The Western Australian wine industry may take longer to recover from the current wine glut than other wine producing states, due to high production costs and reliance on exports to premium markets.
The Western Australian wine industry may take longer to recover from the current wine glut than other wine producing states, due to high production costs and reliance on exports to premium markets.
In its latest annual report, the Australian Wine and Brandy Corporation predicted that a resolution to the national wine oversupply situation is four or five years away.
But Wine Industry Association of WA president John Griffiths says recovery in this state is going to take even longer, because as prices drop, the supply-demand equation will balance itself out from the bottom first.
“Unfortunately, because we are the highest priced, the cheaper wine will sell first. We’ve got the dearest wine, so we need to be aware that it’s here for some time to come,” Mr Griffiths said.
WA was also disadvantaged due to higher freight penalties on materials coming into WA, for example, glass bottles and agricultural chemicals, as well as transporting product to major domestic markets in the eastern states.
“Those things, along with other factors, mean that our product is going to be the most expensive in Australia to produce,” he said.
“And that means we are the least able to operate at the low price, high volume end of the market.”
There are concerns that, with continued high wine grape yields in WA in the midst of a national and global oversupply, the dramatic increase in production and stock levels will make it difficult for WA wine to find a home – particularly in the premium markets it is most suited to.
This is reiterated by the AWBC report, which states that while export sales into the lower price point markets (China and parts of Europe, for example) are growing, sales into higher price point markets (US and UK) have stalled.
These stalled market opportunities for higher-priced wines means an oversupply of higher cost, cooler climate fruit.
The report suggests that, because of this oversupply, production in these regions, of which WA is one, may need to be reduced.
“If we get a bumper crop, if we do go back to crop levels of 2004, I would be very concerned that a lot of fruit will be left on the vine,” Mr Griffiths said.
“[The glut] is making the need to develop export markets more urgent. But while that’s happening, we’re not going to lose our eye on where our best opportunity is, which is at the high price point high quality end of the market.”
Mr Griffiths predicts that the 2006 WA wine grape harvest will drop to about 60,000 tonnes, down from 79,948t in 2005.
The AWBC is forecasting a national crop of 1.84 million tonnes in 2006, 4 per cent lower than 2005.
“We had a substantial loss of crop over the last two vintages. 2006 was a pretty tough year climate wise, and certainly a lot of fruit was lost,” Mr Griffiths said.
It was possible that some growers were removing vines to ensure that quality was maintained at the highest level. The cooler regions of the great southern, including Pemberton and Mt Barker, were the hardest hit, he said.
