Australia’s bushfires and the impact to the wine trade
In December 2018 we wrote about the impact of the Californian wildfires on the global insurance market. In December 2019, Australia witnessed the worst bushfire season the country has ever seen which, like California, has implications for insurers involved in the wine industry.
The latest Australian fires raged from September 2019, and killed over 30 people in the process. The fires are also responsible for the deaths of over half a billion animals and wildlife. The worst blazes were seen along the eastern and southern coastal areas where the majority of the population reside, and as at the start of January over 12.35 million acres of Australian forest, parks and bushland had been destroyed.
Along with this natural destruction, the bushfires have dramatically effected many of Australia’s key economic trades and exports, among these, their famous wines.
Impact on the wine industry
The South Australian Adelaide Hills wine region was hit the hardest. This was caused by a suspected downed power line in the Cudlee Creek area on 20 December 2019 which, with the assistance of 43.9 degree Celsius heat (111 degrees Fahrenheit) and blazing winds, rapidly enveloped between 3000 acres of the regions vineyards. This destroyed around 30% of Adelaide Hills’ overall production, losing around 800,000 cases, or A$20 million worth of wine. A key wine producer in the Hills region, Henschke’s Vineyards, typically produces 25% of the label’s grape production. But for 2020, its contribution will be ‘nil’.
The loss of wine tourism, especially in the Hunter Valley Wine Country region just north of Sydney, New South Wales, is expected to stretch into the millions of dollars. This is made worse by the fact that damage assessments are still only in their early stages due to smoke taint being a reasonably new and inexact body of science. This, plus the fact that tourist numbers have fallen dramatically at what is normally the busiest time of the year, means that Australia’s wine trade is in for a tough few years. High-profile Hunter Valley wine company Tyrrell’s is already feeling the economic effect of this, announcing on 22 January that the company is expecting a loss of 80% of this year’s crop.
Due to many regions being a long way from harvest, it is too early to tell what the full impact will be on the Australian wine economy from the remaining smoke. The Australian Financial Review anticipates that as a country, Australia is looking at losses of over A$100 million.
Implications for insurers
As with the Californian wine industry, insurers and insureds will need to carefully consider what cover is in place for bushfire losses in Australia. Wineries will have to ensure that they have adequate insurance for all potential losses, from damage to grapes in storage to business interruption losses. Insurers should consider the extent of the cover they are providing – does it respond to damage to grapes on the vine, off the vine and during the winemaking process and extend also to taint? Inevitably, there will be potential gaps in cover which could lead to coverage disputes.