Hunter Valley shiraz

Australian wine supplies tighten

February 11, 2020
By Alana House

Total wine sales have exceeded production for the second year in a row as Australian wine supplies tightens.

Wine Australia’s Production sales and inventory report 2019 shows the situation has contributed to increased value for the sector.

Wine production in 2018–19 was just under 1.2 billion litres (or 133 million 9-litre case equivalents), in line with the 10-year average, although 6% below the 2017–18 figure.

Despite the fall in volume, sales value to winemakers increased by $114 million – or 2% – to $6.36 billion.

Red wines sales exceed white for first time

Wine Australia Chief Executive Officer Andreas Clark said the increasing value of Australian wine sales, especially exports, demonstrated the strong demand for Australian wine globally and the shift to a focus on higher value products.

Australia's favourite pinot noirs

Reds made up 57% of production, compared with 52% the previous year. While this is partly related to seasonal variations, it was also a response to changing consumer preferences.

Red wine accounted for 60% of export sales, while in the domestic market, which has long been dominated by white wine, sales of Australian red wine in 2018–19 exceeded those of white wine for the first time.

Clark said two near-average years of production in a row coupled with a growth in exports had resulted in a draw down of stock.

Inventory is estimated to have decreased by 6% (approximately 100 million litres) overall to 1.77 billion litres, although this reduction was almost entirely in white wine, which decreased by 12%.

Stocks of red wine did not change, and the stock-to-sales ratio for reds increased slightly, although at 1.42 it remained below the long-term average of 1.6.

Clark said red wine – particularly premium red wine – required longer maturation before it was ready for sale; therefore, counter-intuitively, an increase in demand could still result in an increase in stocks-to-sales ratio. Essentially this means that winemakers need to build up their stock of reds if they are to meet future requirements.

According to the report, the outlook for the Australian wine sector in the short term is generally positive. A smaller global harvest in 2019, along with a favourable exchange rate for the Australian dollar against the US dollar and continued strong demand from Asian export markets, should further enhance export opportunities for Australian wine producers in 2020.

However, while signs are generally positive, the balance between supply, demand, price and international competition remains precarious.

Clark warned a lack of available Australian wine supplies from the 2019 harvest was likely to limit export volume growth in 2020, while the effects of recent events including bushfires and the novel coronavirus outbreak on global and local demand were yet to be determined.

Wine prices predicted to rise following bushfires

Analysts are predicting that bushfire and smoke taint damage will lead to increased grape and wine prices in Australia.

Adelaide Hills bushfires

“Australia continues to face an unprecedented bushfire emergency,” notes the Rural Bank Insights Update – January 2020.

“This has devastated many farming and regional communities. Our thoughts are with everyone affected and we thank emergency services and volunteers for their tireless work in protecting and rebuilding communities.

“Wine grapes in both New South Wales, South Australia and Victoria have been impacted by fire and smoke.

“Direct fire damage has been more prevalent in the Adelaide Hills with almost one third of the region’s wine grapes damaged.

“In New South Wales and Victoria, it will take longer to assess the impact of smoke taint on this year’s vintage.

“Both scenarios have the potential to push wine grape prices higher in the coming months with flow on effects to wine export volumes and values in the coming year.’

Rural Bank is a division of Bendigo and Adelaide Bank and provides a monthly analysis of production and pricing trends for Australian agriculture.

JPMorgan analyst Shaun Cousins said in a note to clients last month that there would be limited impact to aggregate crush volumes for the wine sector and value, yet there was likely to be added upward pressure to grape and wine prices as Australian wine supplies tighten.

“Initial press reports indicate that athird to half of the wine production in the Adelaide Hills (SA) has been destroyed. Adelaide Hills comprises roughly 1% of total Australian wine crush and wine value … suggesting a modest national impact although likely to add upward pressure on grape prices.”

Meanwhile, Wine Enthusiast noted: “In the coming years, grape shortages are expected to send prices through the roof and impact the entire region.”

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