactisbeingexamined.IOanalysiscanbeusedto:

• Developasnapshotofanexistingindustryinaparticularyearincludingitsdirectandindirectlinkages;or

• Assesstheeffectsofachangeorshocktotheeconomye.g.anexpansionorcontractionoranewactivity.

CGEanalysisisunsuitableforprovidingasnapshotofanexistingindustryanditsinter-sectorallinkagesandismoreapplicabletoassessingtheeffectsofachangeorshocktotheeconomy.Forinstance,NZIER(2014)‘TheeconomiccontributionoftheNewZealandwinesector,theimpactofgrowthsince2008’,usedCGEtoexaminetheimpactofgrowthinthewineandgrapeindustryinNewZealandcomparedtoifgrowthhadstagnatedat2008levels.Consequently,forthisAustralianstudywhichisfocusedonprovidingasnapshotofanexistingindustry,IOanalysisisused.IOisprimarilyconcernedwiththeeffectofanimpactingagente.g.anindividualbusinessorsector,onaneconomyintermsofanumberofspecificeconomicactivityindicators,suchasgrossregionaloutput,value-added,incomeandemployment.Theseindicatorscanbedefinedasfollows:

• Grossregionaloutput–thegrossvalueofbusinessturnover;

• Value-added(grossregionalproduct)–thedifferencebetweenthegrossvalueofbusinessturnoverandthecostsoftheinputsofrawmaterials,componentsandservicesboughtintoproducethegrossregionaloutput;

• Income–thewagespaidtoemployeesincludingimputedwagesforself-employedandbusinessowners;and

• Employment–thenumberofpeopleemployed(includingfull-timeandpart-time).Animpactingagentmaybeanexistingactivitywithinaneconomye.g.anongoingtourismventure,ormaybeachangetoalocaleconomye.g.anewtourismdevelopment.Inthisstudytheimpactingagentistheexistinggrapegrowing,winemakingandwinetourismsectors.Theeconomyonwhichtheimpactismeasuredcanrangefromatownshiptotheentirenation(Powelletal.,1985).Thisstudyisconcernedwithexaminingtheimpactsofthegrapegrowing,winemakingandwinetourismsectorsontheAustralianeconomy.

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Input-outputanalysisessentiallyinvolvestwosteps:

• ConstructionofanappropriateIOtable(regionaltransactiontable)thatcanbeusedtoidentifytheeconomicstructureofadefinedregionandmultipliersforeachsectoroftheeconomy;and

• IdentificationoftheinitialimpactorstimulusofanindustryinaformthatiscompatiblewiththeIOequationssothattheIOmultipliersandflow-oneffectscanthenbeestimated(JensenandWest,1986).

Forthisstudy,thelatestNationalIOTableproducedbytheAustralianBureauofStatisticsfor2012-13,adjustedto2015values,wasused.IdentificationoftheinitialimpactofthewinesectorinaformcompatiblewiththeIOtablerequiredthedevelopmentofaspecificaggregateemployment,revenueandexpenditureprofileforthegrapegrowingsector,winemakingsectorandwinetourismsector,basedonavailableindustryinformation.ForeachofthegrapegrowingsectorandwinemakingsectoraspecificintermediateIOsectorwasdevelopedwhere:

• Theestimatedgrossannualrevenuewasallocatedtotheoutputrow;• Theestimatedwagebillofemployees(includingimputedwagesfortheself-employed)was

allocatedtothehouseholdwagesrow;• Non-wagelocalexpenditurewasinitiallyallocatedacrosstherelevant114intermediate

sectorsintheeconomy-forthewinemakingsectortheexpenditureongrapeswasequaltothesalevalueofthegrapesector;

• PurchaserpricesforexpenditureineachsectorintheeconomieswereadjustedtobasicvaluesandmarginsandtaxesandallocatedtoappropriatesectorsusingrelationshipsintheNationalInput-OutputTables;

• AllocationwasthenmadebetweenintermediatesectorsandimportsbasedonthepercentageofimportsineachsectoroftheNationalIOtable;

• Thedifferencebetweentotalrevenueandtotalcostswasallocatedtotheothervalue-addedrow;and

• Directemploymentwasallocatedtotheemploymentrow.ThesesectorswereinsertedintotheIOtabletofacilitateimpactassessment.Asidentifiedabove,thereisnointermediatesectorintheIOtablefortourism.Tourismrelatestofinaldemandexpenditureonarangeofgoodsandservicesacrossthe114intermediatesectorsofthenationaleconomy.Anexpenditureprofileforthisfinaldemandexpenditurewasdevelopedbasedontheestimatedtotalexpenditureofdomesticandinternationaltourists,andthemaincategoriesoftourismexpenditure.PurchaserpricesfortourismexpenditureintheeconomieswereadjustedtobasicvaluesandmarginsandtaxesandallocatedtoappropriatesectorsusingrelationshipsintheNationalInput-OutputTables.WithnewintermediatesectorsforgrapegrowingandwinemakinginsertedintotheIOtableandafinaldemandexpenditureforwinetourismdeveloped,thecomputerprogramIO7(Input-OutputAnalysisVersion7.1)wasusedtoestimatetheaverageannualdirectandindirectoutput,value-added,incomeandemployment6impactsforeachofthewinesectorcomponents.

6 It is important to understand that the focus of IO analysis is on the economic stimulus provided by wine sector and not on the economic costs and benefits of the wine sector. Consideration of the economic costs and benefits of wine sector would require the undertaking of a benefit cost analysis.

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Indirectimpactsaredisaggregatedinto:

• Production-inducedeffects-economicactivityfromthepurchaseofgoodsandservicesthatareusedasaninputintoproductionorthewinetourismexperience;and

• Consumption-inducedeffects-economicactivityfromthespendingofemployeesofthewinesectorandemployeesofthosesupplyinginputsintoproductionorthewinetourismexperience.

Inbothcases,inadditiontofirst-roundpurchases,therewillbeaseriesofindirectpurchasesaswavesofsecond,thirdandsubsequent-roundeffectsmaketheirwaythroughouttheeconomy.RatiomultipliersarereportedinSection5foreachofthecomponentsofthewinesector.Theseprovidesummarymeasuresusedforpredictingthetotalimpactonallindustriesinaneconomyfromchangesinthedemandfortheoutputofanyoneindustry.Theyexpressindirectimpactsorflow-onsintermsoftheinitialownsectoreffectse.g.employmentflow-onsinrelationtodirectemploymenteffects,outputflow-onsinrelationtodirectoutputetc.RefertoAttachment1foradiscussionofmultipliersandtheassumptionsunderpinningIOanalysis.Considerationisalsogiventoaggregationoftheimpactsofeachcomponentbeingcarefultoavoiddoublecounting.IOanalysisexaminesbackwardlinkagesonly.Consequently,becauseexpenditurebytouristswouldincludesomeexpenditureonwineatthecellardoorandexpenditurebywinemanufacturerswouldincludeexpenditureongrapestherewouldbedoublecountingiftheeconomicactivityfromeachofthecomponentsofthewinesectorweresimplyaddedtogether.Adjustmentisrequiredtoexpenditureprofilestoremovedoublecountingifthecomponentsofthewinesectoraretobeaggregated.BecauseIOonlyexaminesbackwardlinkages,thisanalysisdoesnotcapturemarginsonwinesalesthroughwholesaleandretailoutlets.Valuesforwinesalesandgrapesalesareatthefarm/factorygate.

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4. Revenue,ExpenditureandEmploymentProfilesoftheWineSector

Section4developsrevenue,expenditureandemploymentprofilesforeachofthecomponentsofthewinesectortoenablethesubsequentestimationoftheirdirectandindirectimpactsonthenationaleconomy.

4.1 WineGrapeGrowingWinegrapegrowingtotalrevenuewasestimatedforfinancialyear2014-15usingdatafromtheAustralianWineSectorSurvey(WFA,July2015)at$773,210,000(totalcrushof1,670,000tonnesatanaveragevalueof$463/tonne)withanABSwinegrapegrowingareaof135,178hacreatinganaveragegrossrevenueof$5,720/ha.Thegrossrevenueestimateof$5,720/hawasalignedtopublishedgrossmarginbudgetstoprovideabreakdownofindustryexpenditure.Publishedgrossmarginbudgetsweresecuredforboth‘warminland’MurrayValley(Retallack2012)and‘coolclimate’Tasmania(DPIPWE2014).Averagegrossmarginwasconsideredacrosstheseproductiontypesandtotalindustryrevenueandexpenditureaggregatedfromtheaveragegrossmarginusingtheindustrygrossvalueestimateof$773,210,000.ResultsareshowninTable4.1.Table4.1WineGrapeGrowingRevenueandExpenditureProfile

AverageGrossMargin

($/ha)

WineGrapeGrowingIndustryTotalRevenueandExpenditure

($’million)Revenue(A) 5,720 773.2

Expenditure Farmlabour 770 104.1Contractlabour 722 97.6Fruittransport 518 70.0Levies 75 10.1Chemicals 582 78.7Nutrition/fertiliser 246 33.3Vineyardfloor/canopymanagement 114 15.4Sundrymaterials/supplies 116 15.7Machineryexpenses 272 36.8Machineryfuel 306 41.4Machineryhire 379 51.2Wateranddrainagecosts 1,395 188.6Repairsandmaintenance-vineyard 100 13.5

Totalexpenditure(B) 5,595 756.4NetRevenue(A)less(B) 125 16.8

Employment 6,807*

*ABS4digitcensusdataforgrapegrowingof7,563(Table2.7)less10%associatedwithtablegrapeanddriedgrapegrowing(IBISWorld,May2015reporttableanddriedgrapesaccountfor10%oftotalgrapegrowingindustryproduction).

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Winegrapegrowingindustryemploymentwasestimatedusingthefollowingdata:

• 7,567employedinalltypesofgrapegrowing(ABS2011,CensusEmploymentbyIndustry4digitlevel)less10%associatedwithtableanddriedgrapeproductioni.e.6,807jobs

• Totalwagesthatexcludecontractlabour–recordedintheinput-outputmodelas‘servicestoagriculture’.Employmentassociatedwithcontractlabourrecordedasa‘multiplier’

• TotalwagesthatincludeTable4.1–‘farmlabour’and‘netrevenue’toreflectimputedwagesfromfarmowners.Totalwagesarethereforeestimatedat$121million($104.1millionfarmlabourplus$16.9millionnetrevenue)

• Averagegrapegrowingindustrywageisthereforeamodest$17,776perannum(totalwagesof$121milliondividedby6,807jobs).ThisestimateisbroadlyconsistentwithIBISWorld(May,2015)whichestimatedaveragegrapegrowingwagefor2014-15at$17,021.

4.2 WineMakingWinemakingtotalrevenuewasestimatedat$5.9billionfromthevalueof‘domesticsalesofAustralianwinebywinemakingbusiness’estimateof$2.369billionfor2012-13(ABS2013)andtheknowledgethatdomesticsalesconstitute40%ofindustrytotalrevenue.ExportvaluedatawasnotemployedbecauseitiscalculatedonanFOBbasis,isnotcomparabletothedomesticdataandincludesnon-winemakingcosts.ExportvalueisalsoaffectedbytheincreaseinlowervaluebulkwineexportsandthetransferofvaluetoAustralianwineryownedbottlingfacilitiesinexportmarkets.Winemakingproductioncost(expenditure)wassourcedfromPalousis(2015)andcrosscheckedwiththeWFAandWineAustraliaGrossMarginReadyReckoner(http://www.wfa.org.au/resources/financial-ready-reckoner/).ItisnotedthattheReadyReckonerwaslastupdatedin2010sogreateremphasishasbeenplacedonthemorerecentPalousis(2015)data.Table4.2providesasummaryofaveragewinemakerrevenueandexpenditurepersaleablelitreofwinealongwiththewinemakingindustrytotal.IndustrytotalrevenueandexpenditurewasdevelopedusingatotalwineproductionestimateforAustralia,2012-13of1.231billionlitres(ABS2013).

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Table4.2WineMakingRevenueandExpenditureProfile AverageRevenueand

Expenditure($/litre)WineMakingIndustryTotalRevenueand

Expenditure($’million)Revenue(salepricepackaged) 4.79 5,900Costofpackaging# 1.79 2,203

Revenueafterpackaging(A) 3.00 3,697Expenditure Winerylabour 0.72 886Grapes 0.63 773Wineloss/wastetreatment 0.13 159Depreciation 0.22 270Electricity/gas 0.08 98Repairsandmaintenance 0.10 128Water 0.07 86

Totalcost(excludingpackaging)(B) 1.95 2,400Netrevenue(A)less(B) 1.05 1,297

Employment 13,629*

#noteanestimated60%ofwineexportsareshippedasbulkwinei.e.lowerpackagingcostforbulk*ABS4digitcensusdataforwineandotheralcoholicbeveragemanufacturing(Table2.7)less8%associatedwithciderandotheralcoholicbeveragemanufacture(IBISWorld,May2015areportciderandotheralcoholicbeveragesat8%ofAustralianandNewZealandStandardIndustrialClassificationtotal).Winemakingindustryemploymentwasestimatedusingthefollowingdata:

• 14,814employedinthewineandotheralcoholicbeveragemanufacturingsector(ABS2011,CensusEmploymentbyIndustry4digitlevel)less8%associatedwithciderandotheralcoholicbeveragemakingi.e.13,629jobs

• Totalwagesthatincludetheself-employedshowninTable4.2as$886million.

• Averagewinemakingindustrywageistherefore$65,000(totalwagesof$886milliondividedby13,629jobs).ThisestimateisbroadlyconsistentwithIBISWorld(May,2015a)whichestimatedaveragewinemakingwagesfor2014-15at$60,875.

4.3 WineTourismWinetourismrevenueandexpendituredata2014-15wassourcedfromTourismAustralia(TourismResearchAustralia,June2015).Separateestimatesareprovidedfordomesticandinternationalvisitors.DataissummarisedinTable4.3.

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Table4.3WineTourismExpenditureandVisitation DomesticWine

Tourism($’million)

InternationalWineTourism

($’million)

Total($’million)

ExpenditureItem Airfares 303.8 1,195.2 1,499.0Tours 211.0 653.6 864.6Transportation 428.2 325.7 753.9Food,drinkandaccommodation# 2,106.3 1,933.5 4,039.8Shopping 277.0 589.2 866.2Entertainment 112.5 106.2 218.7Education 0.4 596.4 596.8Other 27.7 341.0 368.6

Total 3,466.8 5,740.8 9,207.6 Visitornights(‘000) 15,801 44,178.0 59,979.0#noteitisassumedthat3%ofwinesalesatthecellardooristowinetourists.TheestimateisderivedfromtheAWBCandWFA(2007)BenchmarkingGuideforMediumSizedBusinesseswhichestimatesthat3%oftotalsalesforbusinessofthissizeareatthecellardoor.NoABSemploymentdataisavailableforwinetourismbecausethereisnospecifictourismindustrysectorintheAustralianandNewZealandStandardIndustrialClassification.EmploymentdataisgeneratedfromanalysisofthewinetourismexpenditureprofileusingtheIO7software.

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5. DirectandIndirectImpactsoftheWineSectorontheAustralianEconomy

5.1 GrapeGrowingSector

EconomicActivityThetotalanddisaggregatedimpactofgrapegrowingontheAustralianeconomy(in2015dollars)isshowninTable5.1.Table5.1DirectandIndirectImpactoftheGrapeGrowingSector DirectEffect Production

InducedConsumption

InducedTotal

Flow-onTOTALEFFECT

OUTPUT($’000,000) 773 1,079 822 1,901 2,674Type11ARatio 1.00 1.40 1.06 2.46 3.46VALUE-ADDED($’000,000) 128 483 455 938 1,065Type11ARatio 1.00 3.78 3.56 7.34 8.34INCOME($’000,000) 121 252 219 471 592Type11ARatio 1.00 2.08 1.81 3.90 4.90EMPLOYMENT(No.) 6,813 3,093 3,360 6,454 13,267Type11ARatio 1.00 0.45 0.49 0.95 1.95

TheAustraliangrapegrowingsectorisestimatedtomakeuptothefollowingtotalannualcontributiontothenationaleconomy:

• $2,674Minannualdirectandindirectregionaloutputorbusinessturnover;• $1,065Minannualdirectandindirectregionalvalueadded;• $592Minannualdirectandindirecthouseholdincome;and• 13,267directandindirectjobs.

MultipliersRatiomultipliersprovideasummarymeasureofthedirectandindirecteconomicactivityrelativetothedirecteconomicactivityforaparticularindicator.TheType11Aratiomultipliersforthegrapegrowingsectorrangefrom1.95foremploymentupto8.34forvalueadded.Thelowratiomultiplierforemploymentisareflectionoftherelativelylabourintensivenatureofthegrapegrowingsectorcomparedtothesectorsthatexperienceflow-onemployment.Thehigherincomeratiomultiplierreflectsthehigherwagesofthoseexperiencingflow-onemploymentrelativetothelowwageinthegrapegrowingsector.Theveryhighvalue-addedmultiplierreflectslowwagesandlowprofitsingrapegrowingrelativetothesectorsthatexperienceflow-oneffects.

MainSectorsAffectedFlow-onimpactsfromthegrapegrowingsectorimpactanumberofdifferentsectorsofthenationaleconomy.Thesectorsmostimpactedbyoutput,value-addedandincomeflow-onsarethe:

• WaterSupply,SewerageandDrainageServices;• OwnershipofDwellings;

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• Agriculture,ForestryandFishingSupportServices;• RoadTransport;• WholesaleTrade;• BasicChemicalManufacturing;• Finance;• RetailTrade;• Professional,ScientificandTechnicalServices;• RentalandHiringServices(exceptRealEstate);• Non-ResidentialPropertyOperatorsandRealEstateServices;• Employment,TravelAgencyandOtherAdministrativeServices;and• AuxiliaryFinanceandInsuranceServices.

Examinationoftheestimateddirectandflow-onemploymentimpactsgivesanindicationoftheaggregatedsectorswithemploymentlinkagestothegrapegrowingsector(Figure5.1).Figure5.1SectoralDistributionofGrapeGrowingEmploymentImpactsontheNationalEconomy

Figure5.1indicatesthatdirect,production-inducedandconsumption-inducedemploymentlinkagesofthegrapegrowingsectoronthenationaleconomyarelikelytohavedifferentdistributionsacrosssectors.Production-inducedflow-onemploymentoccurmainlyinservicessectors,transportsectors,utilitiessectors,wholesale/retailtradesectors,manufacturingsectors,andprimaryindustrysectorswhileconsumptioninducedflow-onemploymentaremainlyinservicessectors,wholesale/retailtradesectorsandaccommodation/cafes/restaurantssectors.

5.2 WineMakingSector

EconomicActivityThetotalanddisaggregatedannualimpactsofthewinemakingsectorontheAustralianeconomy(in2015dollars)areshowninTable5.2.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Employ

men

t(no

.)

Sectors

DirectEffects

Product.-induced flow-ons

Consump.-induced flow-ons

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Table5.2DirectandIndirectImpactoftheWineManufacturingSector DirectEffect Production

InducedConsumption

InducedTotal

Flow-onTOTALEFFECT

OUTPUT($’000,000) 5,900 6,346 5,352 11,698 17,598Type11ARatio 1.00 1.08 0.91 1.98 2.98VALUE-ADDED($’000,000) 2,464 2,615 2,961 5,576 8,040Type11ARatio 1.00 1.06 1.20 2.26 3.26INCOME($’000,000) 886 1,543 1,427 2,970 3,856Type11ARatio 1.00 1.74 1.61 3.35 4.35EMPLOYMENT(No.) 13,629 22,990 21,874 44,864 58,493Type11ARatio 1.00 1.69 1.61 3.29 4.29

TheAustralianwinemakingsectorisestimatedtomakeuptothefollowingtotalannualcontributiontothenationaleconomy:

• $17,598Minannualdirectandindirectregionaloutputorbusinessturnover;• $8,040Minannualdirectandindirectregionalvalueadded;• $3,856Minannualdirectandindirecthouseholdincome;and• 58,493directandindirectjobs.

MultipliersRatiomultipliersprovideasummarymeasureofthedirectandindirecteconomicactivityrelativetothedirecteconomicactivityforaparticularindicator.TheType11Aratiomultipliersforthewinemanufacturingsectorrangefrom3.26forvalue-addedto4.35foremployment.Thehighratiomultiplierforemployment(andincome)isareflectionoftheflow-onemployment(andincome)includingalldirectandindirectemploymentassociatedwithrelativelylabourintensivegrapegrowingsectorandwinemakingitselfbeingrelativelycapitalintensiveandhencehaverelativelowlevelsofemployment(andincome)forthevalueofproductproduced.

MainSectorsAffectedFlow-onimpactsfromthewinemanufacturingsectorimpactanumberofdifferentsectorsofthenationaleconomy.Thesectorsmostimpactedbyoutput,value-addedandincomeflow-onsare:

• GlassandGlassProductManufacturing;• Grapegrowing;• OwnershipofDwellings;• WholesaleTrade;• RetailTrade;• Finance;• Professional,ScientificandTechnicalServices;• ElectricityTransmission,Distribution,OnSellingandElectricityMarketOperation;• RoadTransport;• WaterSupply,SewerageandDrainageServices;• Employment,travelagencyandotheradministrationservices;• HealthCareServices;and• PublicOrderandSafety.

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Examinationoftheestimateddirectandflow-onemploymentimpactsgivesanindicationoftheaggregatedsectorswithemploymentlinkagestothewinemakingsector(Figure5.2).Figure5.2SectoralDistributionofWineMakingEmploymentImpactsontheNationalEconomy

Figure5.2indicatesthatdirect,production-inducedandconsumption-inducedemploymentlinkagesofthewinemakingsectoronthenationaleconomyarelikelytohavedifferentdistributionsacrosssectors.Production-inducedflow-onemploymentoccurmainlyintheprimaryindustriessector,servicessectorsandmanufacturingsectorswhileconsumptioninducedflow-onemploymentaremainlyinservicessectors,wholesale/retailtradesectorsandaccommodation/cafes/restaurantssectors.

5.3 WineTourism

EconomicActivityThetotalanddisaggregatedannualimpactsofthewinetourismsectorontheAustralianeconomy(in2015dollars)areshowninTable5.3.Table5.3DirectandIndirectImpactoftheWineTourismSector DirectEffect Production

InducedConsumption

InducedTotal

Flow-onTOTALEFFECT


TheAustralianwinetourismsectorisestimatedtomakeuptothefollowingtotalannualcontributiontothenationaleconomy:

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Employ

men

t(no

.)

Sectors

DirectEffects



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MultipliersTheType11Aratiomultipliersforthewinetourismsectorrangefrom2.10foremploymentto3.10forvalue-added.

MainSectorsAffectedImpactsfromthewinetourismsectorimpactanumberofdifferentsectorsofthenationaleconomy.Thesectorsmostimpactedintermsofoutput,value-addedandincomeare:

• Accommodation;• FoodandBeverageServices;• RoadTransport;• OwnershipofDwellings;• RetailTrade;• Finance;• WholesaleTrade;• Professional,ScientificandTechnicalServices;• Arts,sports,adultandothereducationservices(includingcommunityeducation);• Non-ResidentialPropertyOperatorsandRealEstateServices;• Employment,travelagencyandotheradministrativeservices;and• HealthCareServices.

Examinationoftheestimateddirectandflow-onemploymentimpactsgivesanindicationoftheaggregatedsectorswithemploymentlinkagestothewinetourismsector(Figure5.3).Figure5.3SectoralDistributionofWineTourismEmploymentImpactsontheNationalEconomy

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Employ

men

t(no

.)

Sectors

DirectEffects



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Figure5.3indicatesthatdirect,production-inducedandconsumption-inducedemploymentlinkagesofthewinetourismsectorontheNationaleconomyarelikelytohavedifferentdistributionsacrosssectors.Directemploymentmainlyoccursintheaccommodation/cafes/restaurantssectors,servicessectorsandtransportsectors.Production-inducedflow-onemploymentoccurmainlyintheservicessectorswhileconsumptioninducedflow-onemploymentaremainlyinservicessectors,wholesale/retailtradesectorsandaccommodation/cafes/restaurantssectors.

5.4 TotalWineSector

EconomicActivityItisnotpossibletosimplyaddtheeconomicactivityfromgrapegrowing,winemanufacturingandwinetourismtogivethetotaleconomicactivityfromthewinesectors.ThisisbecauseIOanalysiscapturesbackwardlinkagesandsotheeconomicactivityimpactsfromthewinemanufacturingsectoralreadycapturesthebackwardlinkagestothegrapegrowingsector.Similarly,theeconomicactivityimpactsfromthewinetourismsectorcapturesbackwardlinkagestothewinemakingsector.Toestimatetheeconomicactivityforthetotalwinesector,comprisinggrapegrowing,winemakingandwinetourism,additionalIOanalysiswasundertakenforthewinetourismsectornetofexpenditureatthecellardoorofwineries.Thiswasaddedtotheeconomicactivityimpactsofthewinemakingsector(whichalreadycapturesbackwardlinkagestothegrapegrowingsector).Sodirecteffectsincludewinemakingplusfinaldemandexpenditureonwinetourismrelatedgoodsandservices(netofcellardoorsalestowinetourists).Allothereffectsarereportedinproductionandconsumptionsinducedflow-oneffects.UsingthisapproachthetotalanddisaggregatedannualimpactsofthetotalwinesectorontheAustralianeconomy(in2015dollars)isshowninTable5.4.Table5.4DirectandIndirectImpactoftheTotalWineSector DirectEffect Production

InducedConsumption

InducedTotal

Flow-onTOTALEFFECT


TheAustralianwinesectorisestimatedtomakeuptothefollowingtotalannualcontributiontotheNationaleconomy:


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MultipliersTheType11Aratiomultipliersforthewinesectorrangefrom2.53foremploymentto3.17forvalue-added.

MainSectorsAffectedImpacts from thewine sector impact anumberof different sectorsof theNational economy. Thesectorsmostimpactedintermsofoutput,value-addedandincomeare:

• WineManufacturing;• Accommodation;• OwnershipofDwellings;• FoodandBeverageServices;• RoadTransport;• RetailTrade;• WholesaleTrade;• Finance;• Professional,ScientificandTechnicalServices;• GlassandGlassProductManufacturing;• Employment,TravelAgencyandOtherAdministrativeServices;and• HealthCareServices.

Examinationoftheestimateddirectandflow-onemploymentimpactsgivesanindicationoftheaggregatedsectorswithemploymentlinkagestothewinesector(Figure5.4).Figure5.4SectoralDistributionofWineSectorEmploymentImpactsontheNationalEconomy

Figure5.4indicatesthatdirect,production-inducedandconsumption-inducedemploymentlinkagesofthewinetourismsectoronthenationaleconomyarelikelytohavedifferentdistributionsacrosssectors.Directemploymentmainlyoccursintheaccommodation/cafes/restaurantssectors,servicessectors,primaryindustriessectorsandtransportsectors.Production-inducedflow-onemploymentoccurmainlyintheservicessectors,primaryindustriessectorsandmanufacturingsectorswhileconsumptioninducedflow-onemploymentaremainlyinservicessectors,wholesale/retailtradesectorsandaccommodation/cafes/restaurantssectors.

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Employ

men

t(no

.)

Sectors

DirectEffects



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5.5 ContributiontoTaxReceiptsWinegrapegrowing,winemakingandwinetourismbusinessesoperateinanenvironmentofmultipleandcomplextaxationregulationsparticularlywinemakersdealingwithmultipleexportjurisdictions.Examplesoftaxesthatawinemakerissubjecttoandmustactivelymanageare:

• WineEqualisationTax(WET)

• GoodsandServicesTax(GST)

• Stampduty

• Incometax

• Capitalgainstax

• FringeBenefitsTax(FBT)

• Payrolltax

• Customsandimportduties

• Overseastaxesanddutiesforexporters

• Employeesuperannuation.UnlikeComputableGeneralEquilibriummodelling,Input-Outputanalysisdoesnotgeneratetaxationindicators.InputOutputanalysisaccountsfortaxpaidoninputspurchasedbygrapegrowers,winemakersandthewinetourismsectorandthistaxpaidiscapturedinestimatesofvalue-added.Bywayofexampleofthequantumoftaxpaidbythewinesector,netWETpaymentswere$792millionin2014-15andareforecasttoincreaseto$920millionby2018-19(AustralianGovernmentMid-YearEconomicandFiscalOutlook,Table3.10http://budget.gov.au/2015-16/content/myefo/html/03_part_3-01.htm).

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6. ConclusionsTheresearchhasquantifiedthedirectandflow-oneffectsoftheAustralianwinesector.Thekeyresultsfromtheanalysisareasfollows.TheAustralianwinesectordefinedaswinegrapegrowing,winemakingandwinerelatedtourism:

• Supports172,736fullandpart-timejobsmostofwhicharelocatedinregionalAustralia.Jobssupportedbythewinesectorincludedirectemploymentof68,395withinthesectorandafurther104,341fulltimeandparttimejobsduetoinducedeffects.

• Incomefrombothdirectandflow-onemploymentinthewinesectortotals$10.4billion

• Contributes$40.2billiontothevalueofgrossoutputforAustralia.

• Adds$19.7billioninvalue-addedtotheAustralianeconomy.Theaverageeffectsofacontractionorexpansionwithinthewinesectorsuggests:

• Thewidereconomywouldgainanextra1.53jobsforeveryjobgainedinthewinesector.

• Theeconomywouldgainanextra$2.01millionforeveryadditional$1millionofgrossoutputgeneratedbythewinesector.

• Theeconomywouldgainanextra$2.17millionincontributiontovalue-addedforeveryadditional$1millionofvalue-addedgeneratedbythewinesector.

Industryforecastssuggestanexpansionofwinesectoreconomiccontributionsdescribedinthisreport.

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ReferencesABS(2011)CensusofPopulationandHousing–4digitemploymentABS(2013)-AustralianWineandGrapeIndustry,2012-13,Cataloguenumber1329.0accessed25Sept2015http://www.abs.gov.au/ausstats/[email protected]/Latestproducts/1329.0Main%20Features22012-13?opendocument&tabname=Summary&prodno=1329.0&issue=2012-13&num=&view=ABS(2015)–Vineyards,Australia,2014-15,Cataloguenumber1329.0.55.002accessed2Nov2015http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/1329.0.55.0022014-15?OpenDocumentABS(2014)–GrossValueofIrrigatedAgriculturalProductionhttp://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/4610.0.55.008Main+Features12013-14?OpenDocumentAnderson,K.,NelgenS.,Valenzuela,E.,Wittwer,G(2010)EconomiccontributionsandcharacteristicsofgrapesandwineinAustralia’swineregions,WineEconomicsResearchCentreWorkingPaperNo0110http://www.adelaide.edu.au/wine-econ/papers/0110_Aust_wine_regions_0210.pdfAnderson,K.(2015)ReturningtoGrowth:LessonsfromPreviousCyclesinAustralia’sWineIndustry,WineEconomicsResearchCentreWorkingPaperhttps://www.adelaide.edu.au/wine-econ/pubs/working_papers/0215-returning-to-growth-mar15.pdfAustralianGovernment(December2015)Mid-YearEconomicandFiscalOutlook,Table3.10http://budget.gov.au/2015-16/content/myefo/html/03_part_3-01.htm)AustralianSenateInquiryintotheAustralianWineandGrapeIndustry(2015)http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/Australian_wine_industry/SubmissionsDepartmentofAgricultureandWaterResources(DoAWR2015)SubmissiontotheSenateStandingCommitteeonRuralandRegionalAffairsandTransportReferencesontheAustralianGrapeandWineIndustryDepartmentofPrimaryIndustries,Parks,WaterandEnvironment(DPIPWE)(2014)WineGrapeGrowingGrossMarginAnalysishttp://dpipwe.tas.gov.au/Documents/Wine-Grapes-Gross-Margin---Profitability-Analysis.xlsIBISWorld(May,2015)IndustryReportA0131GrapeGrowinginAustralia,GlasstooFull:OversupplyofWineGrapesandFloodingNegativelyAffectsIndustryRevenueIBISWorld(May,2015a)IndustryReportC1214WineProductioninAustralia,Hungover:IndustryRevenueGrowthwillbeConstrainedbyLingeringEffectsofOversupplyJensen,R.andWest,G.(1986)Input-outputforPractitioners:TheoryandApplications.PreparedforDepartmentofLocalGovernmentandAdministrativeServices,LocalGovernmentandRegionalDevelopmentDivision,AustralianGovernmentPublishingService.MKFResearch(2008)TheImpactofWine,GrapesandGrapeProductsontheAmericanEconomy2007:FamilyBusinessesBuildingValuehttps://www.wineinstitute.org/files/mfk_us_econ_report07.pdf

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NZIER(2009)EconomicImpactoftheNewZealandWineIndustry–AnNZIERReporttoNewZealandWinegrowershttp://www.nzwine.com/assets/sm/upload/v9/q6/e9/ls/NZIER_Rep_April_09.pdfNZIER(2014)TheEconomicContributionoftheNewZealandWineSector,theImpactofGrowthSince2008http://www.nzwine.com/assets/sm/upload/82/kf/wf/o7/The%20economic%20contribution%20of%20the%20New%20Zealand%20wine%20sector%20-%20final%20report%20%20%20%20.pdfInternationalOrganisationofVineandWine(OIV)(2015)StateoftheViticultureWorldMarkethttp://www.oiv.int/oiv/info/enconjoncturePalousis,N(2015)Life-cyclecostanalysisofwineprocessingtoidentifymajoropportunitiesforprocessefficiencyimprovements.PreparedforAustralianGrapeandWineAuthorityhttp://research.wineaustralia.com/completed_projects/life-cycle-cost-analysis-of-wine-processing-to-identify-major-opportunities-for-process-efficiency-improvements/Retallack,M.,Swinburn,G.,Drew,CandScholefield,P(2008)VineBizReferenceManualfortheVineyardBusinessDevelopmentProgram&FinancialReadyReckoner.PreparedfortheWineGrapeGrowersAssociationandDAFFRetallack,M(2012)EconomicBenchmarkingfortheMurrayValleyWineRegionSeason2010-11preparedforMurrayValleyWinegrowersIncandtheGrapeandWineR&DCorporationhttp://www.viti.com.au/pdf/Economic%20Benchmark%20Booklet%20FINAL%20121112.pdfScholefieldRobinson(2008)RegionalVineyardBenchmarkingReportpreparedfortheWineGrapeGrowersAssociationTourismResearchAustralia(TRA)(June2015)TRAInternationalVisitorSurveyhttp://www.tra.gov.au/research/latest-ivs-report.htmlWinemakersFederationofAustraliaFinancialReadyReckonerhttp://www.wfa.org.au/resources/financial-ready-reckoner/WinemakersFederationofAustralia(July2015)VintageReportWineAustralia(undated)GrapeandWineProductionhasoverviewreportshttp://www.wineaustralia.com/en/Winefacts%20Landing/Grape%20and%20Wine%20Production.aspxWineAustraliaandWinemakersFederationofAustralia(2007)WineAustralia:Directionsto2025BenchmarkingGuide,SeparateeditionspreparedforSmall,MediumandLargeWineBusinessesWineAustralia(February2015)AustralianWineSectorStateofPlay,AGWAFebruary2015WineAustralia(May2015)SubmissiontotheSenateStandingCommitteeonRuralandRegionalAffairsandTransportReferencesontheAustralianGrapeandWineIndustryhttp://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/Australian_wine_industry/SubmissionsWineAustralia(Sept2015)ExportReport

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Attachment1AssumptionsandInterpretations,Input-OutputAnalysisandMultipliers1. “ThebasicassumptionsinIOanalysisincludethefollowing:

• thereisafixedinputstructureineachindustry,describedbyfixedtechnologicalcoefficients(evidencefromcomparisonsbetweenIOtablesforthesamecountryovertimehaveindicatedthatmaterialinputrequirementstendtobestableandchangebutslowly;however,requirementsforprimaryfactorsofproduction,thatislabourandcapital,areprobablylessconstant);

• allproductsofanindustryareidenticaloraremadeinfixedproportionstoeachother;• eachindustryexhibitsconstantreturnstoscaleinproduction;• unlimitedlabourandcapitalareavailableatfixedprices;thatis,anychangeinthedemand

forproductivefactorswillnotinduceanychangeintheircost(inreality,constraintssuchaslimitedskilledlabourorinvestmentfundsleadtocompetitionforresourcesamongindustries,whichinturnraisesthepricesofthesescarcefactorsofproductionandofindustryoutputgenerallyinthefaceofstrongdemand);and

• therearenootherconstraints,suchasthebalanceofpaymentsortheactionsofgovernment,ontheresponseofeachindustrytoastimulus.

2.Themultipliersthereforedescribeaverageeffects,notmarginaleffects,andthusdonottakeaccountofeconomiesofscale,unusedcapacityortechnologicalchange.Generally,averageeffectsareexpectedtobehigherthanthemarginaleffects.3.TheIOtablesunderlyingmultiplieranalysisonlytakeaccountofoneformofinterdependence,namelythesalesandpurchaselinksbetweenindustries.Otherinterdependencesuchascollectivecompetitionforfactorsofproduction,changesincommoditypriceswhichinduceproducersandconsumerstoalterthemixoftheirpurchasesandotherconstraintswhichoperateontheeconomyasawholearenotgenerallytakenintoaccount.4.ThecombinationoftheassumptionsusedandtheexcludedinterdependencemeansthatIOmultipliersarehigherthanwouldrealisticallybethecase.Inotherwords,theytendtooverstatethepotentialimpactoffinaldemandstimulus.Theoverstatementispotentiallymoreseriouswhenlargechangesindemandandproductionareconsidered.5.Themultipliersalsodonotaccountforsomeimportantpre-existingconditions.ThisisespeciallytrueofTypeIImultipliers,inwhichemploymentgeneratedandincomeearnedinducefurtherincreasesindemand.Theimplicitassumptionisthatthosetakenintoemploymentwerepreviouslyunemployedandwerepreviouslyconsumingnothing.Inreality,however,notall'new'employmentwouldbedrawnfromtheranksoftheunemployed;andtotheextentthatitwas,thosepreviouslyunemployedwouldpresumablyhaveconsumedoutofincomesupportmeasuresandpersonalsavings.Employment,outputandincomeresponsesarethereforeoverstatedbythemultipliersfortheseadditionalreasons.6.Themostappropriateinterpretationofmultipliersisthattheyprovidearelativemeasure(tobecomparedwithotherindustries)oftheinterdependencebetweenoneindustryandtherestofthe

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economywhicharisessolelyfrompurchasesandsalesofindustryoutputbasedonestimatesoftransactionsoccurringovera(recent)historicalperiod.Progressivedeparturefromtheseconditionswouldprogressivelyreducetheprecisionofmultipliersaspredictivedevice”(ABS1995,p.24).Multipliersindicatethetotalimpactofchangesindemandfortheoutputofanyoneindustryonallindustriesinaneconomy(ABS,1995).Conventionaloutput,employment,value-addedandincomemultipliersshowtheoutput,employment,value-addedandincomeresponsestoaninitialoutputstimulus(JensenandWest,1986).Componentsoftheconventionaloutputmultiplierareasfollows:Initialeffect-whichistheinitialoutputstimulus,usuallya$1changeinoutputfromaparticularindustry(PowellandChalmers,1995;ABS,1995).Firstroundeffects-theamountofoutputfromallintermediatesectorsoftheeconomyrequiredtoproducetheinitial$1changeinoutputfromtheparticularindustry(PowellandChalmers,1995;ABS,1995).Industrialsupporteffects-thesubsequentorinducedextraoutputfromintermediatesectorsarisingfromthefirstroundeffects(PowellandChalmers,1995;ABS,1995).Productioninducedeffects-thesumofthefirstroundeffectsandindustrialsupporteffects(i.e.thetotalamountofoutputfromallindustriesintheeconomyrequiredtoproducetheinitial$1changeinoutput)(PowellandChalmers,1995;ABS,1995).Consumptioninducedeffects-thespendingbyhouseholdsoftheextraincometheyderivefromtheproductionoftheextra$1ofoutputandproductioninducedeffects.Thisspendinginturngeneratesfurtherproductionbyindustries(PowellandChalmers,1995;ABS,1995).Thesimplemultiplieristheinitialeffectplustheproductioninducedeffects.Thetotalmultiplieristhesumoftheinitialeffectplustheproduction-inducedeffectandconsumption-inducedeffect.Conventionalemployment,value-addedandincomemultipliershavesimilarcomponentstotheoutputmultiplier,however,throughconversionusingtherespectivecoefficientsshowtheemployment,value-addedandincomeresponsestoaninitialoutputstimulus(JensenandWest,1986).Foremployment,value-addedandincome,itisalsopossibletoderiverelationshipsbetweentheinitialorownsectoreffectandflow-oneffects.Forexample,theflow-onincomeeffectsfromaninitialincomeeffectortheflow-onemploymenteffectsfromaninitialemploymenteffect,etc.Theseownsectorrelationshipsarereferredtoasratiomultipliers,althoughtheyarenottechnicallymultipliersbecausethereisnodirectlineofcausationbetweentheelementsofthemultiplier.Forinstance,itisnottheinitialchangeinincomethatleadstoincomeflow-oneffects,botharetheresultofanoutputstimulus(JensenandWest,1986).Adescriptionofthedifferentratiomultipliersisgivenbelow.

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Type1ARatioMultiplier=Initial+FirstRoundEffects InitialEffectsType1BRatioMultiplier=Initial+ProductionInducedEffects InitialEffectsType11ARatioMultiplier=Initial+ProductionInduced+ConsumptionInducedEffects InitialEffectsType11BRatioMultiplier=Flow-onEffects InitialEffectsSource:CentreforFarmPlanningandLandManagement(1989).REFERENCESAustralianBureauofStatistics(1995)InformationPaperAustralianNationalAccountsIntroductiontoInput-OutputMultipliers.Cat.No.5246.0.CentreforFarmPlanningandLandManagement(1989)ConsultantsreporttoStateplantationsimpactstudy.CFPLM,UniversityofMelbourne.Jensen,R.andWest,G.(1986)Input-outputforPractitioners:TheoryandApplications.PreparedforDepartmentofLocalGovernmentandAdministrativeServices,LocalGovernmentandRegionalDevelopmentDivision,AustralianGovernmentPublishingService.Powell,R.andChalmers,L.(1995)TheRegionalEconomicImpactofGibraltarRangeandDorrigoNationalPark.AReportfortheNSWNationalParksandWildlifeService.