In the 1980’s Australia had a huge lake of wine so much so that a lot of the premium juice was finding its way into the four litre casks which of course made them outstanding value at around four dollars for a cask. The answer according to the South Australian Government was to pay the wineries $5 per vine that was pulled out which effectively got rid of many of old vines and restored the land back to being just a pasture. Several years later Australian wines took off all over the world and we had a huge shortage so it doesn’t pay to make a kneejerk action, if that action had been delayed the industry would have benefitted enormously. This brings me to the current state of the industry which has suffered since questions were asked of China in regards to the pandemic outbreak and which led to the introduction of huge tariffs effectively shutting down our business over there resulting in an oversupply here and insufficient world markets to pick up the slack. As China removes the tariffs on various products, which at the moment doesn’t include wine, even if it did it would not be enough to prevent Australia’s wine industry facing years of oversupply. According to a Rabobank report says, even in a “best case Scenario’ with tariffs removed this year and Chinese consumption of Australian wine recovering quickly, this would not be a panacea with Australia’s wine industry still facing at least two years to work through the current wine surplus.
While this isn’t good news for Australian winemakers there is an upside for consumers with the oversupply keeping prices of many quality Australian red wines at competitive levels.
To give you an idea of just how much wine is lying around in Australian wineries at the moment it equates to 859 Olympic swimming pools and each pool contains around 660,000 gallons, I think you now get to see the scale of the problem. When the China-Australian Free Trade Agreement was signed in 2015 and reduced the tariff on Australian wine from 14% to zero it helped double Australian market share in China from 12% to 24% which was mostly premium quality red wines. Before the tariff embargo wine sales accounted for 18% of Australia’s export volume and 40% of the export value at its peak.
To make matters worse the introduction of tariffs coincided with an exceptional growing season and the 2021 vintage increased 36% year on year which even without the tariffs would probably cause an oversupply.
Added to this the Chinese have begun to transition away from wine as part of a broader decline in alcohol consumption however the consumption of wine has been greater than beer or spirits. Also in the United Kingdom Australian wine imports have fallen from their peak in 2020 as off premise sale decline following COVID reopening and the effect of rising inflation which peaked at around 10% earlier this year. Although sales to the UK and US will remain key export markets for Australian wine UK Government imposts involving higher duties of 20% on a bottle of Australian wine will probably have an impact on sales. Once again to offset the oversupply situation there is now talk of reducing acreage to reduce the amount of wine being produced unless new markets can be found. One of the largest impacts will be on contract winemakers who rely on the larger companies buying their wine when sales are at their highest so there are uncertain times ahead.
This week Liquorland have Hardy’s Tintara out at $18 which is about $12 down on the normal price, Sisters Run Cabernet Sauvignon 2 bottles for $30 instead of $40. The Grant Burge ‘5th Generation’ Cabernet Merlot is still $12 The Wynns Coonawarra ‘The Sidings’ Cabernet Sauvignon is terrific value at $15 and for something really special The St. Hugo Coonawarra Cabernet Sauvignon is $42. It would appear that there are many terrific wine offers out there and a visit to Dan Murphys or First Choice Liquor would probably be the way to go.
Cheers,
Philip Arlidge
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