Wine Industry Report

The Australian Wine and Brandy Corporation has produced a briefing note on the Australian wine sector as a useful guide on key issues such as the size of the industry, export and domestic sales, the global oversupply, the Directions industry strategy and major national wine sector organisations.

Australian wine sector:

1. INDUSTRY OVERVIEW
• Australia has about 2,000 wine companies and the sector employs around 31,000 people. There are 167,000 hectares under vine. The total grape crush in 2006 was 1.85 million tonnes.
• Australia is the world’s fifth largest wine producer (behind France, Italy, Spain and the USA) and the fourth largest exporter. Australian wine is enjoyed in more than 100 countries. The Corporation publishes wine export approval statistics on a monthly basis.
• Australian wine was the global success story of the 1980s and 1990s and helped to create and build a worldwide consumer market for wine, particularly in the UK, the USA and Canada.
• Exports are now worth $A2.8 billion a year and export volumes are growing at 8-10% a year – down from the annual growth rate of 17% in the 1990s but high by any industry’s standards anywhere in the world.
• Australia is the number one supplier of imported wine in the UK, Ireland and New Zealand and second in the USA and Canada. The UK and USA markets are worth nearly a billion dollars each to Australia.
• Exports to continental Europe and Asia are relatively small on an individual country basis but are steadily increasing.
• Wine is number three on the list of Australian agricultural exports after meat and wheat. As an export earner, wine is more valuable than wool, milk and cream, and barley.
• Wine sales within Australia have grown steadily over the past decade by between 1% and 6% a year. In 2005-06, Australians consumed about 430 million litres of wine with a retail value of $A2.7 billion.
• Wine is growing in popularity. Average wine consumption in Australia has increased over the past decade to about 22 litres per person a year, while beer and spirit consumption per person is declining.

2. THE CURRENT POSITION
• Each year, Australia exports the equivalent of about one billion bottles of wine.
• Strongest export growth is in North America and in emerging markets in Russia, eastern Europe and Asia, where there is a move away from spirits towards wine, which is regarded as a healthier beverage.
• Between 2004-05 and 2005-06, Australian wine exports grew 12% by volume to a record 738 million litres. However, exports increased only 2% by value because a global oversupply is lowering prices.
• The wine oversupply in Australia is estimated at between 500 to 900 million litres – more than our annual export volume and double our annual domestic consumption.
• The Corporation forecasts that if production, consumption and export trends continue as expected, the Australian wine sector will not return to a supply-demand balance until 2009-2010. The Corporation will update this forecast in late November 2006.
• The oversupply has been exacerbated by good grape growing conditions which have created very large harvests in Australia in 2004, 2005 and 2006. The wine sector is an agriculture-based industry and is subject to seasonal factors. The Corporation publishes harvest updates each February and April.
• There is an oversupply of wine in most major wine producing countries including Australia, France, Italy and Spain. This has created a global buyers’ market which has kept prices down.
• Bulk wine sales are increasing (and bottled wine sales decreasing) as Australian producers trade through their current oversupply. Bulk wine is packaged overseas (in bottles or casks) and can be sold under a retailer’s own brand name.
• Cheaper bulk wine shipments represented 26% of total exports in 2005-06 and accounted for 52% of export growth compared with 2004-05.

3. FUTURE OF THE AUSTRALIAN WINE SECTOR
• In 1996, the Australian wine industry released its landmark Strategy 2025 document, which set a vision for significant growth over the following three decades and a number of specific targets.
• A key target was to reach $4.5 billion in annual sales (export and domestic) by 2025. This target was achieved in nominal terms in 2005.
• Since the release of Strategy 2025, the international environment for wine has changed significantly because of global oversupply, increased competition, and consolidation in the wine and the retail sectors.
• In February 2006, the Australian Wine and Brandy Corporation and the Winemakers’ Federation of Australia announced an industry partnership to develop a new strategy called Directions for the Australian Wine Sector. It is due for release in May 2007.
• Directions will assist long term industry profitability and sustainability by identifying market opportunities by country and price point and by reviewing consumer trends and infrastructure constraints.

4. WINE ORGANISATIONS
• The Australian Wine and Brandy Corporation (AWBC), an Australian Government statutory authority, is one of a number of national bodies working to support the Australian wine industry. The Corporation’s website is www.awbc.com.au.
• The Corporation is funded in part through compulsory levies. Its principal roles include export regulation and compliance (including the inspection of all wine for export), domestic and international marketing, market intelligence, and assistance with trade negotiations. It also has a role in identifying and protecting Australia’s 100-plus wine zones, regions and sub-regions.
• The Winemakers’ Federation of Australia (WFA) is the peak national industry body for winemakers, funded by voluntary levies. It promotes the industry to political, financial and media groups, addresses key issues on behalf of members and runs education and training programs.
• Wine Grape Growers Australia (WGGA) is the national industry body for grape growers and, like the WFA, is funded through voluntary levies. Its roles include lobbying and advocacy, policy development and R&D programs.
• The Grape and Wine Research and Development Corporation (GWRDC) is a statutory authority funded by wine sector levies and matching government finance. Its principal role is to fund and manage wine industry research and development initiatives carried out by selected providers.
• The Australian Wine Research Institute (AWRI) is owned by the wine industry and funded primarily by industry levies distributed through the GWRDC and matching government finance. It undertakes strategic and applied research and provides a trouble-shooting service and a technical advice group.
• Austrade (the Australian Trade Commission) provides advice and support to individual wine companies in overseas markets.
• In addition to the six national peak bodies mentioned above, there are membership-based State and regional wine associations in all States.