Water and Australia's wine industry

By Carolyn Jackson
Wednesday, 15 April, 2015

Water and Australia's wine industry

With over 2500 wine producers in Australia, the wine industry has a significant role to play in our economy. Being particularly vulnerable to water shortages, it is crucial for the wine industry to realise the importance of implementing long-term water management strategies.

Research into the long-term implications associated with water management on Australian wine supply chains has been recently completed by Accounting and Sustainability Expert at Macquarie University, Professor Roger Burritt. His research with Katherine Christ, a Visiting Scholar at Macquarie University, has revealed there is a clear gap between the wine industry’s perception of the importance of water efficiency and wastewater production issues, and what the actual statistics reveal. It has been suggested that in order to operate sustainably, Australian wine organisations need to engage with supply chain-oriented approaches to water and environmental management.

While there is some clear evidence of success with technical solutions that help improve the efficiency of irrigation at the viticulture level and with wastewater management and re-use on the production side, Prof. Burritt says that what the wine industry hasn’t given sufficient attention to is the competitive advantage that may be possible from exploring water management on the export side of the business and the financials associated with water trading.

He says the wine industry is currently focusing on premium wine sales overseas in order to obtain a competitive advantage in the near future. However, research evidence indicates the industry has scope to obtain a greater competitive advantage by looking closely at its internal processes and the way it manages water. Burritt says his research reveals there are clear long-term financial advantages that can accrue from better management based on data related to water.

Burritt’s research looked at the wine industry from the point of view of commerce, corporate governance and accounting. He says climate change is expected to affect water distribution in the long term; however, he found there was no systematic gathering of physical or monetary data to help with making long-term decisions about water management in the wine industry.

“Water is a long-term issue that will become scarcer and as water trading markets are slowly introduced in Australia this will eventually push prices up,” he said. “As with carbon trading, companies can obtain a financial advantage by being more efficient. Therefore, risks associated with water access, water use, water trading and the pricing of water should be high on the agenda of every wine company that is thinking about long run sustainability.”

Prof. Burritt encourages the industry to step up its internal data gathering as well as look at the whole set of external parties in the supply chain, saying:  “Firstly, there are systems available that can help with the gathering of data about physical water flows. One system that follows international standards set in 2011 is called material flow cost accounting. By following and introducing this standard, the industry will be able to gain a greater awareness of water-scarcity and water-efficiency issues within the business.”

Secondly, he says, it is crucial that the physical flows are then linked to the financials. Australia leads the world with water accounting tools such as water management accounting (WMA), which is a subset of environment management accounting (EMA).

“Once you have the data on both the physical flows and the financial repercussions, it is much easier to see where there is scope for improvement and assess what physical and monetary improvements are actually taking place,” he said.

Prof. Burritt goes on to say that typically, when industry policy looks at value-adding strategies, it looks at building activities in the home country for employment purposes. However, the wine industry in Australia has a complex supply chain and the research team, which includes Mohsen Varsei, a supply chain specialist, found that by going against this notion of value-adding at home and instead investing in bottling overseas, the Australian wine industry could improve profitability and environmental outcomes in the long run. “Using mathematical modelling, we found there are clear financial, carbon and water advantages that can be achieved by exporting wine in bulk and bottling in Europe or America,” he said.

External parties are also bringing more and more pressure on the wine industry for internal management and disclosure on how efficient it is in terms of carbon emissions and water use. Burritt says that external stakeholders and even consumers are coming to expect this should be happening in the industry and so there likely will be an increase in demands on the industry for the gathering of data for disclosure in its voluntary reporting.

“Because the wine industry is such a competitive industry globally, it needs to survive on innovations such as the strategy towards bottling location and water management for eco-efficient solutions as well as consumer perceptions of the product,” said Prof. Burritt. He says, when the wine industry is aware of the potential for water efficiencies to provide a competitive advantage and realises the importance of long-term water strategies, the industry will gain in terms of profitability and this will also encourage and provide the stimulus for the development of further water-efficient innovations. “The evidence is clear,” he concluded.

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