By Christian Mahne Sydney

For the wine growers in Australia's Hunter Valley district, 2002 has been a tough vintage.

Consolidation at the top end of town has left small operators with their proportionally higher overheads struggling.

Many wineries are going into the red

This at a time when the tide is turning against the once popular "family vineyard".

In the early 1990s a vineyard was a must-have for the social elite.

Australia's wine industry was booming, exports were growing exponentially and, crucially, the banks were falling over themselves to lend money to small operators.

But now those wineries are increasingly in the red. The blue sky projections on which the business was founded have bled cash almost ever since.

Wine rush

Slick marketing to newcomers has led to an influx of people with money but without wine growing expertise.

The nest eggs they came with rapidly trickled away and the banks, once so eager to lend, have become reticent.

Slick marketing attracted newcomers

Tyrrell's wines has been going since 1858 and with 900 acres they're at the top of the tree in the Hunter Valley wine district.

Fourth-generation owner Bruce Tyrrell, former chairman of the Hunter Valley Vineyard Association, has noted a sea-change in how financiers view the small wine operators.

"The banks are saying 'Hang on, the performance isn't there'. The price of grapes has fallen, contracts are unsure.

"Five or six years ago the best mortgage document you could have to go to the bank with was a grape contract for 10 years to a major winery, they would bank that.

"Now some of those contracts have been walked away from."

Sour grapes

The crunch has come. In the present climate, most banks will lend only on the base value of the land, not the development costs which can be considerable.

Setting up a vineyard costs around US$8,000 an acre excluding the cost of the land, which in the Hunter can be half as much again.

'For sale' signs are becoming more common

Those who borrowed more than the ground cost have to pay it back and that's pushing the small wineries out of business.

Marsh Estates is one of the smallest players in the Hunter Valley.

Andrew Marsh produces about eight thousand cases a year from his 80 acres. Recently he has seen a lot of minor vineyards squeezed out.

"Competition nowadays is so hard, not just between the smaller wineries but we're in competition with the bigger ones nowadays.

"And so for bottle shop (Off Licence) space it's just so hard to compete against some of the bigger ones who are making their wines for a hell of a lot cheaper than the small ones can do it."

And if competition and the banks lending policies aren't enough there's also the environment to contend with.

The drought that's gripped much of Australia has squeezed yields in the Hunter too.

This year's production of red wine is down some 50%, while whites are down by a third.

It's no surprise "For Sale" signs are becoming a frequent sight in the Hunter.