Why Aussies will be paying less for bottle of wine for a long time to come
- Wine supply in Australia greatly outstripping demand
- Closure of export market to China is main cause of wine glut
- With supply high, producer prices are set to remain low
Australian drinkers are ‘swimming’ in a wine glut that will keep prices low for years to come, a new report has stated, even if China moves to lift tariffs on the product.
Rabobank’s 2023 Wine Quarterly reports shows that wine in storage in Australia has hit some 2 billion litres, the equivalent of 859 Olympic swimming pools or 2.8 billion bottles.
The glut is partly the result of China’s tariffs on Australian wine, which caused exports to the country to fall by a third in the past two years.
‘The tariff coincided with an exceptional growing season and Australia’s largest crush on record,’ RaboResearch associate analyst Pia Piggott said.
‘Wine production for the ’21 vintage increased 36 per cent year on year, which would have in any case caused an oversupply.
RaboResearch associate analyst Pia Piggott said Australian gape growers enjoyed an ‘exceptional growing season and Australia’s largest crush on record’
‘This coincided with Covid, logistics bottlenecks and inflation, which were major hurdles in the way of plans to grow and diversify exports.
‘Thus, two plus years into the tariff, prices of Australian commercial red grapes have significantly declined and oversupply issues remain.’
China’s recent decision to scrap tariffs on Australian barley has given winemakers some hope their own products could also soon be back in the Chinese market.
But Rabobank expects the supply glut to remain, even if China reduces import taxes, on a mix of declining consumer demand and the difficulties winemakers have faced in growing exports in other markets.
‘Chinese consumers began transitioning away from wine as part of a broader decline in alcohol consumption on a per capita basis; however, declines were greater for wine than beer and spirits,’ she said.
Portrait of a mid adult couple, toasting with glasses of red wine
‘Covid lockdowns and the economic slowdown curbing discretionary spending have also played a role in declining consumption to levels not seen since the 1990s.’
The report said it would take the industry at least two years to work its way through the current surplus.
‘To return to balance and profitability, acreage needs to be reduced, thus over the next five years we will see rationalisation of assets throughout the supply chain,’ the report stated.
But as producers confront “margin pressure”, consumers will likely enjoy quality wines at reduced prices and investors could snap up bargains as “distressed” vineyards come up for sale, the report said.