Latest reports present positive picture for Australian wine exports

This week’s bulletin features two recently published reports on the wine sector: the Ciatti Global Market Update (January 2017) and the Silicon Valley Bank State of the Wine Industry (2017), and the implications for Australian wine.

While the Ciatti report focuses specifically on the world bulk market supply, its assessment of harvests and economic conditions across the world’s top wine producing countries is relevant to all segments of the world wine market.

The Ciatti report presents a positive picture for Australian wine exporters. Its assessment is that Australian wine will remain in strong demand, driven by increasing Chinese interest and supported by lower crops in competitor countries such as Argentina and Chile and a softening of supply in Australia as some vineyards are converted to almonds. Softening domestic demand in Argentina, a relatively large harvest in Italy (compared with the rest of the world) in 2016, and large carry-over stocks in South Africa are some of the factors expected to partially offset that strong demand. Although the weakening Great British Pound (GBP) has not been positive for Australian imports to the UK, Australia’s competitors are in the same boat. Ciatti notes that the UK consumers have been told by their government and media to expect higher prices in 2017, which may allow exporters to increase their prices without losing too much volume.

Ciatti’s assessment of the US market is that the strong US dollar (USD) and attractive domestic market, combined with the weak GBP and effects of Brexit on demand, are leading to reduced exports of US wine. Premiumisation is a key trend in the US, driving decisions for wineries in terms of grape buying and contracting, new plantings and mergers and acquisitions. Imported wines are also increasing – especially Italian sparkling, Provençal rosé and New Zealand Sauvignon Blanc.

These themes are repeated in the Silicon Valley Bank’s annual assessment of the State of the Wine Industry in the US for 2017. This highly entertaining paper (with a ‘Jaws’ metaphor running through it) is focused on predictions for the year ahead, rather than reviewing the past. In summary, its forecast is for ‘sunny and mild business conditions’ in the US domestic market – including sales growth of 10 to 14 per cent for the premium wine segment as a result of better economic conditions, strong consumer demand and good supply. The strong and strengthening USD is expected to encourage import growth, while a shift from ‘wine-loyal baby-boomers’ to ‘less affluent millennials, who are ambivalent about their alcoholic beverage of choice’ is likely to put a dampener on per capita consumption. However, this should be minimised if economic conditions continue to improve as forecast.