By Mark O’Callaghan

Managing Director, Wine Network Consulting, email: mocallaghan@winenet.com.au

Mark walks readers through a ‘battle plan’ of how to prepare for the potential impacts of controlled burns and the bushfire season. 

Now one of viticulture’s biggest risk factors, fire and smoke taint need to be planned for and factored into business strategies. With just a few weeks to go before harvest and a mountain of technical information on how to manage the impact of smoke taint already shared by the Australian Wine Research Institute, state and regional wine bodies and others, this article is not so much about winemaking techniques but rather pre-season business preparation. What can the management team do beforehand to maximise flexibility and options? At the risk of mixing proverbs, a battle plan may not survive first contact with the enemy, but failing to plan is certainly planning to fail.

Do we really need to burn (pun intended) more time on the inevitability of bushfires and smoke taint in Australia? The Bureau of Meteorology recently issued another alert about El Niño and many Australian regions have just emerged from three consecutive wet seasons with all the resultant fuel load growth. Let’s also not forget the recent images of Sydney shrouded in smoke from controlled burns in mid-September 2023. Déjà vu all over again? Nobody can predict where, or to what extent it will return, but as surely as night follows day, it will be back. The pressure for controlled burns will be irresistible and it would be reckless not to do so. At least now in 2023-24 nobody can claim they weren’t warned.

That is not to say that we should waste more time and energy in despair. We all know the magic wand hasn’t been invented yet, but now with access to more useful information, we are in a much better position to plan and take action. Until recently, we didn’t even know what we didn’t know. Today, the testing methodologies, benchmarking information, consumer preference testing, remedial and insurance options are leagues ahead of even five years ago and continue to improve.

INSURANCE: SO, WHAT’S NEW?

From the maritime ‘bottomry’ of Babylon 4000 years ago, to the 17th century shipping deals at Lloyd’s coffee house in London, to the modern policies we recognise today, insurance has driven the economy by collectivising risk, giving businesses the confidence and capacity to be bolder. In the case of smoke taint, however, insurance for winegrapes wasn’t available until late 2023. This is largely because new testing methods are robust enough to quantify threshold levels that can trigger a claim — a total game changer in that field.

Insurance for other risks, such as frost or hail, has been available for many years, but often considered too expensive in Australia and relatively rare. Be that as it may, understanding and pricing risk is core business for management teams and it should remain on the table as an option.

Insurance for smoke taint is still in its infancy with very few insurers ready to take it on at this point, but it is certainly growing. Unsurprisingly, the underwriting is based on environmental considerations — the new tool of choice for insurers regarding weather and climate-related risk — and historical satellite images for a region. Other data and fire history are part of the calculations, but premiums can vary between 0.5% to 12% depending on the situation. As with most policies, premiums can also be reduced by increasing the excess, so it depends on the appetite and capacity of the grower. For example, the excess range could be anything from $10,000 for a $400,000 crop (2.5%) to $150,000 for a $1,000,000 crop (15%). Claims, once verified, can even be settled within a week or so of the event.

This kind of insurance assessment should be part of today’s business planning, even if the final decision is ‘no’.

GRAPE SUPPLY CONTRACTS AND AGRICULTURAL RISK

If smoke taint risk is an inherent part of viticulture in many regions in Australia (and elsewhere, of course), then it needs to be built into business plans and costings. Easier said than done, but the agricultural risk cannot be wished away and it must be carried somewhere in the supply chain — in the end, someone always pays.

With respect to grape contracts, contamination schedules and downgrade or rejection provisions, some more creative approaches have emerged recently. These are much more realistic, flexible and (frankly) reasonable than some of the more rigid earlier attempts when the technical understanding was weaker.

Legal advice could be necessary and the examples below will not be appropriate for all businesses (note the WET rebate considerations), but are worth considering for contingency planning and exploring ideas. Some of the more interesting approaches that we have observed in recent years include:

Reduced base price strategy

In this case, confirmation of taint on the vine — with sampling, testing and acceptable background levels specified in advance — could trigger a reduced floor price. Even if this was sufficient only to cover harvesting and transport costs, at least a grower would not need to risk any further expenditure. Under this model, buyers own the fruit and invest in the winemaking as they see fit under the circumstances, but grower payment(s) from there are aligned with the final allocation of the wine. Perhaps nobody wins but agricultural risk is shared somewhat and there is some flexibility.

Grower becomes client

This can also help share risk between both parties. Under this model, taint confirmation as above would trigger an up-front rejection, but the grower may send the fruit to the winery for a peppercorn processing fee and retains ownership of the wine. The winery shares risk by absorbing production costs, even if the wine is ultimately disposed of. However, if the wine is useable, the winery buys the bulk wine from the grower with a discount applied for normal processing fees. There are issues for the lawyers to work through, such as the winery’s first right of refusal, but the basics could work in some cases.

Paying growers not to harvest

This is rare, but it has happened. In this case, a wine business has the capacity to prevent their growers from folding and pays an agreed amount per tonne to not deliver. There may, or may not, be permission to sell the fruit to other buyers and it could depend on the insurance situation of the buyer.

That wineries were risk averse in the past after some eye-watering downgrade losses is understandable but without at least some flexibility and more options, viticulture may simply become unviable in some locations.

A SKU-BY-SKU DECISION

The common question following taint results for fruit is simply, what do they mean? Where is the cut-off level for winemaking? What’s the number? Can I make wine with these results? The answer may sound evasive but it’s accurate — it depends.

Whether and/or how to proceed with harvesting depends on factors such as grape variety, harvesting method, transport time, temperature, processing time, winemaking methods, wine style, storage temperature, storage time and even how quickly a wine is selling. That is why the decision about the least-worst option is usually best made on a SKU-by-SKU basis and nobody else can make it for you.

It is worth considering including wine styles in the portfolio that have proven to be more forgiving with respect to smoke taint, such as sparkling, rosé, or even a classic dry white blend. Developing a wine like this from scratch in a smoke year is much harder than having them in the portfolio already, giving the business the option to reallocate fruit. An obvious one is the case of a Pinot Noir producer who simply cannot make red wine from tainted grapes, but might now have rosé as an option. It’s far from ideal, but in the right circumstances it might just work.

GET THE REGION READY

Unfortunately, many of us now know the drill when the smoke hits the fan across a region or 10. Sending individual samples to a laboratory in a crisis is inefficient and impractical, so most at-risk regions have now developed a basic plan for where the samples will be sent for freezing, consolidation, plant health certification and dispatch. If they haven’t, then they should.

By now, regional associations across the country should have these plans reviewed, revised and redistributed comfortably in time for vintage so that the community knows what to do and where to go. Members should also make sure they understand the process beforehand and be active in providing feedback. Calling the office in the middle of a bushfire for information that you should already have read helps nobody and slows the system down in a crisis.

At the regional level there may also be a role for establishing sensory panels that can bring more rigour, robustness and confidence to any wine quality assessments. With so much at stake it can be worthwhile having an independent assessment to help inform decision making and understand risk, but the buck still stops with the individual producer.

The AWRI has published guidelines for establishing panels as recently as 2021 — a must read for technical sub-committees across the nation — with excellent information on sensitivities, false positives, setting up the tasting environment and even numbering systems. The regional associations can be great independent centres for organising the logistics, lists of judges and other back-of house support.

BE PREPARED

It is more than a motto for the Scouts; it is a management responsibility. For winery or vineyard sites exposed to direct fire and isolation risk, a guiding principle is often referred to as ‘island mode’ when it comes to scenario planning. It is simply asking the questions around how a site would cope with being cut off from water, power and even road access for several days at the worst possible time. Does the winery need a generator? Has it been tested recently? Can it be run by the winemakers or do you need an electrician? Diesel tank? LPG bottles? Will the trade waste system still work? For particularly at-risk sites, it could even include having somewhere to sleep, medications and first aid, plus enough for the team to eat for a few days. Sometimes a structurally-sound building can be uninhabitable because the lighting doesn’t work and the toilets don’t flush. Fire planning guides from state fire authorities and insurance companies can be useful resources in preparing your site.

There is plenty of desktop work to do beforehand too. The obvious one is insurance for the hard assets such as buildings, vehicles and stock, but it is also worth discussing with your broker business continuity cover and the various ways to tackle it.

Access to information is essential for staying up to date during fire seasons. There are various easily-accessible notification systems, including emergency apps, alerts, registers and mailing lists, so it’s important to understand what’s available for your area and set them up before the season starts. Many regional associations email updates to their members as soon as they can manage, so make sure your membership is paid and actually open the emails. Being informed ahead of time about planned burns is also important and can influence harvest planning. Knowing in advance that a burn cannot be postponed may not be ideal, but it is still better than finding out when the smoke descends on the vineyard.

MEDIA MANAGEMENT

After prioritising life, limb and property, businesses and regions must eventually move to managing the message. During widespread bushfires, the media attention is often global and if your business or your region refuses to talk, they will find someone who will. That is not to say that anyone should start ranting, despairing or denying on camera, but it is often best to direct media inquiries to your regional association. That, however, assumes that they have given it some thought beforehand and have had at least some basic training. We all know that during the acute phase of the fire it is too early to know what the quality impact will be anyway, but it’s unwise to leave a media vacuum to be filled by someone just enjoying the sound of their own voice as the cameras roll.

THE FRONT FOOT

Until that magic wand is invented, smoke taint is simply part of winemaking in many places and the better it is understood, the better it can be managed. We have access to better information and there are more options available to us today than ever before. Much of the preparation work can and should be done before any fires. Remember, the best time to fix your roof is when the sun is shining.

Published in the Wine & Viticulture Journal, Summer 2024 edition.