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Oct 12, 2006

Australian wine industry: is the glass half empty or full?

Too many grapes, not enough drinkers - the problem facing the Australian wine industry is all about oversupply. And while the industry hasn't hit the panic button yet, industry insiders admit there are going to be casualties.

Turning water to wine may have seemed like a neat trick in Jesus’s day, but with Australia today facing both a wine glut and a water shortage, someone capable of applying the reverse process would find their skills in great demand.

Indeed, the Australian wine industry’s chief problem right now is oversupply, with a report in Tuesday’s Australian noting that wine exports had fallen in value for the first time in 15 years:

Figures issued by the Australian Wine and Brandy Corporation yesterday showed that export volumes increased by 7% to 738 million litres for the year to September 30. However, the average price a litre fell by 7% over the same period, resulting in an overall 0.6% decline in the value of exports to $2.78 billion.

British wine writer Tim Atken says “an estimated 10% of the country’s vineyards (will remain) unpicked in 2006,” an assessment supported by Paul Hamm, writing in last weekend’s Sunday Times:

According to The 2005 National Wine Grape Crush & Price Report, the grapes Malbec, Cabernet Sauvignon, Grenache, Sangiovese, and Chardonnay are 10%-25% in oversupply. Some 200,000 tonnes of wine grapes were left unsold nationally in the last financial year.

Some have argued the oversupply and subsequent price drop even has a social impact, with teen drinkers now able to buy a bottle of wine – seven standard drinks – from the larger chain stores for as little as $2, cheaper, in some cases, than a can of soft drink or bottle of water.

So while that all sounds pretty dire, what is the industry saying about the situation? Has the panic button been hit?

“No. The industry hasn’t hit the panic button yet,” Tony Keys, publisher of the Key Report, a weekly wine industry newsletter, told Crikey. Keys says the current situation is a correction following the faulty projections of demand the industry produced in the mid 1990s. And he says that the Australian situation is not unique.

“In Europe alone, there is still a billion litres of wine in excess. California and Argentina face similar problems. Of course, there will be casualties in Australia, but the current situation is not even remotely a threat to the Australian wine industry, despite the negativity of reports like Hamm’s.”

While Keys says the Australian Wine and Brandy Corporation (AWBC) is responsible for those false projections and subsequent over-planting, a spokesman for the AWBC told Crikey that the organisation was warning growers back in 2000 of a looming oversupply. A major report will be released by the AWBC in May 2007 tackling the strategic issues facing the industry. However, both Keys and the AWBC admit there are many growers struggling to stay in business, with the tough times not expected to end any time soon.

Meanwhile, Australian drinkers are the beneficiaries of the wine-glut-we-had-to-have. Compared to ten years ago, the monthly grog bill is looking more than a few dollars lighter.

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