The Australian wine industry needs to be responsive to changes in key market preferences and increasing competition from ‘new world’ producers in order to remain competitive in the medium to long term, according to a new research report from the Australia
The Australian wine industry needs to be responsive to changes in key market preferences and increasing competition from ‘new world’ producers in order to remain competitive in the medium to long term, according to a new research report from the Australian Bureau of Agriculture and Resource Economics (Abare).
According to the report, the current oversupply of wine in Australia will not be resolved for a further four years, although a 10 per cent reduction in output in 2007 and 2008 vintages could reduce this to two years.
The reports also recommended avoiding regulatory interventions, while increasing the average size of grower operators, investing in research and development, and adjusting business models to achieve better financial performance by encouraging more leasing and share farming arrangements.
Wine stocks are increasing in most major wine producing countries, with Australia estimated to have between 1.9 and 2.3 years’ worth of sales in stock in 2005, above the industry preferred amount of 1.5 years’ worth.
Wine production is outstripping demand on a domestic and global level, while wine grape prices are declining and the global market is showing little or no growth (0.1 per cent per year during the periods 1985-1989 and 2000-2004).
Grape prices in 2004-05 were at one third of their level in 1997-98, in real terms (net of inflation).
Demand in two of Australia’s principal markets, the US and UK, is increasing, however the trend is towards the lower priced end of the market, such as off-licence trade in the UK.
Changing demographics are expected to constrain growth in the long term, as existing wine drinkers retire from employment with lower incomes, and younger generations prefer other alcoholic and non-alcoholic beverages.
A decline in consumption is being detected globally, with traditional markets such as France, Italy and Spain consuming less.
Global oversupply is largely attributed to the ‘new world’ producers, including Australia, Argentina, Chile, South Africa and the US, with improving yields and larger areas planted since the mid-1990s.
In Australia, the area under vines trebled from 1990 to 2004.
Competition between ‘new world’ producers is direct, due to similarities in product and grape varieties, while competition from countries such as France and Italy is expected to increase in the future.
The Australian Wine and Brandy Corporation corroborated the Abare findings in its latest annual report, reported in last week’s WA Business News, predicting that a resolution to the oversupply situation would be four or five years away.
The Wine Industry Association of WA believes recovery in this state will take longer, as WA produces more wines at the premium end of the market.
WA is further disadvantaged by higher freight penalties on materials and costs associated with transporting product to major domestic markets in the eastern states, undermining its capacity to operate in the low price, high volume end of the market.
