Wine sales have remained steady despite dwindling production of Australian drops which fell to 964 million litres as of 30 June 2023, marking the first time production was below one billion litres since 2007.
The national inventory of wine also remains high despite decreasing by 4 per cent over the 12 months to 2.2 billion litres – equating to about 880 Olympic standard swimming pools. Total industry storage capacity is estimated to be approximately 3 billion litres.
The figures come from the latest Australian Wine: Production, Sales and Inventory report from Wine Australia, which found that the recent lowest annual production of wine in 15 years was not enough to reduce pressure on inventory levels.
The industry body said red wine, in particular, was being stored at high levels, with reds making up 54 per cent of total Australian wine production.
“This is a move in the right direction for the sector as it responds to the challenge of rebalancing supply and demand,” Wine Australia market insights manager Peter Bailey said.
“However, it is only a small reduction after the lowest vintage in 20 years, and stocks of red wine remain at historically high levels.”
South Australian wine businesses were particularly impacted according to Bailey, who noted the state accounted for “over half the national crush”.
“South Australia is impacted by these figures and it’s a major contributor to the overall results,” Bailey told InDaily.
“South Australia also accounts for almost 60 per cent of the volume of total exports in Australia, so the state is also impacted significantly by the global trading conditions that are impacting on sales at the moment.”
The news follows Wine Australia’s export report last month which found the value of wine exports fell 11 per cent in the 12 months to 30 September, while the volume of wine exported dipped 4 per cent in that same period.
The dip was the result of a “global decline in wine consumption across many mature markets”, with Wine Australia adding cost-of-living pressures were slowing down the longer-term global premiumisation trend with consumers moderating consumption as a cost-saving strategy.
It also comes after the release of a Rabobank report in August which warned of oversupply in the Australian wine industry and suggested it could take at least two years to get through a surplus.
Wine Australia said the overall reduction of the national wine inventory was driven by red wine stocks, but the report still found there was currently about two-and-a-half years’ worth of red wine in storage.
“The long-term average stock-to-sales ratio for red wine is around 1.8, which equates to having just under two years’ worth of sales in stock,” Wine Australia’s Bailey said today.
“The current level is over two-and-a-half years’ worth, which is very high in historical terms.
“If the ratio is too high, it puts pressure on winery inventories and reduces demand and price for wine grapes.”
For whites, supply and demand trends appear to be more balanced according to Bailey who noted sales of white wine in 2022-23 were 463 million litres – “considerably lower” than the 10-year average production of 579 million litres.
“Rebalancing supply and demand remains a real challenge for the sector,” Bailey said.
“Our situation reflects the global environment, as world wine production has exceeded consumption every year for at least the past 10 years.
“This prolonged oversupply, which is the equivalent each year of more than twice Australia’s production, has put increasing pressure on all wine-producing countries.”
Asked whether simply increasing inventory space would be a solution to the problem, Bailey said that would only fix things in the short term.
“That issue still very much needs to be resolved, and we need to create demand and also adjust that supply as well to bring that back into balance,” he told InDaily.
“Once we bring that back into balance then you will start to see healthier prices particularly for those reds.”
Wine Australia said it was pleasing that sales remained steady despite dwindling exports and lower domestic demand amid cost-of-living pressures.
“This is the first time in five years that total sales volume has remained steady on a year-on-year basis,” Bailey said.
“Sales of Australian wine have been decreasing in our domestic market and in export markets over the past five years, due to declining wine consumption combined with increased cost-of-living pressures and the effects of the significant duties on Australian wine to China.”
Bailey added that cost of living was a global issue and that premium wine brands were bearing the brunt.
“What’s happened in the last 12 to 18 months is premium wine starts to grow, but not at the same rate as they were and commercial sales have continued to decline,” Bailey said.
The figures come amid what Wine Australia described as “very challenging” global conditions, especially following the loss of the Chinese market which devastated the industry. South Australian wine exports to China evaporated by $88 million and in the year to June 2023 were only worth $4.9 million.
Today, Wine Australia said “some export growth opportunities exist, particularly in SE Asian markets, the United States and – subject to the removal of tariffs on Australian packaged wine – in mainland China”.
Bailey told InDaily that China was still an “important market for Australian wine”.
“Australian wine companies have developed close relationships with importers, buyers and consumers of Australian wine in China, and those relationships obviously remain very important,” he said.
“If the market does open up, Australian wine is still very well regarded within China. I’m looking at consumer perceptions and that’s remained very strong even though we haven’t been in the market for several years.
“But the other point to note is that China has changed significantly since we exited the market; it’s roughly half the size it was when we were at that peak in China. So I think we also need to temper expectations that we’ll get back to the same levels that we achieved at our peak.”
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