Australian wine sector in strongest position for more than a decade

The Australian wine sector is in its strongest position in more than a decade, according to the findings of the Australian wine: production sales and inventory 2016–17 report published today.

The 2017 vintage was the second year of historically high production, with a grape crush of 1.98 million tonnes, 8 per cent higher than in 2016.

Overall growth was driven by red varieties, which were up by 18 per cent in volume. Each of the top 10 red varieties (except for Ruby Cabernet) increased, with Shiraz up by 15 per cent.

Whites fell by 4 per cent overall compared with 2016. The decline was predominantly attributable to Chardonnay, which fell by 13 per cent, while there were increases in 6 of the top 10 white varieties including Sauvignon Blanc, Pinot Gris/Grigio and Muscat Gordo Blanco.

A slight decrease in extraction rates led to a smaller increase in wine production – up by 5 per cent to 1.37 billion litres, driven by an increase in red wine production (up 15 per cent to 793 million litres), while white wine production declined 5 per cent to 576 million litres.

Australian wine sales also grew strongly in 2016–17. Growth in both the domestic and export markets led to a combined increase in sales value of $393 million (8 per cent) to more than $5.6 billion, and an increase in volume of 59 million litres (just under 7 million cases) giving a total volume of 1.3 billion litres (142 million cases).

Most (86 per cent) of the growth in sales came from red and rosé wines, which increased by 51 million litres overall to 666 million litres. This was aligned with the increase in wine production and indicates that market signals are driving production growth.

Positive outlook for the Australian wine sector

The large Australian vintage was well-timed, with global production in 2017 estimated to be the lowest since 1961 at 24.6 billion litres – 2 billion litres below the 2016 figure. Australia was the only major wine producing country to have an above-average harvest in 2017, while production from each of the big three countries – France, Italy and Spain – was down by between 15 and 23 per cent.

Australia is well-placed to take advantage of the opportunity, with stocks at reasonably high levels and well-established routes to market in the four largest wine markets in the world: the United States (USA), United Kingdom, China and Germany. All are significant net importers of wine and traditionally rely heavily on Italy, France and Spain.

Export sales of Australian wine have been increasing since 2013–14, and in 2016–17 they were their highest for seven years. Continuing the schedule of tariff cuts in the China–Australia Free Trade Agreement, the tariff on Australian bottled wine into China reduced from 5.6 per cent to 2.8 per cent on 1 January 2018 and tariffs will drop to zero in 2019. These drops will further increase Australia’s competitiveness in the world’s fastest-growing major wine market and will place it on an equal footing with Chile and New Zealand. In China, exports from France, Italy, the USA, Argentina and South Africa have a 14 per cent tariff on bottled wine and 20 per cent on bulk wine. On-going tariff cuts through the Japan–Australia Economic Partnership Agreement will also improve Australian wine’s competitiveness in Japan, the second biggest wine market in Asia after China.

Forward exchange rates are difficult to predict but in an optimistic sign for exports, three of Australia’s four major banks expect the Australian dollar to be below US $0.75 at the end of 2018, with the only exception being the Commonwealth Bank, which forecasts US $0.85.^₁

Australian wine inventory levels have been gradually increasing over the last five years, particularly for reds. Red wine inventory is estimated to have increased by 7 per cent to 1.09 billion litres in 2016–17, while white wine inventory is estimated to have decreased by 1 per cent to 739 million litres.

Increased inventories support increased sales, with approximately 1.5 years’ worth of sales expected to be held in stock. Inventory growth has been matched by sales growth in the past three years (see figure 1). 

Figure 1: Production, sales and inventory of Australian wine – historical

The stock-to-sales ratio (SSR) for reds and whites decreased slightly in 2017. A decrease in this ratio generally points to upward pressure on pricing. Recent bulk wine prices from Ciatti Global Wine and Grape Brokers (see figure 2) show that Australian bulk prices for key Australian reds are already firming.

Figure 2: Comparison of average Australian bulk wine prices December 2017

Download the Australian wine: production sales and inventory 2016–17 report.

Further information on this report can be obtained from the Market Insights team at Wine Australia on 08 8228 2000 or market.insights@wineaustralia.com.