Wine Australia estimates wine glut of 200 million litres despite falling production

Australian wineries have an estimated 200 million litre glut of wine in their inventory despite slowing production in the aftermath of a three-year trade stand-off with China.

Wine Australia estimates that Australian winemakers are sitting on a 200 million litre oversupply of wine.

Australian winemakers are sitting on a 200 million litre glut of mainly red wine despite pulling back from production in the aftermath of a three-year trade stand-off with China.

Although wineries have been ramping up their exports to China since tariffs were lifted in March, they’re still tracking well behind the $1.2bn in annual sales reached in 2020, and are not expected to return to that peak, thanks to challenges facing the world’s second largest economy.

The latest figures from Wine Australia show how Australian winemakers are adapting to evolving market dynamics.

After plunging to its lowest level in 16 years in 2022-23, Australian wine production increased by 8 per cent in the year to June to 1.04 billion litres – still the second-lowest level of production since 2006-07 and 16 per cent below the 10-year average of 1.24 billion litres.

There has also been a marked shift from the production of red varieties – previously favoured within the Chinese market – to white varieties.

Red wine production fell by 2 per cent in the year to June, while white wine volumes were 20 per cent higher, exceeding red wine production for the first time in 12 years with a 51 per cent share of overall volumes.

Red wine production fell by 2 per cent in the year to June, while white wine volumes were 20 per cent higher. Picture: Natalie Slade

Wine Australia market insights manager Peter Bailey said that while the small 2024 vintage was in part down to seasonal factors, including heavy rainfall and flooding in some regions, it also reflected adjustments made by local winemakers to counter the oversupply of red wine that had emerged over the past three years.

“The result has also stemmed from deliberate decisions by grape growers and wine businesses to reduce production or intake, driven by the current economic and market conditions affecting demand for wine,” he said.

With sales of Australian wine holding steady at 1.08 billion litres, wine inventories eased by a further 10 per cent compared with the previous year, but Wine Australia believes there was still 1.96 billion litres of unsold Australian wine stored in tanks, barrels and on shelves in June.

Wine Australia estimates that the current inventory – which includes wine held for sale and varieties intended to age – includes a 200 million litre oversupply, down from 450 million litres a year ago.

However, with the reduction due primarily to falling production rather than increasing sales, the glut is expected to continue thanks to a gloomy sales outlook.

While the volume of exports to China grew from 1 million litres to 32 million litres in 2023-24 as tariffs were lifted, Mr Bailey said the outlook for Australian winemakers was challenging, with global wine consumption on the decline due to economic conditions, consumers shifting to spirits and other types of alcohol, and a general moderation of alcohol consumption globally.

“There are no easy solutions for increasing sales,” Mr Bailey said.

“Total global wine imports to China have fallen by two thirds since 2017, so it is unlikely that we would return to our previous level of exports to that market.

“Meanwhile our wine sales to the rest of the world, including Australia, have been under pressure for the past several years as consumption has declined and competition has increased. “We are unlikely to see a return to our previous average of 1.2 billion litres (annual sales) in the next few years.”

Despite China’s faltering economy and flagging levels of consumer confidence, ASX-listed Treasury Wine Estates is among a group of Australian wine companies pinning their hopes on a strong revival by the Chinese market.

Earlier this week the company announced it had paid $27.5m to acquire a controlling stake in Chinese winery Ningxia Stone & Moon Winery Co, where it will establish the future “Chinese home” for its flagship luxury brand, Penfolds.

Speaking to The Australian after the company’s annual meeting in October, chief executive Tim Ford said his company’s wines had quickly re-established themselves in China and were being warmly welcomed back by customers.

Closer to home, Taylors Wines managing director Mitchell Taylor said domestic sales had been affected by the reduction in discretionary spending, and he had a “cautiously optimistic” outlook for 2025.

“We’re looking forward to an improvement in the macro conditions, particularly with the cost-of-living pressures that are in the market,” he said.

“We’re looking forward to some interest rate cuts, and also for the government to get on top of the inflation that is currently quite sticky and hanging around the economy.

“Because I think that’s what people are looking for, that ability with all the pressures that are out there, to be able to afford those little luxuries like high quality Australian wine.”