Australia Annual Wine Report 2008
Source: US Government
15 Dec, 2008 - Australian wine production in 2008 surpassed earlier forecasts according the Australian Wine and Brandy Corporation (AWBC). Industry reports estimate that the 2008 crop to be 1.83 million metric tons (MMT) compared to the earlier forecast of 1.5 MMT.
The increase in production surprised government officials, grape producers, and vintners. Increased production has raised stock levels, reversing the trend toward higher from the drought-reduced stocks in 2007.
General
Australian wine production in 2008 surpassed earlier forecasts according the Australian Wine and Brandy Corporation (AWBC). Both ABARE and AWBC forecasts surpass previous earlier expectations.
Earlier industry estimates were based on the assumption of continued dry weather limiting the harvest and didn’t account for significant purchase of irrigation water irrigation rights in addition to better than expected growing conditions. Industry reports estimate that the 2008 crop to be 1.83 million metric tons (MMT) compared to the earlier forecast of 1.5 MMT. The increase in production surprised government officials, grape producers, and vintners. Increased production has raised stock levels, reversing the trend toward higher from the drought-reduced stocks in 2007.
Looking forward, industry sources are estimating a 2009 crop in the 1.7-1.9 MMT range which again is likely to lead to rising stocks. The Australian wine industry has continued to grapple with the serious issues of drought, low prices and high stock levels.
Post advises that rainfall has not been evenly distributed across Australia’s wine regions over the past 6 months. For example, rainfall in South Australia, Victoria, and southern New South Wales has been very limited. Nonetheless, most industry sources believe that wine grape growers will again be able to obtain the necessary water to sustain production, particularly higher quality wine grape growers.
The recent financial turmoil has seen very limited impact on the Australian wine industry. The recent devaluation of the Australian dollar against the U.S. dollar and the Euro appear likely to insulate Australian wineries from some of the financial turbulence. Industry expected demand for Australian wines to remain strong, particularly for wines in the US $15-40 range.
Lower priced wines were seen as being the most vulnerable to a potential drop in demand because of their limited ability to further reduce prices. Australian wine sources reported greater concern over the United Kingdom wine market compared to the U.S. market. Mid and higher priced wines were seen as more vulnerable in the United Kingdom because of low consumer brand loyalty combined with being a very price sensitive market.
The Australian wine industry continues to grapple with the critical long term issues of drought, both domestic and global overproduction. The industry believes that improving quality and grape producer innovation are the best strategies for long-term industry success. Vintners are making focused efforts on improving the image of “Brand Australia” to a higher price point market than has been the case in recent years. “Value building,” as their strategy is termed, is hoped to lead to long-term, higher value exports even while the volume of total exports may decline.
Going forward, downsizing the Australian wine sector is inevitable and necessary, according to industry sources. Evidence of a reduction in plantings is supported by industry reports that noted a small removal of plantings of warm inland white and red wine grapes. Some producers plan on replacing vines that were removed with different varieties so the overall planted area picture remains unclear. Numerous mergers and sell offs of well known wineries has been seen this past year and appears likely to continue as the industry restructures itself after the boom growth years from 2000-2006.
Production
AWBC recently estimated total wine grape production for the 2007/08 vintage upwards to 1,830 TMT. A forecast of this level, if achieved, would likely produce around 12,810 thousand hectoliters (THL) of wine using a conversion factor of 0.7. This represents a 44 percent increase from the historically low 1,265 TMT (8,855 THL) for the previous year (ABARE data).
With the forecast improvement in 2008 production, a vintage of 1,830 TMT would be considered an average size crop, according to historical figures. Production levels for the 2003/04, 2004/05 and 2005/06 averaged around 1,900 TMT. Australian stock levels increased significantly during that period so any return to similar production levels is expected to result in a rebuilding of stocks and downward pressure on prices.
Exports
Total exports for 2007/08 dropped for the first time in many years to 7,021 THL (702 million liters), down 12 percent on the estimate for the previous year, according to AWBC data. According to historical figures, Australian wine exports had been increasing steadily over the past decade. Industry sources point to the historically high value of the Australian dollar as accounting for much of the reason for the decline in sales.
Also, price-sensitive bulk wine shipments declined markedly in response to exchange rate movements. According to AWBC data, the volume of the bulk wine shipments reportedly declined 32 percent in 2007-08 to 153 THL compared to the previous year and the value declined 19 percent to A$188 million. Bottled wine exports also declined in 2007-08 but only by 3 percent in volume and 10 percent in value.
Policy
On December 1, Australia and the European Community signed an Agreement on Trade in Wine. The EU represents Australia’s largest export market and this agreement is expected to result in smoother trade relations for Australian wine exports to the EU.
The reported benefits for Australian producers include:
• European recognition of an additional 16 Australian winemaking techniques, including the use of oak chips to add flavor
• Simpler arrangements for the approval of winemaking techniques that may be developed in the future
• Simplified labeling requirements for Australian wine sold in European markets, to allow optional information such as the number of standard drinks
• Protection within Europe for Australia’s 112 registered geographical indicators, including Barossa Valley, Mudgee, Margaret River and Rutherglen
• Australia can continue to use a number of ‘traditional expressions’, such as ‘vintage’, ‘tawny’ and ‘ruby’.