18-8-2023 (SYDNEY) Australia’s wine industry is grappling with severe oversupply challenges, exacerbated by Chinese tariffs, elevated production levels, and export bottlenecks caused by the COVID-19 pandemic. Experts are highlighting that the situation is expected to take years to resolve, impacting domestic storage and market prices.
The extent of the oversupply issue is striking. Vineyards across the country currently hold enough wine in domestic storage to fill 859 Olympic swimming pools, according to Rabobank’s third-quarter wine report released this week.
RaboResearch analyst Pia Piggott elaborated, “This amounts to over two billion litres of wine, equivalent to more than 2.8 million bottles.” Piggott emphasized that this surplus is depressing prices, particularly for commercial red wines.
The troubles for the Australian wine industry were compounded by deteriorating relations with its largest trading partner, China. The friction began in 2020 when Australia called for an inquiry into the origins of COVID-19. This move prompted retaliatory measures from Beijing, including anti-dumping duties on Australian wine and barley.
The wine industry bore the brunt of these restrictions, with exports to China plummeting to A$8.1 million ($5.2 million) for the year ending June, down from a peak of A$1.2 billion in January 2020 when the pandemic commenced.
Lee McLean, Chief Executive of industry body Australian Grape & Wine, noted that there is no swift alternative to the Chinese market. This is due to Chinese consumers’ strong preference for red wine. Diversification efforts into markets like the United Kingdom, Europe, the United States, and other parts of Asia would require considerable time to yield meaningful results.
Despite recent improvements in diplomatic relations, including the resumption of Australian coal and timber exports to China, the removal of tariffs on Australian barley, and hopes for a potential easing of the five-year tariffs on Australian wine, the oversupply issue remains significant.
Even if Chinese wine consumption rebounds and the tariffs are lifted, it will take at least two years for Australia’s wine industry to address the surplus, explained Piggott. The imposition of tariffs coincided with an unusually abundant growing season and was exacerbated by logistical bottlenecks and inflation brought about by the pandemic.
Piggott stated, “Thus, more than two years after the tariffs were imposed, Australian commercial red grape prices have significantly dropped, and oversupply concerns persist.”
The repercussions on Australia’s wine exports are evident. According to Wine Australia’s Export Report for July, wine exports declined by 10% in value to A$1.87 billion and 1% in volume to 621 million litres in the year ending June.
This week, Australia’s Treasury Wine Estates, the world’s largest standalone winemaker, reported a decline in profits due to lower sales. The company’s CEO mentioned in May that even if high tariffs are lifted, wine sales might not fully recover to their previous levels.
The silver lining amidst the crisis is that quality red wines have become more affordable for Australian domestic consumers. “All we can say is next time you go to buy a bottle of wine, make sure it’s Australian,” urged McLean.
