Colliers International is predicting a shortfall in Australian wine production as the drought bites and overseas palates grow ever more discerning and demanding.
They say a growing interest from overseas buyers coupled with falling production mean the wine industry is “quickly approaching a point where demand will outstrip supply”.
This all comes after what they call “a challenging decade” in Australian wine production, that saw many producers pull out their vines as growth became glut and wine inventories grew.
However, as production volumes have fallen, values have grown. Wine Australia reports 2018 saw the highest rate of growth in the value of wine exports in 15 years, rising 20 per cent to $2.76 billion.
Wine Australia reports Australia is the fifth largest exporter of wine in the world, sending roughly 60 per cent of national production offshore, with China its largest market representing 33 per cent of exports, with Hong Kong representing an additional 5 per cent.
In 2018, Wine Australia CEO Andreas Clark said in a statement the strong growth in the value and volume of Australian wine exports was welcome but there were challenges on the horizon.
“Of our five largest markets, only one market – the USA – didn’t grow in value last year,” he said. “Australia has been very strong in the commercial half of the USA market (54 per cent of the US off-trade volume is wines under US$8 per bottle), but this market is shrinking.”
But the story has turned around in the last 10 years.
As far back as November 2009, key industry figures declared Australia was facing a wine glut, bringing in the Wine Restructuring Action Agenda, which was aimed at pulling out production from the sector and rolling back the glut which often saw producers selling at below cost.
The effect of this can be seen in Australia’s 2018 vintage, which Colliers said was approximately 1.79 million tonnes, “a decrease of 10 per cent from the record 2017 harvest” although still above the long-term average for the harvest.
A 2016 story in the AFR again pointed to “low prices, lack of demand and high costs” as well as the rollback of generous tax breaks around wine.
Colliers noted the cost of water was now becoming the largest cost in producing wine as the continued drought across the Murray-Darling Basin bites rural Australia.
ABS data recently showed changing water availability and poor forecasts for rain had increased water used in irrigation with 13 per cent more businesses buying water in the period.
The ABS said water use in irrigation was up 7 per cent to 9.7 million megalitres in 2017-18, with water use on grapevines alone up 9 per cent for the year as the effects of the drought hit.
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