Image: Andre Castelluci / Wine Australia

Strong value growth for the wine sector as demand exceeds supply for Australian wine

Market Bulletin | Issue 142
Image: Andre Castelluci / Wine Australia
05 Feb 2019
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Wine Australia’s Australian Wine: Production, Sales and Inventory report 2017–18, released today, shows that Australian wine production was 1.29 billion litres (143 million 9-litre case equivalents) and total Australian wine sales were 1.35 billion litres (150 million cases).

Strong growth in exports and stable domestic demand saw total sales increase by just under 8 million cases (6 per cent) compared with the previous year, while a smaller grape crush in 2018 led to a decrease in wine production of 10 million cases (7 per cent).

Wine production was 7 per cent below the 201617 figure, but 6 per cent above the long-term average. All the net reduction was in red varieties, with wine from white varieties increasing slightly overall (see Table 1).

Table 1: Wine production by colour (million litres)

  2017 2018 Change
Wine from red grapes 764 669 -12%
Wine from white grapes 609 616 1%
Total wine production 1374[1] 1285 -7%

Conversely, overall sales growth was almost entirely in red (and rosé) wine, which increased by 10 per cent to 737 million litres (82 million cases). For whites, a 4 per cent increase in exports to a record 307 million litres was offset by a decline of 4 per cent in domestic sales. Reds accounted for an estimated 55 per cent of total sales compared with 52 per cent of production.

Overall, exports grew by 10 per cent while domestic sales declined by 1 per cent, leading to an increase in the share of exports to 63 per cent of production (see Figure 1).

Figure 1: Total sales volume by wine style

Shortfall in supply sees drawdown on stocks

Total Australian wine inventory at 30 June 2018 is estimated to be 1.88 billion litres, and to have decreased by 94 million litres (5 per cent) compared with the previous year.

The shortfall between production and sales was 63 million litres (7 million cases), the largest gap since 201011, and led to a fall in inventory levels for the first time since then (see Figure 2). Inventory as at 30 June 2018 is estimated to be 1.88 billion litres, and to have decreased by 94 million litres (5 per cent)[2]. Stock-to-sales ratios (SSR) fell accordingly for reds and whites, with the SSR for red wine decreasing to 1.34, well below the 10-year average of 1.63, while the SSR for white wine decreased to 1.40, still slightly above the long-term average of 1.31.

Figure 2: Production, sales and inventory for Australian wine – historical

Shortfall leads to strong value growth for the sector

The strong demand and tight supply led to an increase in average value for both grapes and wine. The overall average purchase price for wine grapes in 2018 was $609 per tonne, compared with $565 in 2017. This figure is the highest since 2008 and it was the fourth consecutive vintage where the average purchase price for wine grapes increased. For wine, growth in value in both the domestic and export markets led to a combined increase in revenue to winemakers of $641 million (11 per cent), building on an 8 per cent increase last year. The total estimated value of Australian wine sales in 201718 was $6.25 billion.

Outlook

Demand for Australian wine is expected to remain strong in the medium term, due primarily to strong growth in exports to China, as well as improving performances in the USA. There was growth in Australian exports to nearly every region of the world in 2018.

The shortfall in supply in 2018 has led to supply pressure for some Australian red varieties, particularly Shiraz and Merlot, heading into the 2019 harvest.

Another average-sized crop in Australia in 2019 would mean stocks are likely to be drawn down further in the next 12 months.

A large global wine harvest in 2018, economic uncertainty and static consumption are putting downward pressure on world bulk wine prices as Australia heads into vintage 2019. Australian wine prices are holding up thanks to strong demand and a favourable exchange rate, but international competition is likely to increase in the medium term as supply pressures ease.

The International Organisation of Vine and Wine (OIV) Statistical Report on World Vitiviniculture 2018 estimates that world wine production in 2018 was 27.9 billion litres, 13 per cent higher than the previous year (which saw record low production) and, if the estimate is realised, 2018 would see the fourth largest production in the past 18 years.

The big increases have come from the world’s largest wine producers Italy, France and Spain; between them, they are estimated to have produced an addition 2.4 billion litres during 2018.

This is likely to ease the global supply pressure that followed the record low global harvest of 2017 and put downward pressure on wine prices internationally.

About the report

The Australian Wine: Production Sales and Inventory Report 2017–18 presents the results of the annual Wine Production, Sales and Inventory Survey, conducted by Wine Australia.

This report aims to provide an overview of the supply and demand situation for Australian wine.

The data on exports in this report reflects the 12 months to June 2018 as the sales and inventory data reflects this period. The June export figures were used in the report to align with fiscal year sales and inventory survey data as reported to Wine Australia, although more recent export figures (to December 2018) are now available.


[1] Wine production estimates for 2017 have been revised slightly since last year’s report was published, based on the updated crush figure.

[2] This is consistent with the calculated shortfall of 63 million litres – allowing for wastage and processing losses as well as timing differences in processing and disposal of wines from year to year.

 

 

 


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