Fall in wine demand leads to stock glut

Winemakers are holding more stock than their local and overseas customers can drink, according to the Australian Bureau of Statistics, leading the industry to consider cutbacks.

The ABS Australian Wine and Grape Industry report, released today, showed domestic production of red and rosé wines grew by 40 per cent to 673 million litres of wine during the 2007-2008 financial year, while white wine production was up 15 per cent to 553 million litres.

Australian drinkers, though, were tippling less as domestic sales dropped by 5 per cent to 426 million litres, while exports fell 9 per cent to 715 million litres.

The result was that winemakers’ inventories rose 5 per cent to 1.9 billion litres, positioning winemakers on the verge of a glut.

Winemakers Federation of Australia chief executive Stephen Strachan said that while a year-on-year comparison was skewed because of adverse weather conditions, sales had not yet improved to fully cover the existing production levels.

“There does need to be a downwards adjustment in vineyard capacity,” he said.

The need to address the excess capacity, in part brought on by higher than normal demand in the late 1990s, was well understood by most players in the industry, Mr Strachan said.

The global financial crisis had also had an impact on the industry, but the difficulties being faced by the industry were not unique to Australia.

West Australian Wine Industry Association president John Griffiths said that while the state’s wine industry was strong, markets were currently very volatile and new markets would need to be found.

Mr Strachan agreed, saying that there would be pressure on prices, but that demand for wine would remain strong

“High quality wines are where you want to be,” he said.

WA white wines could even see a boost in sales, he said, with domestic buyers turning away from imports.

“Domestically there has been strong demand for imported sparkling and New Zealand Sauvignon Blancs, but given the fact that the Australian dollar is lower, we consider that growth will be slowed,” he said.

“Sometimes I look at the people who have been buying those wines and wonder if they’ve even tried the ones from WA – there are some very high quality ones available.”

The discrepancy between the Australian dollar and the popularity of wine had not been lost on Acton South-West director, Brian Moulton, who said he had noticed a drop in interest for the WA wineries on his books from domestic investors.

“But there has been a pick up in interest from overseas – with the Australian dollar lower against the (British) pound, Swiss franc and Singaporean and US dollar,” he said.

“A number of (buyers) have told me that (was a factor in their decision.)”