Wine supply glut means Aussie drinkers set to enjoy reduced prices

Australian wine lovers look set to enjoy quality reds at reduced prices for years to come because of these factors.

Australian drinkers are “swimming” in a wine glut that will keep prices low for years to come, a new report has stated, even if China moves to lift tariffs on Australian winemakers and ramp up imports.

Rabobank’s 2023 Wine Quarterly reports shows that wine in storage in Australia has hit some 2 billion litres, the equivalent of 859 Olympic swimming pools or 2.8 billion bottles, in part the result of Chinese tariffs on Australian wine that caused exports to the Asian giant fall by a third in the past two years.

RaboResearch associate analyst Pia Piggott said the tariff punch coincided with a range of factors that led to the dramatic oversupply.

“The tariff coincided with an exceptional growing season and Australia’s largest crush on record,” she said.

“Wine production for the ’21 vintage increased 36 per cent year on year, which would have in any case caused an oversupply.

RaboResearch associate analyst Pia Piggott said Australian gape growers enjoyed an ‘exceptional growing season and Australia’s largest crush on record’.

“This coincided with Covid, logistics bottlenecks and inflation, which were major hurdles in the way of plans to grow and diversify exports.

“Thus, two plus years into the tariff, prices of Australian commercial red grapes have significantly declined and oversupply issues remain.”

China’s recent decision to scrap tariffs on Australian barley has given winemakers some hope their own products could be next.

But Rabobank expects the supply glut to remain, even if China reduces import taxes, on a mix of declining consumer demand and the difficulties winemakers have faced in growing exports in other markets.

“Chinese consumers began transitioning away from wine as part of a broader decline in alcohol consumption on a per capita basis; however, declines were greater for wine than beer and spirits,” she said.

Australian consumers look set to enjoy reduced prices on quality red wines for years to come.

“Covid lockdowns and the economic slowdown curbing discretionary spending have also played a role in declining consumption to levels not seen since the 1990s.”

The report said it would take the industry at least two years to work its way through the current surplus.

“To return to balance and profitability, acreage needs to be reduced, thus over the next five years we will see rationalisation of assets throughout the supply chain,” the report stated.

But as producers confront “margin pressure”, consumers will likely enjoy quality wines at reduced prices and investors could snap up bargains as “distressed” vineyards come up for sale, the report said.