After a near-record global harvest in 2018, indications are that the 2019 global vintage is closer to average. With demand continuing to soften in volume terms, this reduction in supply is welcome news for Australian wine producers, with the global supply and demand position likely to become more balanced in the near future.
The Organisation Internationale de la vigne et du vin (OIV) released its first official estimate of the 2019 vintage at the end of October. It estimates that global wine production in 2019 was 26.3 billion litres. This is 10 per cent below the 2018 global harvest, but only 3 per cent below the long-term average (2012–18) and therefore represents a return to ‘normal’ after the record low 2017 vintage followed by a near-record high 2018 vintage.
Wine production down across the board
All the major wine producing countries experienced reductions compared with 2018. The top three producers (Italy, France and Spain), were each down by 15–20 per cent, seeing their collective share of world wine production drop from 51 per cent to 47 per cent (see Figure 1). France’s production was the lowest since 2012 at an estimated 4.2 billion litres, with French vineyards affected by spring frosts, drought and hail, followed by a record-breaking heatwave in June. Production from Champagne alone was estimated to be down by 17 per cent.
The other major northern hemisphere producer, the USA, was only down by 1 per cent to an estimated 2.36 billion litres. Its past 4 vintages have all been within 2 per cent of each other.
Figure 1: Global wine production share by country 2019
Source OIV
In the southern hemisphere, harvests were not as adversely affected by the weather. Argentina and Chile both reported close to average vintages, estimated to be 1.3 billion litres and 1.2 billion litres respectively, with yields reduced by dry conditions, but benefiting from generally cool temperatures. Mendoza, which produces 70 per cent of Argentina’s wine, experienced a cold winter with a cool spring, followed by a hot summer with peaks of over 40°C during January and February. South Africa's estimated production of 970 million litres was similar to the 2018 production but still one of the lowest since 2005, continuing a recent run of drought-reduced crops.
Australia’s crush of 1.73 million tonnes was 3 per cent below the 2018 figure, but only 1 per cent below its 10-year average, despite a very dry winter in many regions.
On the demand side, the volume of wine consumption is expected to decline marginally in 2019[1], after five years of slight but consistent growth as markets recovered from the Global Financial Crisis. While supply is expected to exceed demand by around 2 billion litres in 2019, the gap is actually the smallest in 10 years, with the exception of 2017 (see Figure 2).
Figure 2: Global supply and demand historical
Source OIV
How has Australia fared?
In 2017, Australia had its largest harvest for at least 10 years at 1.99 million tonnes, which was against the global trend. This meant Australian wine producers were well-positioned to take advantage of the global supply shortfall in the following two years. Australia’s export figures for the year ended June 2018 showed that this opportunity was realised, with the volume of exports increasing 10 per cent compared with the previous 12 months to a record 852 million litres. Value grew by a record 20 per cent, indicating the strong demand for Australian wine on the global market.
However, in the year ended June 2019, export volumes dropped 6 per cent (50 million litres) to 801 million litres, as a result of lack of available supply (Australia had two smaller crops in 2018 and 2019) and the large 2018 global harvest. A decline in lower-priced bulk wine imports to China was a major contributor. However, the value of Australian wine continued to grow, and the average value increased 10 per cent to reach a 10-year high of $3.58 per litre.
What’s ahead in 2020?
In the past few months, there has been a softening in world bulk wine prices. Figure 3 shows that, in the month of August 2019, France was the only major producer where the price of generic red was higher than it had been in the previous August. This reflects the general softening in the bulk wine market following the large harvest in 2018, as well as an erosion of some currencies against the USD.
Figure 3: Percentage change in bulk wine price of generic red from August 2018 to August 2019.
Source: Ciatti
This effect may be short-lived. While the impact of the large supply from 2018 is yet to dissipate fully across the global market, the big drop in production in 2019 should produce a tightening in global supply over the next 6–12 months.
For Australian wine producers, the reduction in global supply, along with a favourable exchange rate against the USD, should further enhance export opportunities in 2020. Lack of wine available may be a limiting factor on volume growth, as inventories are expected to have further reduced in 2018–19 compared with 2017–18, when demand exceeded supply.
The results of the Wine Production Sales and Inventory Survey 2019, including an estimate of the sector’s supply-demand position, will be published in early 2020.
The latest Wine Australia Global Supply Monitor can be downloaded here (restricted to levy-payers and wine exporters).
[1] International Wine and Spirit Record (IWSR) forecast