Australian country report

By Richard Siddle

The Australian wine industry has made huge strides since the global recession hit in 2008. The country was particularly badly hit by the world’s economic woes, and found itself having to contend with massive over-capacity, as well as a rise in the Australian dollar making its wines increasingly expensive within its key export markets. 

Any growth was focused on its commercial bulk wines, and as a result, export volumes dropped by 100 million litres to 686 million litres between 2007 and 2013. Value sales also fell by A$1.2 billion from A$3bn to A$1.8bn.

But how times have changed. According to Wine Australia’s recent export report, the country’s overseas shipments have soared by 15% in the past year to A$2.56bn, with volumes up 8% to reach 811 million litres. 

Much of this growth can be attributed to China, where it seems consumers, driven by the benefits of a new Free Trade Agreement, can’t get enough imported wine from Down Under with sales in 2017 up 63% to A$848m. 

Australia is also in an extremely good position to take advantage of the huge wine shortages, estimated at 222 cases of wine worldwide by the OIV, including the smallest harvest in Europe since 1961.

Which is the ideal time for Australia to turn in its biggest harvest for 10 years, putting itself in prime position to make up some of the global shortage. Here are the key facts to consider from the 2017 Wine Australia export report: 

Overall Production

• The 2017 Australian harvest was the largest crop since 2006.
• The total Australian yield was 1.3 billion litres, moving it ahead of both Chile and Argentina to become the fifth largest producer in the world. 
• The overall value of Australian wine exports in 2017 grew 15% to A$2.56 billion. 
• There was an 8% increase in volumes to 811 million litres. 
• The average price per litre FOB was up 7% to A$3.16, the highest since 2009. 
• Bulk wine exports were up in value by 10% to A$440m.
• Bulk wine exports had an average value per litre in 2017 of A$1.03, up 6%. The first time it has been over A$1 since 2012. 

Grape Prices

• Revenues are on the rise for Australian grapes, and this upward trend has been apparent since 2011. Prior to that prices were on a downward trajectory from 1999
• The national average purchase price is up by 7% to $565 per tonne, the highest price achieved since 2008.
• Significantly the proportion of A and B grade grapes (A$1,500 and above per tonnne) were up to 7.4% from 6.4% reflecting the growth in premium Australian wines.
• This is the third consecutive vintage where the average purchase price has increased. 
• All but two of the top 10 varieties showed increases in the national average purchase prices. 
• Shiraz and Colombard achieved the greatest increases, followed by Muscat Gordon Blanco, Pinot Gris/Grigio and Chardonnay. 
• The two exceptions were Cabernet Sauvignon and Pinot Noir where prices dipped by 1% or less. 
• Shiraz was the biggest driver of he overall increase in the average purchase price as the share of Shiraz bought at A and B grades increased from 13.3% in 2016 to 15.5% in 2017, double the proportion from five years ago. 

Domestic market

• Around 40% of Australian wine is sold domestically, and all indications are that after a long period of flat sales and intense competition from imports, prospects are looking up. 
• Domestic off-trade sales grew by 4% in value and 1% in volume in the 12 months to November 2017 (IRI), the equivalent of an additional 333,000 cases of wine. 
• At the same time, adult per capita wine consumption in Australia increased to 29.6 litres in 2016 after five years in decline. 
• This places Australia as the 16^th biggest wine consumer in the world, compared to France, the highest consumer at 49 litres per adult per year. 
• The IWSR has forecast that wine sales in the domestic market will continue to increase by 1.4% per annum over the next five years. 
• There has also been a clear shift towards drinking higher priced wines. Those wines priced at less than A$10 per bottle in the off trade saw a 1% drop off, while sales of bottles over A$10 jumped by 4% in the year to 12 November 2017 according to IRI Market Edge Liquor. 
• This trend is most marked in Shiraz, where 68% of volume growth came from those wines in the $10-plus bracket, compared with Sauvignon Blanc where the vast majority of growth - 93% - was confined to wines priced at less than $10.
• Chardonnay is also showing a resurgence in popularity in the domestic market, after ten years in the wilderness. 
• In the year to November 2017, the value of bottled Chardonnay sales was up by 3%, while those wines at more than $15 a bottle increased by 7%. 
• Other growth areas in the domestic market include lighter style wines, roses and sparkling wine. 

Key Export Markets

China 

• Australia’s biggest export market in value is China, which has jumped by 63% in the past year to reach $848m. 
• Ten years ago Australia’s wine exports to China only amounted to A$25m. 
• Volumes were also up by 54% to 153m litres. 
• China now accounts for more than half of Australia’s exports of wine priced at over A$10 per bottle. 
• These exports grew by 75% to $377m in the past year. 
• The average price of Australian wine increased by 6% to $5.55 per litre FOB.
• In October 2017 Australia leapfrogged France in terms of value of wine exported to China for the month for the first time. 

Bulk wine to China 

• Australian bulk wine sales to China have also been growing, up by 100% to A$58m. 
• Red wine dominates exports to China, accounting for 90% of sales, and has been a “key factor” in growth, according to Wine Australia’s chief executive Andreas Clark. 
• However, white wine exports are also in growth, up by 33% to $30mm
• Exports to China have been boosted enormously by the Free Trade Agreement between the two countries, which will see tariffs reduce to zero come next January. 
• Other free trade agreements which have helped Australian exports include deals with South Korea and Japan. 

The United States 

• Shipments to the US dipped by 2% last year, bringing their value to $449m.
• Shipments of bulk wine to the US have increased, up by 24% in the past year to A$79m. 
• 93% of Australia’s wines in the US are currently sold in the $4 to $8 price bracket.
• Exports at A$10 or more were up 8% to A$45m in 2017, and off-trade sales above US$11 were up 32%, compared to 7% across all wines

Canada 

• Canada is another important overseas market for Australia, though shipments dropped by 3% last year to $187m. 

Hong Kong

• Hong Kong’s imports from Australia jumped by 7% to reach $118m. 

The UK 

• The UK remains Australia’s biggest export market in volume terms, with 223m litres shipped last year, compared to 172m litres to the US, and 153m litres to China. 
• Much of the wine exported to the UK - 80% is in bulk format, but there was an 8% drop in bulk wine volumes to the UK in 2017. 
• Shipments to the US and UK, Australia’s other top export markets dipped by 2% last year, bringing their value to $449m and $348m respectively. 
• However, total UK exports were down by 2% in value to A$348m and by 5% in volume last year.
• But that decline was offset with a 5% increase in bottled exports to A$179m.
• Its sales in price points above £7 are all up, reflecting the market as a whole. With close to 30% increase for wines between £7 and £8, over 40% between £8 to £9, 35-40% growth between £9 and £10 and close to 50% increase in sales between £10 to £20. But these are all from very small bases.