Chapter 2The state of Australia's wine industry
2.1Australia is currently ranked as the fifth largest producer and exporter of wine in the world and is internationally recognised for the quality of its product. However, recent years have been troubling for the industry due to factors both global and domestic. Issues with international trade and changing trends have contributed to an oversupply of grapes that is causing issues across the Australian wine supply chain.
2.2These challenges also affect the broader community that relies on the wine industry, as well as leading to issues of mental and financial health which have arisen as a result of the depressed wine market.
2.3This chapter presents evidence on:
Australia’s wine production and trade market;
effects of tariffs imposed by China on Australian exports;
oversupply of grapes and wine;
changing consumption habits;
outlook for the Australian wine industry; and
effects of the depressed market on wine producing communities.
2.4The chapter ends with the committee’s views and recommendations.
Australian wine production and international trade
2.5Australia is the fifth largest producer and exporter of wine in the world. In 2023–24, Australia produced 1.04 billion litres of wine from a total winegrape crush of 1.32 million tonnes.Production occurs across 65 distinct growing regions by approximately 2150 wineries and 6000 grape growers, supporting over 163 000 employees.
2.6Recent years have seen a downward trend in the Australian winegrape crush. The 2023 vintage marked a 23-year low, with just 1.32 million tonnes crushed. The 2024 vintage saw a small recovery, increasing to 1.43 million tonnes. Although crush levels are down, there has been no substantial evidence of a decline in the vineyard area, indicating that the potential for larger crops still exists. In South Australia, vineyard area decreased by only 1.8 per cent between 2023 and 2024, but the crush fell by 33 per cent. Wine Australia suggested that yield management and seasonal factors, rather than vineyard reduction, may be responsible for lower production.
2.7Wine Australia valued the 2024 crush at $1.01 billion, representing a two per cent increase year-on-year. This rise in value was due to a nine per cent increase in volume, which helped to offset a decrease in average value per tonne from $642 to $613. The decline in average value was driven primarily by lower prices for grapes from the warm inland regions, including the Riverina and Murray Darling/Swan Hill in New South Wales and the Riverland in South Australia. These three regions account for 72 per cent of the national crush. The average price for red grapes in these warm, inland regions has dropped by 55 per cent since 2020, compared to just a seven per cent drop in cool, temperate regions.
2.8The international trade market is critical to the success and health of the Australian wine industry. Approximately 60 per cent of all wine produced in Australia is exported to international markets, meaning that ongoing positive trade relations are necessary for the growth of the industry. In 2023–24, Australia exported 619 million litres of wine with a value of $2.19 billion. The main export markets are mainland China (18 per cent of all exports), United States (US) (16 per cent), United Kingdom (UK) (16 per cent), Hong Kong (13 per cent), and Canada (seven per cent).
2.9Export volumes from January to September 2024 represent the highest level of shipments by both volume and value since the 2020–2021 year and can be attributed mainly to the removal of tariffs on exports to China. Exports to mainland China totalled $604 million between April and September 2024—up from just $8 million in the previous year. Exports to all other destinations were stable in value at $1.78 billion and declined in volume by three per cent to 585 million litres.
Chinese trade tariffs
2.10In 2020, as part of wider tariffs in retaliation for Australia endorsing an inquiry into the origins of COVID-19, China imposed duties of almost 220 per cent on Australian bottled wine, effectively resulting in a hiatus on exports to the country. The tariffs were in place until March 2024 and resulted in around $1 billion in lost value, or more than a third of total export value. The tariffs contributed to an oversupply of red wine grapes in Australia, particularly in the warm inland regions, and saw prices drop to near-record lows.
Figure 2.1Total value of Australian wine exports
Source: Wine Australia, Export Report 12 months to 30 September 2024, October 2024, p. 2.
2.11In March 2024, the tariffs on Australian bottled wine were removed and exports to China resumed. In the six months from March to September 2024, 57 million litres, valued at $603 million, were exported to China. Wine Australia warned that although these numbers are positive for the future of exports to China, they may not represent a ‘new normal’. This initial rush of exports is likely to be restocking of Australian wine and, given that export numbers are not the same as retail numbers, it will take time to determine just how Chinese consumers react to having Australian wine back on the market. On the other hand, Chinese wine imports grew by nine per cent in the year ending August 2024 and were mainly driven by Australian wine. All other countries in the top ten, other than the US and New Zealand, fell.
2.12The tariffs imposed by China reportedly left several prominent stakeholders in the Australian wine industry in financial hardship and needing to make significant changes to their business structures. Unsold wine in premium regions, or premium wines sold at low prices, puts downward pressure on prices in warm inland regions. This downward pressure on prices eventually filters down to the growers.
Oversupply of grapes and wine
2.13The Australian wine industry is currently suffering from an oversupply of red wine. As of 30 June 2024, Wine Australia estimated the national wine inventory at 1.96 billion litres. This represented a decrease of 228 million litres over the same time the previous year and was very close to the 10-year average of 1.94 billion litres. However, Wine Australia noted that the 10-year average prior to 2020–21 was 991 million litres, and that this number is more representative of normal levels prior to the record 2021 vintage. Compared to that figure, current levels are still 12 per cent higher.
2.14Wine Australia measures inventory using the stock-to-sales ratio. The stock-to-sales ratio is the amount of wine held in stock relative to a year of sales. For example, a ratio of 1.5 means the amount of wine held in stock is the equivalent of 1.5 years’ worth of sales. In 2023–24, the stock-to-sales ratio for reds fell by 15 per cent to 2.13 but was still 15 per cent above the 10-year average. The loss of China as a major export market contributed greatly to the current oversupply of product, however, structural issues have existed in the wine industry for decades. Industry expansion, supply chain issues, and changing tastes have all contributed to the problem.
Figure 2.2Stocks-to-sales ratio of red wines 2014 to 2023
Source: Australian Government, Viticulture and Wine Sector Working Group Final Report, July 2024, p. 11.
2.15One of the primary reasons for the oversupply is the rapid expansion of the Australian wine industry between 1980 and 2008. During this period, total vineyard area almost tripled, from 65 182 hectares to 166 000 hectares. The rapid expansion of vineyard area was driven by two reports. The first, a 1995 research report from the Industry Commission (now Productivity Commission), detailed the competitiveness and export potential of the industry. This report did not set out any strategies or targets, believing that those details were best determined by the industry itself, but did outline the factual foundation for future plans.
2.16The second report, released by the Winemakers’ Federation of Australia in 1996 and titled Strategy 2025, set production and export targets for the industry to achieve by 2025. These targets included a tripling in the value of wine production with 55 per cent of value destined for the export market. Although the targets were made with a 30-year timeline, most of the goals for winegrape production, export volume and value, and domestic sales volume and value were met by the mid-2000s after an expansion of the winegrape bearing area from 50 000 to 120 000 hectares between 1995 and 2001.
2.17This expansion occurred at a time when exports to the US were booming. Annual sales to the US increased from US$20 million in 1990 to over US$700 million by 2005. By the early-2000s more than one-third of Australia’s wine exports were to the US, twice that country’s share of the value of global wine imports. However, trade with the US has since fallen back to 1980s levels. After peaking in 2007, exports to the US have dropped by two-thirds as California’s winegrape area grew by 60 per cent between 1992 and 2001, providing mostly premium red variety grapes that directly compete with Australian producers.
2.18It was observed in 2009 that the surplus of wine and grapes was causing long-term damage to the industry and that a structural adjustment was required. Industry leaders at the time warned that it was not just a cyclical period of boom and bust, but instead was due to a broader and deeper structural problem that industry would not be able to ‘trade its way out of’. Despite these warnings, the downturn in trade to the US was offset by the rise in trade to China in the 2010s and any consideration of lowering the supply of wine in Australia was put on hold as China rapidly increased imports of Australian wine in both volume and value.
Figure 2.3Intensity of Australian wine exports to the UK, US, and China 1989 to 2023
Source: Kym Anderson, Australia’s Wine Industry Crisis and Ways Forward: An Independent Review, July 2024, p. 32.
2.19This surge in exports to China, however, was short lived. In 2020, the COVID-19 pandemic caused shipping times and costs to increase substantially, in some cases doubling the price of exports to Europe and North America. This, followed by the tariffs imposed by China, caused the value of Australia’s total red wine exports to fall 37 per cent in 2021 and another seven per cent in 2022. By 30 June 2023 the stock-to-sales ratio for reds peaked at 2.6, well above the 2010s average of 1.6. While the industry boomed for close to two decades, Australia is now experiencing a slump that is proving difficult to reverse.
2.20Professor Kym Anderson noted that the case has been made for subsidies for the wine industry on the grounds that the surplus accumulated in part due to the punitive tariffs imposed by China in response to Australia calling for an investigation into the origins of COVID-19. As this had nothing to do with the wine industry, some stakeholders feel they should be subsidised to aid in the industry’s recovery. However, as Professor Anderson notes, the wine industry was not the only one to suffer as a result of the tariffs, as others—including Australia’s barley, beef, coal, lobster, and timber industries—all saw downturns for the same reason. Also, China’s wine consumption and imports had been in decline for several years, so only a portion of Australia’s surplus stock of red wine can be attributed to the tariffs.
Worldwide changes to consumption
2.21Changing tastes and consumption trends have also affected the Australian wine industry. Wine Australia reports that consumption of all alcoholic drinks declined by three per cent in the first half of 2024, compared with the first half of 2019. Despite accounting for a smaller share of serves, wine declined by 20 per cent in that timeframe, more than any other beverage.
2.22The International Organisation of Wine and Vine (OIV) noted that world wine consumption in 2023 was 2.6 per cent lower than in 2022 and marked the lowest volume recorded since 1996. This has continued a trend of lower consumption year-on-year since 2018.
Figure 2.4World wine consumption trends
Source: International Organisation of Wine and Vine, State of the World Vine and Wine Sector, April 2024, p. 12.
2.23The decline is primarily attributed to more health-conscious consumers, competition from other drink categories, and cost-of-living pressures. Changing demographics also play a role, as younger consumers are abstaining from alcohol or drinking less wine, while older consumers are moderating their intake. Professor Anderson reported that alcohol consumption is declining globally, as is the rate of growth in the adult population, and almost all the decline is due to a decrease in wine consumption. Although some developing countries are showing growth in the consumption of wine, this is not enough to offset the decrease in consumption in more traditional wine markets, especially Europe. The data shows that there is a shrinking pool of wine drinkers, who are also consuming less overall.
2.24Although overall consumption is down, the trends vary by price segment. While the commercial wine sector (under US$10 per bottle) is in decline, the premium sector (over US$10) has seen growth. Commercial wines represent 84 per cent of global wine volume and 60 per cent of value, meaning that, although premium wines are forecast to continue growing, it will not be enough to offset the overall decline in global wine consumption. This disproportionately affects Australia because 90 per cent of the nation’s export volume is in commercial wine. Wine Australia submitted that the outlook for Australia’s major red winegrape varieties, including shiraz, cabernet sauvignon, and merlot, remains very challenging, particularly in the inland regions. The average price paid for these three grape varieties across the inland regions is forecast to fall below the cost of production in 2023–24 and 2024–25.
2.25The wine industry has also faced pressures domestically. Market dominance in domestic retail is impacting the competitiveness in wine sales due to retailers now competing with wine producers for shelf-space. Endeavour Group’s Dan Murphy’s and BWS stores account for 62 per cent of retail outlets alone. According to Australian Grape and Wine (AGW), these dominant retailers hold a competitive advantage over other producers for a range of reasons including: asymmetric availability of customer information; market power advantage in their negotiations; and favourable taxation conditions.
Future outlook
2.26Wine Australia describes the potential for growth in demand for wine as ‘extremely soft’. While the opportunity for growth exists in some markets—particularly the US, Scandinavia, and the United Arab Emirates—forecasts predict that global wine consumption will decline by a further four per cent over the five years from 2024 to 2028.
2.27The over-supply of wine and imbalance between supply and demand is not a problem unique to Australia. Demand has reduced in China (a 25 per cent decline in consumption in 2023) as well as European countries with strong wine cultures, like Portugal (34 per cent drop) and France (15 per cent drop). On the supply side, the OIV predicted a global two percent decline in production from the already low 2023 volume—equal to a drop of 13 per cent against the ten-year average. This positions 2024 production as potentially the smallest global output since 1961. Despite this low level of production, it is still expected to exceed consumption, further contributing to the glut.
2.28Other major wine-producing countries are implementing adjustment measures. France has offered a €160 million (AUD $266.14 million) subsidy to dispose of some of its surplus through distillation into industrial alcohol. Growers in Bordeaux are also being subsidized €6 000 (AUD $9980) per hectare to pull up nine per cent of the regions less-profitable varieties. Spain has similar programs in place, with €14.7 million given to 103 wineries in La Rioja to distil excess stocks of red wine. Calls for ‘vine pulls’, where certain varieties of winegrape are removed from supply, have also been made there, in Germany, and in California.
2.29Supply and demand are trending closer together, but Wine Australia notes that ‘the alignment of sales and production again in the past two years is based on a reduced level of both production and sales’. However, the fall in production is driven more by lower crush levels than by a reduction in the total area of vineyards. This means that the potential supply of grapes still exceeds demand and contributes to keeping grape prices low. If yields are not managed, and, as predicted, a corresponding growth in sales does not occur, Australia would again see an over-supply and an increase in existing stocks. This is particularly concerning for red grape varieties, where the stock-to-sales ratio is still well above the long-term average.
2.30In its pre-budget submission, AGW argued for further government support for the industry. AGW noted that the downturn in the wine industry ‘is testing the fabric of our sector and has the potential to decimate the businesses that contribute to the regional communities in which they operate‘. However, ‘a smart and strategic’ investment would aid in avoiding the worst of the potential impacts, while also ‘laying the groundwork for businesses to take stock and implement the steps they need to take to allow the industry to recover’. AGW made the following three recommendations as part of a proposed $86 million recovery and resilience program:
Recommendation 1—Invest $30 million in a sustainability support package for vineyard owners.
Recommendation 2—Invest $36 million over the forward estimates in an export market driven recovery.
Recommendation 3—Invest $20 million in a domestic marketing campaign to drive food and wine tourism in Australia, including an additional $10 million to retain and extend the Wine Tourism and Cellar Door Grant scheme on an ongoing basis.
Impacts of the depressed market on communities
2.31The committee heard evidence from growers and government organisations that the oversupply of grapes and the depressed market are having a profound effect on the mental health of those in the industry. Financial instability and uncertainty, higher debt levels associated with sustained low grape prices, climate uncertainties, and the impact of power imbalances between some growers and wineries have all been raised as contributors to declining mental wellbeing. Cost of living pressures are also an issue, as costs of production rise, with growers unable to pass any of those costs on to wine processors.
2.32A survey of growers in the Riverina region presented to the Viticulture and Wine Sector Working Group (Working Group) indicated that a majority of growers felt stress (92.1 per cent), worry (86.8 per cent), and frequently had a low mood (72.9 per cent). AGW confirmed this, submitting that ‘there is strong evidence that the current downturn is having mental health impacts on business owners and other support businesses in regional communities’. AGW cited a report into the financial stability of Riverina growers, which covered mental health, attitudes towards industry and region, and succession planning for businesses, and said that many growers reported a sense of pessimism surrounding their businesses. 19 per cent of growers had concerns about their health and wellbeing.
2.33Mr Jeremy Cass, Board Member, Riverina Winegrape Growers, reflected that the Riverina has already had a large number of growers forced to exit as a result of the depressed market:
In the last three years, since I've been in this position, we've lost 3,000 hectares of grapes, which equates to 15 per cent of our region. We know we have to drop back, but we're looking down the barrel of a massive overcorrection if we don't do something to stop this. Out of our 275 growers, in the last three years we're now down to 225 growers and that's continuing to fall.
2.34The South Australia Wine Industry Association relayed that the 2023 South Australian Wine Industry Snapshot reported the lowest business confidence in the seven years of the report. Sixty seven per cent of respondents admitted that they were worried. Of that group, 27 per cent expressed significant or extreme concern. This was particularly pronounced for small businesses, with 73 per cent expressing considerable concern. Many of these indicated that the financial health of their business required significant improvement and that such pressure is leading to mental health issues and workplace stress. Some growers are reportedly at their borrowing limit and experiencing issues with lending institutions to refinance, buy, or sell vineyards. The situation has been compounded by the declining presence of banks in regional areas.
2.35Ms Simi Gill, Riverland grape grower, told the committee of the hardship and pessimism she has witnessed firsthand in her Riverland community:
I went down to the temple of my Indian community—we have a lot of Indian growers in the Riverland—and I can just see the conversations, the distress and the uncertainty. You can just see the depression, I suppose, and the conversations were happening: 'We're not sure about our future. What should we do? Should we leave? How do we leave the Riverland? What can we sell?' Nobody has any faith left in farming anymore, and we're so connected to our farms, from the beginning. You can see what's going on and how it's damaging our mental wellbeing.
2.36Another Riverland grape grower, Mr Harry Vlassopoulos, told the committee that ‘some growers have already been forced out of the industry. Other growers decline to speak for fear of reprisals’.
2.37Ms Ella Winnall, Mayor, Berri Barmera Council, illustrated how the downturn in the wine industry affects local communities more broadly through declines in downstream trades and civic participation:
Around a third of the Riverland's employment is derived from agriculture or manufacturing, with beverage manufacturing or winemaking being the major manufacturing output. While our neighbouring councils are fortunate to have some agricultural diversification through larger land sizes and broadacre, Berri Barmera's primary production land is almost exclusively under vines. This single industry reliance means that, when our wine industry is struggling, the rest of our economy feels it. We see a decline in the areas you'd expect, like agricultural services, retail trade, small business and hospitality, but our local sporting clubs and community groups also see less investment, sponsorship and donations. We see less volunteering as people pick up extra jobs to pay the mortgage, and we see more demand for social services, like Foodbank and mental health services, just to name a few.
2.38Mr Jack Papageorgiou, Board Member, Riverland Wine, spoke of the need for strong relationships in the industry to support one another through this testing time, but that this support can only go so far without further assistance:
You are never going to survive. It doesn't matter how good you are, what sort of experience you have, what type of operators. I have adopted from day one that I need to have a good working relationship with the wineries because I need them and they need me. I need to have Jack Papageorgiou growing good quality grapes so they can turn it into good quality wine to market…[I]f you have a good working relationship and you approach them in a constructive manner, you will work with them and they will work with you but if you have this arrogant attitude you're not going to get far. I mean, I can say that quite openly. I lost my son in 2016. Do you know what the winery did? It paid for the grapes within 30 days and then did it for two years. The owner recognised my position and said, 'How can I help?'…That's why I'm here. Because when I leave from here, I have to go back to my wife. She pulled $150,000 out of her super to support the farm. What am I going to tell her?
2.39Growers have utilised some existing programs in addressing mental health issues and found them to be useful. The Working Group heard during consultations that the Rural Financial Counselling Service was well regarded and has assisted hundreds of growers since the oversupply began. Grape growers also drew on around $17 million in Farm Management Deposits in 2023 and have access to the Farm Household Allowance (FHA) program, which provides eligible farmers with a package of assistance that includes up to four years (in every ten-year period) fortnightly income support.
2.40Growers have raised concerns that some support services are difficult to understand and access. The working group heard that the FHA, in particular, has long waiting times and some growers have exhausted their four years of fortnightly income. The Department of Agriculture, Fisheries and Forestry has advised that the first ten year period of the program (1 July 2014 to 30 June 2024) has now ended and growers who exhausted their allocation are now eligible for further support in the second ten year period (1 July 2024 to 30 June 2034).
2.41Evidence suggests that some growers are too embarrassed about their situation to access supports or have misunderstood the purpose of the programs. Since the FHA program’s commencement in 2014, around ten per cent of grape growers have accessed FHA. This is less the national average of 12 per cent of farms of all commodity types.
2.42Concerns were raised that demand for support services could increase as the flat market and oversupply continues, and governments would need to consistently monitor uptake of mental health and support services in the sector to manage demand.
Concluding comment
2.43It is clear from the evidence that recent years have been difficult for all in the Australian wine industry. The loss and downturn in key markets, most notably China, has had a lasting impact on the industry that will take a concerted and cooperative effort to recover from. This recovery will prove more difficult as global consumption continues to trend away from wine and towards other beverage sectors.
2.44The committee sympathises with industry participants, and the communities that rely on them, that have been affected by the downturn. It is troubling that a large number of industry participants have reported being concerned or worried about their business prospects and mental wellbeing. Chapter 3 will focus on the specific issues that were canvassed during the inquiry, with particular regard for the Australian Winegrape Purchases Code of Conduct.