Australia is a key player in the global wine market. In value terms, we are the world’s fourth biggest exporter of wine. However, in production terms, Australia ranks lower at number six in 2020 according to the latest Global Supply Monitor released by Wine Australia.
It is estimated that global wine production in 2020 was 26.3 billion litres, 1 per cent up on 2019 but 2 per cent below the 5-year average. After an exceptionally high level of production in 2018, this was the second consecutive year that production was below average. Given the high degree of uncertainty and volatility in the global wine market due to the COVID-19 pandemic and trade tensions, this lower production can be viewed as a positive.
The northern hemisphere harvests are complete and have come in around the 5-year average. Southern hemisphere producers generally have had smaller crops than in 2019.
The world’s three largest wine producers Italy, France and Spain account for just over half of the world’s wine production (see Figure 1). Italy’s production is estimated to have fallen by 2 per cent to 4.7 billion litres while French production went up 7 per cent to 4.5 billion litres and Spain up 25 per cent to 4.2 billion litres. This equates to an additional 1.02 billion litres of wine produced. To put this in context, it is estimated that Australia produced 1.06 billion litres of wine in 2020, down 12 per cent on 2019 and 17 per cent down on the five-year average. The United States of America (USA), Argentina and Chile are all estimated to be down by similar percentages. On the other hand, in South Africa, where drought significantly impacted on production levels in 2018 and 2019, 2020 production is estimated to be up by 7 per cent.
Figure 1: Estimated wine production by country 2020
On the demand side, the volume of wine consumption is expected to decline significantly in 2020 as a result of the COVID-19 pandemic and associated economic and social impacts, with double-digit declines in all of the top 10 wine-consuming countries except the USA and Australia which declined by 2 and 3 per cent respectively. The total decline in global wine consumption in 2020 is forecast by IWSR to be 13 per cent. This would result in world wine consumption dropping to 21.1 billion litres and would mean that the gap between supply and demand (consumption), based on the supply estimates given above, would be 5.2 billion litres – higher than it has been for at least 10 years (see Figure 2).
Figure 2: Global wine supply and demand over time
The widening gap between global wine supply and demand is likely to place downward pressure on wine prices and consequently grape prices, particularly for reds. In the Global Wine Market Report released by Ciatti in November, downward trends were reported for bulk wine prices for Australian Shiraz, Cabernet Sauvignon and Merlot.
This view was also expressed by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) in its latest agricultural outlook report on wine and wine grapes released on 7 December 2020. While they expect prices of white wine to rise as stocks fall, partly due to the COVID-19 related distillation of wine stocks into industrial alcohol in Europe, reduced demand for red wine imports in China are expected to put downward pressure on red wine prices. Additionally, on 27 November 2020, the Chinese Ministry of Commerce announced that from 28 November 2020, Australian wine imported into China would be subject to temporary tariffs of between 107.1 per cent and 212.1 per cent on bottled still Australian wine (packaged in containers under 2 litres) ahead of finalising the anti-dumping and countervailing duties investigations. The duration of the tariffs is a minimum of four months (with a possible extension to nine months). As the majority of Australian wine exported to China is red wine, this tariff will likely put further downward pressure on the prices of Australian red wine grapes as they will significantly reduce wine exports to China.