The COVID-19 crisis continues to escalate and is a significant threat to the viability of many Australian grape and wine businesses. The impacts on bushfires and smoke to production, reputation and regional tourism will be compounded by an expected halt to the movement of people across Australia.
Given the reliance of a large proportion of small and medium-sized wine businesses on cellar door sales and winery restaurants, the expected reduction in tourist visitations will pose acute cash flow problems. Closures of borders throughout the world, a significant shortage of containers and in-market restrictions on transport and people movement is having a significant impact on exports.
Without immediate support, many wine businesses will be forced to lay-off staff and potentially cease to operate. In addition, we are deeply concerned by the potential for major disruptions to grape picking, wine production and pruning in the coming months, and the potential for a broader global economic downturn to dampen future export sales.
According to the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES), the impact of the coronavirus (COVID-19) on health and consumer sentiment in China is expected to reduce demand for Australian wine in the first and second quarters of 2020. Sales of imported wine during the Chinese New Year have fallen following the extended shutdown of retail and hospitality businesses. These factors are expected to reduce Australian wine exports to China in 2019–20.
Despite considerable uncertainty, ABARES assumes that COVID-19 in China will be largely contained by 2020–21. If realised, this is expected to restore consumer confidence and increase economic activity in China. This will in turn support demand for Australian wine. Rising economic activity that boosts business profits and the incomes of wealthier consumers is expected to lead to a recovery in the demand for premium wine. Demand for commercial wine in China will slowly recover as Chinese households are reassured of economic recovery.
Over the medium term to 2024–25, growth in China will be a key driver of Australian wine prices and has the potential to spearhead our recovery. Recent news outlets are reporting a strengthening of container shipping markets out of China, on the back of Chinese factories reopening and resuming activity and production. While this is positive news, and indicates China is now hopefully on the recovery phase, positive effects will certainly not be visible for some time. Australia will need to be able to take advantage of any recovery quicker than our competitors. Competition from Chile and France will also limit potential price rises of Australian wine in China over the medium term. This may require support on the logistics front with potential shortage of ships and containers. Coronavirus has affected shipping lines, with Transpacific and Asia-Europe trades the most affected routes.
Australian Grape & Wine has been concentrating our advocacy on immediate cash flow support for grape and wine businesses. This includes WET tax relief for wine businesses. However, many Australian wine businesses don’t pay WET, therefore we have tried to look for alternatives with Government. In the medium term, financial stimulus to grow export and tourism markets and diversify those markets is vital.
The most recent stimulus package announced by the Government on 22 March 2020 provides some support for businesses. The Government’s consolidated package of $189 billion represents fiscal and balance sheet support across the forward estimates of 9.7 per cent of annual GDP. The support is designed to help businesses and households and was updated in light of the broader and more prolonged impact of the Coronavirus outbreak. Measures for business include:
· The Government is enhancing the Boosting Cash Flow for Employers measure it announced on 12 March 2020. The Government is providing up to $100,000 to eligible small and medium-sized businesses, and not-for-profits (NFPs) that employ people, with a minimum payment of $20,000.
· Temporary relief for financially distressed businesses The Government is temporarily increasing the threshold at which creditors can issue a statutory demand on a company, and to initiate bankrupt proceedings against an individual, as well as temporarily increasing the time companies and individuals have to respond to statutory demands they receive. The package also includes temporary relief for directors from any personal liability for trading while insolvent, and providing temporary flexibility in the Corporations Act 2001 to provide targeted relief from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.
· The Australian Tax Office (ATO) will tailor solutions for owners or directors of business that are currently struggling due to the Coronavirus, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
· The Government is increasing the instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
· The Government is introducing a time-limited 15 month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term, by accelerating depreciation deductions.
As part of the package the Government has also announced $1 billion to support regions, communities and industry sectors which have been disproportionately affected by the economic impacts of COVID-19 such as tourism, agriculture and education.
On 22 March 2020, further measures were also announced to restrict the speed of spread of the virus. The following facilities will be restricted from opening from midday local time 23 March 2020:
· Pubs, registered and licenced clubs (excluding bottle shops attached to these venues)
· Hotels (excluding accommodation)
· Gyms and indoor sporting venues
· Cinemas, entertainment venues, casinos, and night clubs
· Restaurants and cafes will be restricted to takeaway and/or home delivery
· Religious gatherings, places of worship or funerals (in enclosed spaces and other than very small groups and where the 1 person per 4 square metre rule applies)
· Isolated remote community hubs are not included in these restrictions
Other facilities are not impacted, but will be considered under stage 2 restrictions, if necessary.
The Australian banking sector is providing a 6 month moratorium on all loan repayments for small businesses affected by the COVID-19 pandemic. You can find further information here and by speaking with your bank. You can also access a free, independent and confidential financial advice and guidance service provided by Financial Counsellors via appointment or over the phone through the National Debt Helpline on 1800 007 007.
We are now entering the shut-down phase of retail outlets, border closures and restrictions on movement. This is a day-to-day proposition and it is likely that many physical retail outlets will be closed in the next week or so.
At the moment bottle shops will remain open and we presume cellar doors that comply with the social distancing restrictions can also operate as a retail outlet. In NSW Cellar Doors can continue to trade, in WA Cellar Doors can sell wine, but no tastings. We are continuing to seek advice on this for other states, and will notify members as soon as we have an answer.
We also continue to advocate for the grape and wine sector as an essential industry. It is essential that delivery drivers can continue to operate across state borders and that processing facilities can continue to operate.
This is a rapidly changing environment, and we will endeavour to keep you as informed as we can. We understand the stress that all Australians are going through at the moment and the devastation this is causing our sector. It is important that we are all conscious of our own and others’ mental health at this time.