Sunday, February 01, 2009

Australian Wine Industry Faces a Challenge

The Australian wine industry expanded at a rapid rate in the 1990's. But now if faces a great challenge ie. a 25% over supply of grapes.
To meet current demand and projected growth over the next few years the Winemakers Federation of Australia estimated that a 1.6 million tonne annual production is required.
In 2008 the industry produced 1.83million tonnes despite the drought, frost events and irrigation controls.
There have been significant plantings over the last few years which is continuing and it is estimated that the industry could produce up to 2.2 million tonnes.
This is an over supply of over 0.5 million tonnes.

(click map for enlargement)

But the situation is exacerbated by increased wine stocks. Due to the large 2008 harvest it is estimated that inventories are around 250 million cases.Total domestic and export demand is 125 million cases per annum and it is agreed that inventories should be around 1.5 times future sales ie. 195 million cases.So it could be that we only need a 1.2 million tonne harvest for each of the next 2 years.
This is highly unlikely!
And the result of all this?
Grape prices have collapsed and grape growing has been made uneconomic for a lot of growers in most regions.
Australian wine producers have been stuck at the bottom end of the market instead of moving up to the price scale to the premium end of the market. Competition at the bottom end is fierce and they are cutting each others' throats.
While all this is good for the consumer (prices are very low at the moment) it is not ideal situation for the industry.

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