Wine Australia estimates wine glut of 450 million litres despite falling production

Australian wine production has plunged to its lowest level in 16 years, but producers still face a red wine glut as they cling onto hopes of a Chinese revival.

Local producers are hoping a breakthrough in trade negotiations with China will go some way to easing the current oversupply.

Australian wine production has plunged to its lowest level in 16 years, but local producers are still grappling with a glut of red wine as they cling onto hopes of a revival of the once-lucrative Chinese market.

According to Wine Australia’s latest Production, Sales and Inventory report, 964 million litres of wine was produced in 2022-23 - down 26 per cent from the previous year and the lowest volumes since 2006–07.

With sales of Australian wine holding steady at 1.07 billion litres, national wine inventories eased 4 per cent compared to the previous year, but Wine Australia estimates there were still 2.2 billion litres of unsold Australian wine sitting on shelves or in storage in June.

That equates to a national stock-to-sales ratio - a measure of how many years’ worth of sales is held in inventories – of 2.57.

The figure is currently 45 per cent above the 10-year average.

Wine Australia estimates that within the current inventory - which includes wine held for sale and varieties intended to age - a 450 million litre surplus of wine had been accumulated by the end of June.

Wine Australia market insights manager Peter Bailey said that while sales had held steady for the first time in five years, the oversupply of particularly red wine remained a serious challenge for local producers.

“Rebalancing supply and demand remains a real challenge for the sector,” he said.

“Our situation reflects the global environment, as world wine production has exceeded consumption every year for at least the past 10 years.

Clare Valley’s Taylor Wines managing director and third-generation winemaker Mitchell Taylor. Picture: Supplied

“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.”

Local producers are hoping a breakthrough in trade negotiations with China will go some way to easing the current oversupply.

At its peak before tariffs of up to 220 per cent were slapped on Australian wine in 2020, the Chinese market accounted for $1.2bn worth of Australian wine exports, but that figure has fallen to just $8m.

Chinese authorities have commenced a five-month review of the tariffs, with the federal government and wine industry hopeful the market could reopen next year.

However in a recent report, Rabobank warns that even in a best case scenario, with tariffs removed and Chinese consumption of Australian wine quickly recovering, it would not be enough to avoid at least two more years of oversupply.

Clare Valley’s Taylors Wines previously sold close to 20 per cent of its exports into the Chinese market.

While hopeful tariffs will be removed following the review, the company’s managing director and third-generation winemaker Mitchell Taylor said it would take some time for sales into China to ramp back up.

“That won’t be simply a matter of turning the tap on and hoping we go back to where we were three years ago,” he said.

“That market has changed substantially and we’ll have to invest in our relationships with visits and the distribution patterns of that varied, changing and complex market.”

Describing the current glut as a “big structural challenge for the industry”, Mr Taylor said it was important for growers and winemakers to respond by adapting to changes in consumer preferences.

“We’re looking at getting the balance strategically right for the long term,” he said.

“That would involve not renewing some grower contracts, that would involve restructuring some vineyards, it would involve removing some vineyards.

“But also on the positive side, maybe replanting to some new varieties that the market particularly wants that we’re short of - lighter styles like Pinot Noir, and particularly whites at the moment are in high demand.

“So it’s getting that restructure in place - that helps you make sure that you’ve got the right grapes for the future.”

Originally published as Wine Australia estimates wine glut of 450 million litres despite falling production