published : 2023-08-21

Pandemic and Tariffs Contribute to Surplus Crisis in Australia's Wine Industry

Price plummet seen in commercial red wines due to aggressive oversupply complications

A vast Australian vineyard under the setting sun, showcasing rows upon rows of laden grapevines ready for harvest. Picture taken with Nikon D850.

Australia’s wine industry currently finds itself in a complex situation of severe oversupply that may take several years to resolve, according to expert analysis. The challenges are attributed to Chinese tariffs, significant production rates, and export disruptions resulting from the COVID-19 pandemic.

RaboResearch analyst Pia Piggott shared a staggering insight recently, noting that Australian vineyards have enough domestically stored wine to fill over 859 Olympic-sized swimming pools. That's a colossal volume of more than two billion litres, equivalent to around 2.8 billion wine bottles.

The excessive inventory is causing a marked decrease in prices, particularly observed in the realm of commercial red wines. China, Australia's largest trading partner, commenced imposing tariffs and anti-dumping duties on Australian wine and barley in 2020 as retaliation for Australia's push for an inquiry into COVID's origin.

Such restrictions have dealt a crippling blow to the wine industry, with annual exports to China whittling down to a mere $5.2 million as of June from a once thriving amount of $1.2 billion in January 2020. Lee McLean, Chief Executive of the Australian Grape & Wine industry body, warns no other market can rapidly offset losses stemming from the China market - a statement backed by the Chinese clientele's predilection for red wine.

Lee McLean in a candid discussion during a meeting at Australian Grape & Wine industry office, documents related to wine export scattered on the table. Photo captured with Sony Alpha 7 III.

While diverting attention to other markets like Britain and the US might manifest profitable outcomes, McLean concedes these ventures would need time to generate significant impact. Interestingly, despite historical interest in Australian commodities, China is just now beginning to purchase their coal and timber again following an easing of political tension since Australia's last election.

There are early signs of optimism for the Australian wine industry as recent tariff removals on Australian barley have ignited hopes for similar concessions on the five-year tariffs currently burdening Australian wine. However, Pia Piggott warns that even if Chinese wine consumption resumes and tariffs lift this year, it will take at least another two years to resolve the existing surplus situation.

This is largely owed to a remarkable growing season coinciding with the introduction of these tariffs, COVID disruptions, logistic bottlenecks and rising inflation.

The notion of growth and export diversification plans were essentially railroaded, leading to a sharp decrease in the prices of Australia's commercial red grapes and a surmounting oversupply issue. As per Wine Australia's recent Export Report, the nationwide wine exports have dipped by 10% in value, settling at $1.87 billion, and a minor 1% in volume to 621 million litres for the year concluding in June.

A line of Treasury Wine Estates' bottled red wines displayed aesthetically in a local Australian wine shop, providing a splash of vibrant color. Image taken with Canon EOS 5D Mark IV.

Underscoring the impact of the current industry crisis, Treasury Wine Estates, the world's biggest standalone winemaker, indicated a fall in profits due to a decline in sales. The wine sector's tribulations have, however, ripened opportunities for domestic consumers to relish quality red wines at more affordable prices.

Lee McLean, in a modest appeal, encourages that your next wine purchase should indeed be Australian, providing a glimmer of hope amidst the complexities of international trade, tariffs, and the ongoing global pandemic.