Producers drowning in a flood of wine

THE Australian wine industry will produce 200 million litres of wine it cannot sell during the coming harvest.

Chinese wine merchants visit Jacob Creeks winery in the Barossa Valley, South Australia, this year. Not even the Chinese market is big enough to drain the glut. Picture Kelly Barnes

THE Australian wine industry will produce 200 million litres of wine it cannot sell during the coming harvest.

And even China's rapidly growing thirst won't be enough to soak it all up.

Winemakers' Federation of Australia president Peter Schulz said a 2011 wine grape harvest in line with the average yield of 1.8 million tonnes would produce 22 million more cases of wine than was needed to meet demand.

And a further 46 million cases, or 414 million litres, would be made just to be sold at unsustainably low prices. When added to the excess volume produced during the 2010 vintage, Mr Schulz said the surplus position could be as much as 90 million cases, or 810 million litres.

"We can't wait for the next cycle -- we need to develop a new approach and agenda," he said in an address to the WFA's wine industry outlook conference in Melbourne yesterday.

The Australian Bureau of Agricultural and Resource Economics puts Australia's wine surplus as high as 1.8 billion litres, and forecasts it will remain above 1.2 billion litres for at least the next five years.

WFA chief executive Stephen Strachan said while 8000ha of grapevines had been pulled out of the ground over the past 12 months and a further 13,000 went unpicked, the oversupply situation was far from resolved.

The impact of the oversupply has been compounded by the strength of the Australian dollar, which has reduced both the competitiveness of Australian wine in foreign markets and the local currency proceeds of sales in the nation's two largest export markets, the US and Britain.

Mr Schulz said a case of Australian wine retailing for pound stg. 10 a bottle in 2004 would generate $86 in revenue for its Australian producer.

With the Australian dollar having since risen more than 50 per cent against the pound, the same case of wine brought just $49 in revenue.

In the US market, the return on a case of bottles selling for $US20 each had fallen from $98 to $69 over the same period.

Wine industry consultant and former Domaine Chandon chief executive Tony Jordan warned winemakers not to expect the fast-growing Chinese market to save the industry.

Chinese imports of Australian wine surged by 34 per cent over the 12 months to the end of September, buying 22.3 million litres at a value of $122m, while a resort in China's Guangdong province this week opened a pool where guests could bathe in red wine.

Mr Jordan said French wine was favoured by Chinese buyers for its aura of prestige, but Australian wines were popular for their fruit-driven flavours.

But while exporters currently had an advantage over the generally poor-quality wine made in China, this advantage would soon disappear, he said.

As their quality improved, Chinese wines would soon be competing directly in the 200-300 yuan ($30-$45) market that Australian exporters currently regarded as "our playground", Mr Jordan said.