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Photo: Andre Castelluci / Wine Australia

The bigger picture: global wine supply update and what it means for Australia

Market Bulletin | Issue 123
Photo: Andre Castelluci / Wine Australia
04 Sep 2018
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The global wine harvest in 2018 looks like it will return to an average size, easing supply pressures and potentially softening prices. However, demand for Australian wine remains strong against the overall trend, reflected in higher winegrape prices. 

Global harvest 2018: ‘good, average’

The winegrape harvest is complete in the southern hemisphere. The outcomes were:

  • Argentina harvested an estimated 2.55 million tonnes, after three smaller-than-average vintages in a row. This sees it return to fifth place on the world wine production table, overtaking Australia.
  • Chile may also overtake Australia, with a reported wine crush of 1.3 billion litres or around 1.85 million tonnes – 36 per cent more than in 2017.
  • Australia’s harvest of 1.79 million tonnes was 10 per cent below the 2017 harvest but slightly above the long-term average of 1.76 million tonnes.
  • South Africa’s harvest of 1.2 million tonnes was 15 per cent below last year’s, after they suffered the worst drought in 100 years.
  • New Zealand had an increase of 6 per cent, but their harvest of 400,000 tonnes – while the third largest on record for the country – is still relatively small in global terms.

Meanwhile, indications for the major northern hemisphere wine-producing countries are[1]:

  • United States of America is on track for an average harvest of around 3.8 million tonnes, despite extreme heat and wildfires.
  • Spain is predicted to produce close to 6 million tonnes (4–4.2 billion litres), with dry conditions going into vintage but good stocks of groundwater after a wet winter. If realised, this will be the highest crop since 2013 and 7 per cent above the 10-year average.
  • France is also expecting an above-average crop – more than 6.5 million tonnes (4.7 billion litres), which would see it back at the top of the production rankings by volume.
  • Italy is suffering what Ciatti calls ‘unconducive conditions’ – including an intense heatwave accompanied by storms, leading to disease pressure – but is tentatively forecast to produce just under 6 million tonnes – a bit more than in 2017, but up to 10 per cent below its long-term average.  

Putting all these outcomes and forecasts together gives an estimate for the 2018 global harvest of around 39 million tonnes or 27.3 billion litres – 2 per cent above average and 11 per cent above 2017. Importantly, this would be approximately 3 billion litres higher than global wine consumption, which has stayed around 24 billion litres since 2009 according to the International Organisation of Vine and Wine (OIV), and would see the world wine market potentially move back into over-supply.

Supply pressures are already easing

In its August report, Ciatti observed that the bulk wine market is generally flat, as buyers anticipate an improvement in availability following the northern hemisphere vintage. This is already being reflected in bulk wine prices, which have shown a downward trend after climbing steadily for most of the past year. The charts below show trends in bulk wine prices for Spain and for Australia.

Figure 1: Bulk wine prices by variety for Spain (source: Ciatti)

Figure 2: Bulk wine prices by variety for Australia (source: Ciatti)

Australia: ‘good, different’

Despite this overall softening, Australia is well-placed in the short term, with demand being particularly strong for reds – helped by a return to an average-sized crop after a big crop in 2017 and fuelled by demand from China. The latest export figures show that exports to China (including Hong Kong and Macau) grew by 47 per cent to 20.5 million 9-litre case equivalents in the year to June 2018, with red wines accounting for 94 per cent of the volume.

Austwine (August 2018 update) notes that there is very strong demand and critically short supply for the three main commercial red varieties (Shiraz, Cabernet Sauvignon and Merlot), while in the whites, commercial Chardonnay, Sauvignon Blanc and Pinot Gris are also short. Ciatti figures (figure 2) also show that bulk prices for Cabernet Sauvignon and Shiraz from Australia increased in August against the trend for most other varieties and suppliers.

The strong demand and positive sentiment around Australian wine is reflected in the dispersion of grape prices in the 2018 harvest, compared with the 2017 results. In the commercial range (up to $800 per tonne), the distribution of prices paid for red winegrapes shifted $100 to the right, while for white grapes there was a similar shift as well as a narrowing in the range of prices paid.

Figure 3: Price dispersion for red winegrapes: 2018 vs 2017 (source: Wine Australia National Vintage Report)

Figure 4: Price dispersion for white winegrapes: 2018 vs 2017 (source: Wine Australia National Vintage Report)

Supply constraints likely to continue but global competition will limit price increases

In the medium term, Australian supply is likely to remain constrained as a result of competition from other crops for water and land-use. The current drier than average season in many winegrowing regions means that 2019 has the potential to be a lower crop than 2018. If demand from China continues to grow, this will put further pressure on supply.  

Constrained supply locally means that price pressures are likely to continue upward; however, competition from other global suppliers is inevitable and will keep a ceiling on price increases, particularly at the commercial end of the market, where source countries for wine are more interchangeable.

The latest Global Supply Monitor can be found here (levy-payers only).

[1] Most European production estimates are originally made in litres. For comparison purposes, figures have been converted in this article to metric tonnes, assuming 700 litres to the tonne. United States of America estimates are originally provided in imperial tons.

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This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.