Australian wine glut challenges industry

Record wine production combined with a reduction in overall sales volume has seen Australian wine inventory levels hit a high not since 2005–06, according to Wine Australia’s Wine Production, Sales and Inventory Report 2021.

The wine glut means more than two billion litres of unsold Australian wine is sitting in storage, the result of a record-sized vintage crop, the sharp reduction in exports to mainland China, and global shipping difficulties that made it more difficult to get wine into markets.

Huge tariffs were imposed by China’s Ministry of Commerce on bottled Australian wine in November last year, leading to a 10 per cent fall in export value in 2020-21 and a 5 per cent decrease in volume for the year. Domestic sales were also down 8 per cent in value and 3 per cent by volume in 2020-21.

The impact of the Chinese tariffs on prices and sales volumes is expected to be even greater next financial year.

Wine Australia Manager Market Insights Peter Bailey said: “As we have previously reported, Australian wine exports in the year ended 30 June 2021 have been impacted by reduced wine availability for the past two years, as well as the tariffs imposed on Australian wine to mainland China in November 2020. The combination of these factors caused exports to decline by 5 per cent over the 2020–21 financial year,” Bailey said.

“Within our domestic market, we are seeing a gradual long-term decline in the volume of wine consumption that is in line with other mature markets globally, combined with short-term COVID-related disruptions and some competition from imported wine.”

Total sales volume of Australian wine in the 2020–21 financial year is estimated to have decreased by 4 per cent compared to 2019–20 to 1.17 billion litres or 130 million cases, with both exports and domestic sales declining.

Total Australian wine production in the 2020–21 financial year is estimated to have been just under 1.5 billion litres, or 165 million 9-litre case equivalents, a 34 per cent year-on-year increase after near-perfect growing and ripening conditions in most states and regions delivered a record 2021 vintage crush of 2.03 million tonnes.

Production of red wine from the 2021 vintage was 854 million litres or 95 million 9-litre cases, making up 58 per cent of production and increasing its share by one percentage point since 2020. White wine production was 628 million litres (70 million cases).

Bailey said that based on these figures and preliminary estimates from the International Organisation of Vine and Wine (OIV), Australia was the fifth largest wine producer in the world, accounting for 5.7 per cent of the global 2021 harvest.

“The large volume of grapes harvested around Australia in 2021 compensated for two low vintages in 2019 and 2020, with the average of the three being just above the 10-year average of 1.74 million tonnes,” Bailey said.

As a result of the increase in production and reduction in sales, the national wine inventory as at 30 June 2021 increased by 24 per cent to 2.1 billion litres. The stock-to-sales ratio overall increased to 1.8, 23 per cent above the 10-year average of 1.46.

“The increased production combined with a reduction in sales is likely to put pressure on tank capacity for some wineries heading into the 2022 vintage,” Bailey said.

“This report provides an overall indication of the sector’s position. Every business is different and the past 12 months have seen a range of experiences. However, there is no doubt that this is a particularly challenging time for the Australian wine sector. The report underlines the importance of market diversification as the key to long-term sustainability, while good communication between all players in the supply chain is critical to manage the short-term issues.”

Trade Agreement supports Australian wine exports to the United Kingdom

There was good news for the wine industry today with the finalisation of the Free Trade Agreement between the Australia and the United Kingdom.

Andrew Wilsmore, Chief Executive Officer at Alcohol Beverages Australia said the trade deal brings considerable benefits to drinks producers in both countries and to their consumers.

“The FTA is estimated to see $43 million in annual customs duties removed from Australian wine when the agreement enters into force, which will help strengthen Australia’s position in this key export market and go some way in making up for the challenges imposed by China’s recent tariff increases,” he said.

“Australia is the 8th biggest market for Scotch whisky exports, so Australian lovers of scotch whisky will also benefit from the five-year phase out of the 5% tariff Australia has on scotch whiskey.

“The 2030 Vision for the Alcohol Beverages Industry set an ambitious plan to double Australian exports. Reducing trade barriers enhances our ability to direct costly tariffs towards investment in capital and people to help grow the economy.”

“Australia is the second largest source of wine imports into the UK by volume. In the 12 months ended September 2021, Australia exported 251 million litres valued at $460 million to the United Kingdom,” said Tony Battaglene, Chief Executive of Australian Grape & Wine. “It is our number 1 export market by volume and value.

“The agreement eliminates tariffs on wine on entry into force, levelling the playing field for Australia’s wine exports with our major competitors from Continental Europe. It also provides a platform for future dialogue to continue to work together on technical issues to further enhance the trade in wine between the two countries.

“The United Kingdom has a long and proud history in the wine trade and its wine industry is emerging as a significant producer of fine wines. We look forward to working collaboratively with the producers and trade to ensure the people of the United Kingdom can enjoy our wines.”

“We congratulate the Australian Government on today’s announcement, and thank Ministers Tehan and Littleproud for all the work they and their departments have done to reach this milestone.”

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