Industry chiefs warn wine glut will double

THE Australian wine industry has a surplus of 100 million cases a year, which is expected to double within two years.

In a major new report, the four key industry organisations have called on growers to solve the sector's problems themselves, rather than think it can trade its way out or rely on government intervention.

The Wine Restructuring Action Agenda has urged growers to cut production of grapes and wine by 20 per cent to solve the industry's over-production problems.

The report says significant quantities of grapes are being grown at less than the cost of production in Australia's wine regions.

"Structural surpluses of grapes and wine are now so large they are causing long-term damage to our industry by devaluing the Australian brand, entrenching discounting, undermining profitability, and hampering our ability to pursue the vision and activities set out in the Directions to 2025  industry strategy," the report said.

The statement was released to the wine industry yesterday by the Winemakers Federation of Australia, Wine Grape Growers Australia, the Australian Wine and Brandy Corporation, and the Grape and Wine Research and Development Corporation.

Wine Grape Growers Australia executive director Mark McKenzie said the important thing was the need to make it clear to the industry that a structural over-supply problem exists.

Mr McKenzie said the industry needed to retire between 20,000ha and 40,000ha of grape vines from production in an effort to cut grape supply by between 250,000 tonnes and 500,000 tonnes annually.

"We estimate 307,000 tonnes of grapes are being grown and sold for a price that does not meet the cost of production," he said.

"We expect to lose between 6000 and 8000ha of grapevines in the next year but it won't be enough."

Mr McKenzie said the strategy was aimed at hastening the process of growers leaving the industry.

Regional presentations early next year are expected to highlight the varieties and regions which are experiencing the largest problems.

The report said Australia is producing 20-40 million cases a year more than it is selling. This is roughly equivalent to total sales to our second largest export market, the UK.

"Oversupply is unpicking our price structure, distorting perceptions about our product and exacerbating competitive pressures," it says.

"Domestically, excess supplies have allowed supermarkets to move from customers to competitors by launching their own low-price products, without the need to invest in capital infrastructure or the long-term health of the industry.

" This clutters the market place and eats into margins."

Briefings will be held in 14 regional centres across Australia early next year to discuss regional data and issues, and offer business stress testing to assist with decision-making.

The Winemakers Federation of Australia and Wine Grape Growers Australia will hold discussions with the Federal Government about improved exit packages for growers and small wineries seeking to leave the industry along the lines of drought and small block irrigator exit packages.

The strategy also calls for a refocusing of effort on the emerging markets of Asia.

Mr McKenzie said the report highlighted a dramatic fall in grape prices last year from $717 a tonne to $527 a tonne and urged wineries to resist the temptation to wring even more from growers after early indications prices could drop another 20-30 per cent next harvest, starting in January.