The Australian wine industry is currently grappling with a substantial and ongoing oversupply problem, which experts anticipate will take several years to address. This issue is multifaceted, with factors such as Chinese tariffs, increased production, and export obstacles during the COVID-19 pandemic contributing to the challenges at hand.
According to Wine Australia’s Export Report, Australian wine exports experienced a 10% decrease in value, reaching A$1.87 billion, and a 1% decrease in volume, totaling 621 million liters for the year ending in June.
Rabobank’s third-quarter wine report revealed that vineyards across the country have enough wine in stock to fill 859 Olympic swimming pools. This accounts for over two billion liters of wine or more than 2.8 billion bottles. Pia Piggott, an analyst at RaboResearch, stated that this surplus is depressing prices, particularly for commercial red wines.
The deteriorating relationship between Australia and China in 2020, triggered by Australia’s call for an inquiry into the origins of COVID-19, resulted in retaliatory measures from Beijing, including anti-dumping duties on Australian wine and barley. As a result, wine exports to China plummeted to just $5.2 million in the year ending in June, compared to a peak of $1.2 billion in January 2020.
Lee McLean, the CEO of industry body Australian Grape & Wine, noted that no other market can quickly make up for the loss of the Chinese market due to Chinese consumers’ strong preference for red wine. McLean added that diversifying into new markets like Britain, Europe, the United States, and other parts of Asia will require time to yield positive results.
While tensions between Australia and China have somewhat eased since the center-left Labor party won power in Australia last year, and tariffs on Australian barley have been removed, there is still hope for the lifting of the five-year tariffs on Australian wine imposed by China in 2021.
However, even if the tariffs are lifted and Chinese wine consumption recovers this year, it will take at least two years for Australia’s wine industry to work through the surplus, according to Piggott. This is because the restrictions coincided with an unusually abundant growing season.
The challenges faced by the wine industry, including COVID-related logistics bottlenecks and inflation, have hindered plans to grow and diversify exports. As a result, prices for Australian commercial red grapes have significantly declined, and the oversupply issue persists.
In July, Wine Australia’s Export Report stated that Australian wine exports saw a 10% decrease in value, amounting to $1.87 billion, and a 1% decrease in volume, reaching 621 million liters, for the year ending in June.
Additionally, Treasury Wine Estates, the world’s largest standalone winemaker, reported lower profits due to reduced sales. The company’s CEO stated in May that even if the high tariffs were lifted, wine sales would not return to their previous level.
However, amidst the crisis, quality red wines have become more affordable for Australian consumers. McLean encourages consumers to support the industry by choosing Australian wines for their next purchase.
It is evident that the Australian wine sector is currently facing significant challenges, but with time and strategic efforts to diversify markets and address the oversupply issue, the industry can recover and regain its strength.
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