Sales of Australian wine exceeded production for the third year in a row during 2019–20, according to the Wine Production, Sales and Inventory report 2020[1].
Below-average production reflects small harvest
Total Australian wine production in 2019–20 was just under 1.1 billion litres, or 121 million 9-litre case equivalents. This was 9 per cent below the previous year’s production, and 10 per cent below the 10-year average.
Below-average production was not unexpected, as the 2020 crush was the lowest since 2007 at 1.52 million tonnes. While quality was generally high, drought conditions affected much of Australia, strong winds during flowering and fruit set affected yields while bushfires caused losses in a small number of wine regions.
Wine from red grapes accounted for 602 million litres or 67 million 9-litre cases, 55 per cent of total production[2]. The extraction rate for reds fell slightly compared with the previous year, exacerbating the decrease in crush.
On the other hand, the extraction rate for white grapes increased, causing its share of wine production to increase to 45 per cent compared with 43 per cent the previous year. This may indicate demand swinging back towards white wine, leading to less diversion of white juice to other products including juice, concentrate, wine-based beverages and non-alcoholic or reduced alcohol ‘wine’ products.
Sales restricted by limited production
The total volume of Australian wine sales in 2019–20 was just over 1.2 billion litres (136 million 9-litre cases), of which 40 per cent was sold on the domestic market and 60 per cent was exported. Domestic sales were down by 1 per cent, while exports were down 9 per cent.
Fluctuations in total sales over the past 10 years have been driven by exports, with domestic sales remaining very stable over time (see Figure 1).
Figure 1 Historical sales of Australian wine by market
The small decline in the domestic market was consistent with long-term trends of moderation and premiumisation in mature wine markets, while the decline in exports was in line with lower Australian vintages in 2018 and 2019. COVID-19 did not appear to have had a substantial impact on overall sales volumes during the period of the report, the 2019–20 financial year.
Stocks at 8-year low after three years of under-supply
Despite decreasing overall by 6 per cent compared with 2018–19, sales still exceeded the production of wine and other grape products by more than 60 million litres. As a result of this, estimated stocks of Australian wine and other grape products have fallen by around 70 million litres (4 per cent) to 1.7 billion litres, the lowest since 2012.
After experiencing a period of strong growth in sales driven by exports and facilitated by a large crop in 2017, the past three years have seen falling production, leading to reduced volumes available for export and declining stocks.
This period of growth followed by undersupply has put strong upward pressure on winegrape prices. Average winegrape values have increased by an annual average of 5 per cent since 2011 (see Figure 2). The average value of wine exports has increased by an annual average of 4 per cent over the same period.
Figure 2 Australian wine production, sales, inventory and average grape price over time
Getting the balance right
Balancing supply with the demand opportunity will be a challenge for the sector going forward.
The imposition by the Chinese government of temporary deposit tariffs of between 107.1 per cent and 212.1 per cent on Australian wine in containers of up to 2 litres in November 2020[3] have had the effect of more-or-less completely halting wine exports to that market. Australia’s ability to find new markets for the lost volume to China, in the context of a potential increase in global supply and softening in demand, will underpin its success in the next 12–24 months.
Prospects for increasing exports to the United Kingdom (UK) and the United States of America (USA) are positive. Australian wine dominates in the off-trade and has benefitted from the channel shift in both countries as a result of the COVID-19 pandemic. In the year ended December 2020, sales of Australian wine increased by 9 per cent in volume in the UK off-trade market, and by 6 per cent in the USA off-trade.
The UK and USA markets, as well as the domestic market, have a higher demand for white wine, whereas almost all of Australia’s wine exports to China have been red wine (see Table 1).
Table 1 Share of Australia’s wine exports by style for selected markets[4] (YE June 2020)
|
Mainland China |
UK |
USA |
Australia |
|
|
White wine |
4% |
42% |
58% |
43% |
|
Red and rosé wine |
94% |
57% |
42% |
42% |
|
Sparkling and carbonated[5] |
1% |
<1% |
<1% |
12% |
|
Other |
<1% |
<1% |
<1% |
3% |
For the past two years, the red share of total production has exceeded its share of total sales, despite the high proportion of red in exports. Consequently, the stock-to-sales ratio (SSR) for reds has been increasing, while the SSR for whites has been declining and is now at its lowest level in at least 10 years. It is likely to continue to decline if there is a further shift in demand towards white wine, putting upward pressure on white winegrape and wine prices.
View the report here.
[1] Report based on the results of the Wine Australia Wine Production, Sales and Inventory survey 2020
[2] Note that red grapes that are made into white wine (including Pinot Noir) are included with ‘wine from red grapes’, so the actual share of red wine may be lower than reported.
[3] On 26 March 2021 MOFCOM confirmed that tariffs would remain in place for five years. Read more about the China tariffs here
[4] Domestic sales of Australian wine in the case of Australia
[5] Sparkling refers to traditional method. Carbonated includes frizzante.