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Tensions at tipping point as red wine glut looms

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Simmering tensions between grape growers and winemakers are at risk of reaching boiling point next vintage when overflowing red wine supplies force prices down, according to the nation’s peak body.

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Speaking at Finlaysons Lawyers’ annual wine roadshow this month, Australian Grape & Wine Chief Executive Officer Tony Battaglene said pressure would be felt across all parts of the industry as producers scramble to find new markets in the wake of China’s decision to impose tariffs of more than 200 per cent on Australian wine.

“My biggest fear is vintage 2022 will bring in tensions,” Battaglene said.

“We will see downgrades, we will see a lack of focus, a lack of understanding of what pricing is happening, what the demand is and how downgrades or rejections will occur.

“We can’t afford that. We need to have honesty and openness. We need to have grape growers and winemakers to talk early, often and we can get through this – there needs to be that strong relationship.”

China’s Ministry of Commerce announced anti-dumping and countervailing investigations in August 2020 and imposed interim countervailing duties of 6.3–6.4 per cent and anti-dumping tariffs of between 116.2 per cent and 218.4 per cent on bottled Australian wine on November 28.

The tariffs were extended for a further five years on March 28 this year.

Latest Wine Australia figures released last month show national export volumes for the 12-months to September 30 fell by 17 per cent to 638 million litres, while the export value fell 24 per cent to $2.27 billion.

An Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) report released in July found that the gross value of Australian wine production in 2025 would be $480 million lower than would have the case without China’s tariffs, due to reduced production combined with a lower expected average price.

Bumper crop

Another complicating factor is the record 2021 Australian vintage.

In a normal year, the high-quality bumper harvest of 2.03 million tonnes in Australia would be celebrated as a boon for the industry, especially as it followed two drought- and bushfire-affected vintages that depleted Australia’s wine inventories to their lowest levels since 2011.

However, this year’s record crop will replenish those stocks and more, prompting wine companies to already reassess their grape contracts for 2022.

Battaglene said the industry needed to explore all options including the emerging low and no alcohol segments.

“It’s not just about wine – we’re about grapes and grape products and wine is just part of the mix,” he said.

“We’re a resilient industry. We are going to get through this but there is no question that the next couple of years are going to be very tough for grape growers and winemakers and that’s where I keep reiterating that we need to work together; we need to have honest relationships throughout the supply chain.”

Australia’s record 2021 vintage included 57 per cent red grapes, leading to the largest red wine production in more than a decade.

Chinese imports of Australian wine are dominated by red – about 95 per cent – particularly Shiraz.

The Australian Government initiated a dispute action with the World Trade Organisation in June with an independent panel expected to be finalised next month.

However, an outcome is not expected for at least three years.

Battaglene said it was already clear that the price of red grapes, in particular, would be negatively impacted next Australian vintage.

“We know that we can’t take up all that demand for that wine – there’s a lot of it in tanks – and we know that prices will be impacted,” he said.

“We also know that the duopoly of Coles and Woolworths will mean that aggressive price discounting can be expected domestically as they take advantage of cheaper wine and cheaper grapes.”

South Australia is responsible for about 50 per cent of the nation’s wine production and up to 75 per cent of Australia’s premium red wine.

New markets

Battaglene said a “strategic refocus” was needed for the sector because  “the loss of the China market does not have a short-term fix”.

“Market diversification takes time and is not easy, we know that it can’t happen overnight,” he said.

“We are already well diversified with well over 100 markets. Key to our exports will be growth to Asia … that’s where the growth will come and of course the United States – a difficult market but one where we are severely underweight.”

Adelaide-based Finlaysons Lawyers moved its 29th wine roadshow online this year due to lockdowns in the eastern states that prevented its expert panel from visiting several key regions.

Other speakers during the two-hour webinar included Finlaysons wine partner Will Taylor and Wine Australia general manager corporate affairs and regulation Rachel Triggs.

Taylor said China’s moves had dealt a massive blow but the industry needed to look for positives.

“There has been some good growth in some markets and really what needs to happen is post COVID – when they can do it – Australian winemakers really need to get over to those markets and pound the pavements,” he said.

“The UK and the USA are the greatest opportunity for Australian wine in the short to medium term and perhaps the long term.”

Triggs said the recent European harvest was about 20 per cent below average, potentially providing an opportunity for Australian wine to fill some of the void.

She said while there was a strong relationship between falling export prices and falling grapes prices, the full impact of the China tariffs would not be known until the end of this month – when data for the full year since their implementation was available.

“Export performance is absolutely vital to the performance of the sector,” Triggs said.

“(But) unlike past years, the volume (of Australian wine) available to be exported won’t be constrained.

“There’s a lot of things that still need to play out here – we know that grapevines are extremely fickle in the way they respond to seasonal variations but I think what’s most important is to look at what’s going on globally and in particular in the Northern Hemisphere.”

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