Australian bulk wine supply "critically short" due to soaring Chinese demand
China's insatiable thirst for Australian bulk red wine is putting untenable pressure on the market, with prices forecast to rise, according to one bulk wine supplier.
Austwine has said that commercial and entry level Shiraz, Cabernet Sauvignon and Merlot are now all “critically short”, thanks to the soaring demand for red wine from China, - up a staggering 63% in the past year - which makes it the biggest market for Australian wine by value, and a bigger market than the US and the UK combined, Australia’s second and third largest markets.
The diminished 2018 harvest has only served to put further pressure on an already squeezed market. And the situation has been exacerbated in recent weeks by the vintage slowing to a standstill as the very hot conditions in January and February have forced growers to wait for their fruit to ripen.
Producers in Barossa, McLaren Vale, Roiverland, Mildura and Clare Valley have all been affected, with reports of slightly smaller than predicted crops and average yields. Last year’s record breaking crop of 1.98m tons has been forecast to be down between 5% and 10%.
“During the past couple of years, producers of commercial level reds have probably experienced more enquiries than they have wine for,” said Austwine’s CEO Jim Moularadellis.
"Almost all stocks of commercial level reds of any significant volume are allocated, and many wineries are reporting multiple buyers for the same
wine."
He added that the supply situation regarding red wines was very different to only three years ago, with the 2018 crop unlikely to fulfil current demand at current prices.
However, premium reds and premium Chardonnay and Sauvignon Blanc have remained largely unaffected by supply issues. Volumes of entry level Sauvignon Blanc and Chardonnay are drastically down however, while being incorrectly assumed by most market players to be in abundant supply.
“One could easily count on one hand the number of inland wineries that have any substantial volumes of unallocated commercial Chardonnay from 2018 vintage,” added Moularadellis. “I don’t think this is well understood by the market, including perhaps those few wineries that have unallocated commercial Chardonnay.”
The decline in volumes of commercial Chardonnay crushed over the past three years has largely arisen in response to China’s low consumption of white wine, and the subsequent removal of Chardonnay vineyards in Australia over the past few years.
This is on the back of dwindling supplies of the grape globally. Last year’s vintage shortfall in Europe, and South Africa’s drought have both contributed towards the availability of Chardonnay, with limited supply and price increases expected in the coming years.
Overall, supply increases of Australian wine are likely to be "muted" over the next three to five years, said Moularadellis, since there are currently only moderate levels of planting going on, and China will drive much of the demand for Australia’s wine going forward.
“Should Chinese demand for Australian wine continue unabated, then bulk wine prices will rise in the absence of any significant new supply from Australia or alternative supply from other producing countries,” said Moularadellis. He added that the only factor which would prevent this happening would be a large European crop this year, plus another larger than average crop in 2019 to “take the edge off” the current prospect for increasing worldwide bulk wine prices.
“Australia’s wine fortunes are likely to be impacted by these events, together with what happens with crop levels in places such as Chile and South Africa.”