Too much red wine. (Photo: Image generated by OpenAI's DALL-E, based on a description provided by Anja Zimmer)
The representatives crowded into the conference room at Adelaide Oval were there to hear solutions. The November 2023 event was the annual Wine Industry Suppliers Association (WISA) conference, which always focuses on practical approaches to the wine business: How to drive more sales. How to increase wine tourism. How to be more profitable.
This year’s theme was “The Only Way Is Up”, and focused on how to remain optimistic in the face of the worst crisis faced by the Australian wine industry for decades.
Pia Piggott, an associate analyst at Rabobank, who had written a widely-read report called Swimming in Wine, outlined the challenge.
“We now have 875 Olympic-sized swimming pools worth of wine in storage in Australia,” she began. “That’s equivalent to over two billion litres of wine and close to three billion bottles of wine.”
It’s about external pressures
Piggott says three factors were behind the oversupply.
- First, the 218% tariff slapped on Australian wine by China in 2021, widely seen as retaliation for Australian criticisms. Until then, China had been Australia’s most significant export market, with sales reaching A$1.2 billion (€737 million) in the year to January 2020.
- Then there were the logistical bottlenecks caused by Covid. As shipping prices increased four- and then five-fold, ships began to bypass Australia in favour of shorter, higher-value routes. Many Australian wineries could not fulfill export orders and lost their customers, leaving them with too much wine.
- “And three, we had record production. The 2021 vintage was the largest vintage on record — a 36% year-on-year increase.”
Not only has volume increased, but the value has decreased, because “China paid a premium for our wines, particularly the warm inland varieties, and for red varieties in particular,” says Piggott. “China was making up more in volume terms than the rest of the world.”
This has left Australia with a structural oversupply, with depressed prices for inland red varieties, with prices falling 67% since 2020. “It’s really unlikely to recover when the tariffs are removed,” she continued.
Australia’s traditional market of the UK is unlikely to pick up the excess, because “in August they increased the alcohol duties, which we’ve estimated will increase duty on a typical bottle of Australian wine by 20%".
Nor will the lucrative US market help, because the demand for wines under $15 a bottle is falling.
There was also the inflationary pressures that were felt acutely in Australia, with the cost of fertilisers, glass, barrels and other inputs rising sharply — while the cost of shipping makes it uneconomic to ship 20c per Litre bulk wine to Europe, where it will be hit with taxes.
Who is suffering the oversupply?
Close to 70% of all grapes produced in Australia come from the warm, irrigated regions of southeastern Australia, and it’s these that growers are now struggling to sell. Typically, growers sell their grapes to wineries. “As farmers come to their scheduled end dates, we’re expecting that wineries aren’t going to renew these contracts,” says Piggott. “This increases the risk for these growers, because they might not be able to sell the grapes, even at low prices.”
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