Most grape and wine producers would probably say it is the significant shift in the supply demand balance caused by the loss of bottled wine exports to China in late 2020, coinciding with a record-breaking bumper crop the following year.
Incidentally, the average price of wine exported as bulk has remained relatively stable, fluctuating between (between $1.30 and $1.39 over the last 2 years). The sixty percent of Australian wine that is currently exported as bulk is not directly impacted by the China bottled wine tariffs. The price of wine destined for this price-driven commodity end of the market, is far more influenced by the global wine supply and demand situation than economic drivers specific to Australia.
So it stands to reason that there has been some other major contributor to the softening of grape prices in Australia particularly at the lower end. Shipping.
High consumer demand, congestions at ports, rising fuel costs and container and staff shortages have all contributed to higher priced shipping. Elevated costs of sending product to market is eroding Australia’s competitive advantage, particularly at the lower value commodity end of the market where our products are easily substitutable. This might explain why falling grape prices have been heavily weighted towards the inland regions. Warm inland reds declined in average value by 17% in 2021 and then a further 30% in 2022. By comparison, cool climate reds fell only 3% in the past 12 months. In September 2021, container shipping costs from Australia, were reported to have increased ten-fold from pre-Covid-19 levels, at which point shipping costs likely contributed more to the cost of a litre of lower priced commodity wine than the grapes did. While freight costs have come back a bit, DHL has predicted that they will stabilise at far higher levels than pre-Covid periods. Unless the outlook for freight changes, the profitability of wine and grape production at the commodity end of the market remains doubtful.