Region InFocus
Australia
We take a close look at the prospects for Australian wine on the back of its 2021 harvest, and the prospects for the 2022 vintage based on recent figures released by the Australian government’s Department of Agriculture. Natalie Wilson reports.
Production
Australian wine grape production remains above average in 2021-22 as most growing regions experienced favourable seasonal conditions in spring and early summer. However, overall the vintage may be smaller than last year’s record. Production is expected to fall from last year, with red varietal grapes down 20% and white varietal grapes down 2%.
In 2021-22 the gross value of wine grape production, driven by lower prices, is predicted to drop 28% to A$870 million. This decline in grape production value is forecast to continue into 2022-23, falling by 7% to A$810 million – a pessimistic outlook for the supply chain value next year.
Yet, projections for 2026-27 look more optimistic for Australian wine production. It is expected that the value of wine grape production will once again rise above A$870 million in nominal terms.
The area planted for wine grapes on Australian vineyards is set to remain largely unchanged with wine producers focusing on water levels to buffer dry conditions and aid vine yields.
Australian Grape Prices
Prices of Australian grapes are expected to fall a further 5% in the short term during 2022-23 as elevated inventories and disrupted sales further soften the demand for newer vintage grapes.
China, previously a significant market for Australian red wine, represents a major loss of exports and demand for red varietals. Prices are expected to fall further as red wine volumes reach record highs from expanding multi-year inventories.
By the end of 2026-27, prices for red grapes are forecast to average A$700 per tonne, a similar price to that seen before the booming Chinese demand between 2015-2020.
Despite slow sales and lower demand from Australian hospitality sectors, white varietal grapes are recovering modestly in 2021-22 as global white wine inventories remain low and consumer demand for whites remains steady.
Exports
Australian wine exports are expected to fall to A$2.3 billion in value after elevated inventories, loss of exports to China and disrupted sales during the Covid-19 pandemic.
Exports of the 2021 vintage were also down due to high shipping costs, container shortages and port congestion.
In 2022-23 there's an anticipated 11% increase in export value to A$2.5 billion for Australian wine, even in the face of stable global exports as expected as overall demand remains stagnant.
The peak value of Australian wine exports is predicted between 2024-5 and 2025-6 with improved demand driving higher prices as the backlog of wine inventory reduces.
VINEX Southern Hemisphere Price Index
The weighted average price of Australian commercial wine supply has been monitored by VINEX since 2013 (representing an index of 100). As shown by the chart opposite, since January 2021 the price index for Australian wine has fallen from 141 to its current level 92, a drop of 49 percentage points. This fall is made up almost entirely of red pricing, such was the affect of the imposed 200%+ tariffs on Australian wine imported by China in late 2020.
International Opportunities
The Australia-United Kingdom Free Trade Agreement brings new opportunities for Australian wine after UK tariffs as high as £26 per hectolitre are eliminated. However, both governments are not expected to enact the FTA until early 2023.
Exports have since rocketed in value to the UK, in 2021 wine exports totalled A$453 million to Australia’s once again top sales destination. However, while the value and volume of Australian exports increase, proposed UK changes to alcohol taxation on drinks above 11.5% alcohol content could harm Australian wines, currently exported between at 12.0-15.0%, placing Australia at a disadvantage to European and South American wines with typically lower alcohol content.
Challenges
One of the greatest challenges in 2021 for wine producers was the availability of personnel, such as viticulturists, winemakers and cellar staff. According to the South Australian Wine Industry, 67% of the problem was a lack of experienced vineyard and cellar staff, constraining the capacity to maximise inventories and sales for the bigger wine companies. Australia’s four largest wine businesses produced only 28% of the industry’s revenue in 2021. This compared to 2012 when Accolade, Casella, Pernod Ricard and Treasury accounted for 40% of revenue which illustrates the rise and growth of medium and smaller sized Australian wine producers.
The overall Australian sector will also have to tackle rising additives, dry goods and supply chain costs in 2022 and the on-going impact of Chinese export restrictions. This tougher operating environment is being reflected in newly negotiated supply contracts. Winemakers reliant on a consistent supply of grapes will need to consider the potential for future growth and for their financial position to remain stable in these negotiations. Challenging times indeed.
