Competition to limit wine prices

INCREASED competition both at home and overseas is expected to keep a cap on Australian wine prices for at least the next five years.

In good news for drinkers, the Australian Bureau of Agricultural and Resource Economics has predicted that Australia's lake of excess wine will continue to grow despite the impact of the drought on production levels.

Australia's total wine consumption fell by 1 per cent in 2007-08, with sales of Australianwine down by 5 per cent as a reduced local crop from theprevious year and the then-strong Australian dollar made imported tipples more competitive.

"Declining purchases of Australian wine and increased wine imports reflect changes in thetastes and preferences of Australian wine consumers," ABARE says in its March-quarter commodities report.

Imported wines from France, Italy, Spain and Portugal had all risen because they "satisfied consumer preferences for new varieties and wine styles at prices which were competitive with domestic wines".

This shift in preferences was expected to have been maintained in the current financial year despite the depreciation of the Australian dollar since June 2008, with imports forecast to have increased their share of wine sales from 11 per cent to 15per cent, while domestic wine sales are forecast to fall by a further 1 per cent.

Australia's wine grape production for the current financial year is forecast to be about 1.7million tonnes, down 8 per cent from 2007-08 as a result of water shortages and the impact of high temperatures and bushfires on fruit.

However, sales are falling even faster, with both the volume and value of wine exports down by more than 10 per cent in 2007-08.

This did not prevent Australian producers from continuing to pump out massive volumes, finishing June 2008 with 1.9billion litres of wine in storage -- a level that ABARE has forecast to top two billion litres within the next financial year -- forcing wineries to sell off masses of plonk at fire-sale prices.

"In the medium term, wineries are expected to increase exports of bulk wine," the report states.

"Given the outlook for sales and production, average wine grape prices are forecast to decline by 12 per cent to $690 a tonne in 2008-08."

But even with the prospect of "two-buck chuck" wines becoming a permanent fixture in bottle shops, domestic sales of Australian wine are not expected to resume growth until 2013.