If it feels a bit like 2006 again, here is why…
According to Wine Australia, as at June 2021, there were 2.1 billion litres of wine in Australian wineries, with sales of only 1.17 billion litres per annum. This is uncannily similar to the situation in June 2006 when inventories were also 2.1 billion litres and sales volumes were at 1.15 billion litres per annum.
But there is an important difference – at that time, the widespread drought meant that the 2007 crush fell 25% on the previous year to just 1.42 million tonnes, offering some reprieve from the structural imbalance that had emerged.
Twenty twenty-two offers no such reprieve and it’s hard to sugar coat what this will mean for many growers. With the China market set to remain closed indefinitely, a demand led return to equilibrium is not on any near horizon.
At a recent meeting of our vignerons committee, growers voiced concerns that in 2022 grapes were sold well below cost of production, in some cases barely covering the marginal costs of harvest and delivery. The situation raises the concern that as grape prices fall to unsustainable levels, growers without fixed price contracts will attempt to increase yields to try to compensate. This is not a pathway that we believe the Australian wine industry can sustainably head down without causing long term damage to the reputation we have worked hard to build. The flow on of higher supply volumes and potentially quality impacts is at risk of further compounding the challenges.
It is a time to be realistic about our expectations of the export recovery that would be required to fix the problem. Australian Grape & Wine will continue to work with Chinese partners, Government, and other stakeholders however even in a best-case scenario, trade with China is very unlikely to return to pre 2020 volumes in the next five years.
Going in to 2023 we would encourage growers to work closely with wineries to better understand market demand and price expectations so they can plan their inputs accordingly. Anecdotal evidence in 2022 suggests that prices were well below what growers had expected or that they were unaware until quite late in the season that their fruit may no longer have a home. We recommend that wineries have frank and honest conversations with their growers as early as possible so that growers can make appropriate production decisions leading into next year’s vintage. We recommend that growers take the time to understand the market and the likely impact on their business if prices fall even further.
Australian Grape & Wine is working closely with government to develop policies and strategies to support the sector through these difficult times, but the next few years are likely to be slow and painful.
On a more positive note, we are working towards a gradual recovery of exports through opening access to new and emerging markets. We commend the Australian government for awarding us Stage 2 of the Agricultural Trade and Market Access Cooperation grant of $1,817,000, to grow demand and reduce trade barriers in these markets. Australian Grape & Wine, the Inland Wine Regions Alliance and Wine Australia have also secured a $989,000 grant from the Australian Government to build an online winegrape price indicator platform and to work with ABARES to publish independent winegrape price forecasts to enable commercial grape producers to make better planning decisions.
Further insight into the outlook for wine and winegrapes is provided by ABARES on the Department of Agriculture Water and the Environment website.
Should it be required, there are resources relating to maintaining a non-producing vineyard listed here on the Wine Australia website.