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Why commercial red winegrape prices are expected to remain under pressure

Market Bulletin | Issue 308
13 Mar 2024
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The Agricultural Commodities Report published by ABARES on 5 March shows that the outlook for Australia’s major red winegrape varieties of Shiraz, Cabernet Sauvignon and Merlot remains very challenging, particularly in Australia’s big producing inland regions of the Riverland, Riverina, and Murray Darling–Swan Hill. 

ABARES has forecast that the average price paid for the three grape varieties across the inland regions will fall well below the cost of production in 2023–24 (vintage 2024) and again in 2024–25 (vintage 2025) (Figure 1).

Figure 1: Average nominal price per tonne, red grape varieties from warm inland regions

Source: ABARES, Wine Australia

The continuing decline in the average purchase prices for Shiraz, Cabernet Sauvignon and Merlot from the inland regions is largely the result of historically high carry-over stocks of red varieties and declining domestic and international demand for wine from all source countries, particularly red wine, which ABARES does not expect to ease substantially in the forecast time (out to 1 July 2025). 

ABARES reports that wineries are contracting far less red variety tonnes per hectare in the large inland regions compared to the production potential, and there is a significant risk of grapes being left on the vines both in vintage 2024 and vintage 2025. 

Furthermore, they report that some growers in the inland regions are being contracted to produce well below potential yields or paid modest amounts to forego production. 

The factors driving down the major red grape prices in the inland regions are presented on Wine Australia’s Grape Price Indicators dashboard.

Two-and-a-half years of red wine in stock

Firstly, the stock-to-sales ratio (SSR) for red wine is well above ideal levels (see Figure 2). 

The SSR is the amount of wine held in stock relative to sales. There is currently more than two-and-half years’ worth of red sales volume held in stock (i.e. an SSR of over 2.5). This is adding pressure to decrease red grape prices, especially for Shiraz, Cabernet Sauvignon and Merlot. The average SSR for red wine has been 1.8 over the last decade.

Figure 2    : Stock-to-sales ratio all red varieties 2014–23

Source: Wine Australia

Australia has the lowest bulk wine price among major countries

Another key factor influencing Australian grape prices is the price paid on the global market for Australian bulk wine, as reported by Ciatti. 

Figure 3 shows that bulk price for Australian red wine is by far the lowest of the major producing countries, and at the end of February 2024 was at US$0.36 per litre after being around US$1 per litre in February 2020.

Figure 3: Bulk wine offer prices, all reds, 2020–24

Source: Ciatti

Although having the lowest price theoretically makes Australian wine the most competitive, these are unsustainably low bulk wine prices for Australia red wine and reflect the declining demand in both export and domestic markets for Australian commercial[1] red wine.

It should also be noted that in Europe, Australian wine attracts a tariff of US 12c per litre, which increases its cost to the buyer without providing any extra income to the producer. This amounts to approximately an additional $130 per tonne.

Australia’s commercial red wine exports have dropped by a third

The volume of commercial red wine exported from Australia has declined by a third over the past five years; from 418 million litres (600,000 tonnes equivalent) in 2018 to 280 million litres (400,000 tonnes equivalent) in 2023 (Figure 4). 

Driving this loss in volume has been reductions in Australian commercial red wine exports to mainland China (down 100 million litres), the United Kingdom (down 20 million litres) and the United States (down 13 million litres). However, other destinations have also reported declining commercial red wine exports over this period, including Germany, the Netherlands, Japan, and New Zealand. 

Figure 4: Commercial wine export volume, all reds, 2014–23

Source: Wine Australia

Exacerbating the decline in export volume in terms of lost value to the sector has been a decline in the average value of commercial red wine exports (Figure 5) from A$2.31 per litre in 2019 to A$1.69 per litre in 2023. 

The decline in the average value of commercial red wine exports is due to an increase in the share of bulk wine, growing from 58 per cent in 2019 to 76 per cent in 2023 and a decline in the average value of the bulk wine exports from A$A1.36 per litre to A$1.06 per litre.

Figure 5: Commercial wine export average value, all reds, 2014–23

Source: Wine Australia

Sales down in the domestic market

The volume of red wine sold in the domestic market has also been on the decline. Data collected by Wine Australia through the Production, Sales and Inventory survey shows that Australian red wine sales on the domestic market have fallen from 231 million litres in 2018–19 to 193 million litres in 2022–23 (Figure 6).

Figure 6: Volume of domestic wine sales, all reds, 2014–23

Source: Wine Australia

The commercial wine share of consumption in the domestic market has also been dropping and IWSR have forecast this to continue out to 2027 (Figure 7). This is also reducing demand for winegrapes used in commercial wines.

Figure 7: Commercial wine share of consumption in the Australia domestic market, 2019–27

Source: IWSR

Around the world, more wine is being made than is consumed

Adding to the challenges outlined above is that there is a global over-supply of wine. Around three billion litres of wine is made every year that is above current wine drinking rates – this is close to three times the average amount of wine Australia produces in a year. This adds more pressure to decrease wine and winegrape prices (Figure 8). 

Figure 8: Global wine production and consumption 2014–23

Source: OIV

The global situation is unlikely to improve over the next few years

The factors outlined in this bulletin highlight the extremely challenging conditions that many growers of the major red varieties are experiencing across Australia – and most acutely in the inland regions. 

All of the market indicators for commercial red wines suggest that the situation is unlikely to improve in the next few years. 

The interim decision[2] dated 12 March 2024 by China’s Ministry of Commerce that the significant duties on Australian wine to mainland China will no longer be necessary is welcome news. However, it is not likely to solve the prices paid for red fruit. The imported wine market in China is a third of the size it was five years ago, meaning the opportunity for Australian wine is not as big as it was previously. The decline in wine imports in mainland China (from all sources) since 2018 is the equivalent of 630,000 tonnes (and is mainly red).

Growing demand for Australian wine globally through market diversification (such as into Southeast Asia) and product innovation remain key priorities, but growing demand is a long-term strategy and market conditions around the world are exceptionally challenging in a global context of declining wine and overall alcohol consumption. 

To stop the decline in red winegrape prices in the medium term, particularly in the inland regions, will require a change in Australia’s supply to bring it closer to current demand (sales). Excluding any red stock overhang that needs to be sold and assuming the current levels of red wine sales can be maintained, the gap between Australia's average annual red wine production and current demand is around 140 million litres or 200,000 tonnes in excess of what is required.

Unless there is a reduction in the production of commercial Shiraz, Cabernet Sauvignon and Merlot, prices paid for these varieties are likely, as ABARES has forecast, to remain low. 

1.   Commercial wine is defined as being below these price thresholds: 

  • Australian wine exports: A$5 per litre Free on Board
  • Australian retail sales: A$15 per 750ml bottle (or equivalent for casks)
  • Global wine consumption: US$10 per 750ml bottle retail (or equivalent threshold in other markets as defined by IWSR)

2. A final decision is yet to be announced at the time of this bulletin’s publication.

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

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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.