The Australian wine industry has experienced a remarkable yet challenging trend: for the second year running, total sales of wine have exceeded production levels, as revealed by the Australian Wine Production, Sales and Inventory Report 2024, released by Wine Australia.
This reflects the industry's ongoing adjustments to evolving economic, climatic, and market pressures.
Production Trends: A Tale of Small Vintages
Australian wine production for the 2023–24 financial year reached just over 1 billion litres, equivalent to 116 million 9-litre cases. While this represents an 8% increase compared to the previous year, it remains the second-smallest production volume reported in 17 years and significantly below the 10-year average of 1.24 billion litres.
The increase was primarily driven by a 20% surge in white wine production, even as red wine production dipped by 2%. Notably, white wine accounted for 51% of total production, surpassing red wine for the first time in 12 years.
Peter Bailey, Manager of Market Insights at Wine Australia, attributes the modest increase to a combination of climatic challenges and strategic adjustments by producers:
"Heavy rainfall, flooding, and adverse spring conditions posed significant challenges. Additionally, deliberate reductions in production reflect the economic realities of reduced demand for wine."
Sales Volume Decline Despite Reopening of the China Market
In the 2023–24 financial year, total Australian wine sales—across both domestic and export markets—reached 1.08 billion litres (120 million 9-litre cases), a 1% decrease from the previous year.
Red wine exports experienced a 4% growth, driven largely by the reopening of the Chinese market following the removal of import tariffs in March 2024. Exports to China surged from 1 million litres to 32 million litres, with 96% of this volume being red table wine. However, Mr. Bailey cautioned against interpreting this as a sustained recovery:
"The increase likely reflects the re-stocking of Australian wine after a prolonged absence, rather than immediate consumer demand. It will take time to assess how Chinese consumers respond to the renewed availability of Australian wine."
Inventory and Stock Adjustments
The consecutive years of below-average production have contributed to a reduction in stock overhang, with the combined production shortfall totaling 155 million litres. As of 30 June 2024, inventory levels fell by 10%, and the stock-to-sales ratio (SSR) decreased by 14%, standing at 1.82.
White wine inventories dipped below the 10-year average, while red wine inventories remained 15% above the average despite notable improvements. Mr. Bailey remarked on the progress:
"Stocks are moving in the right direction, but only due to smaller vintages. Any increase in production without a corresponding sales uplift risks reversing these gains, particularly for red wines, which still face oversupply challenges."
Global Challenges and Market Pressures
The global outlook for Australian wine remains fraught with obstacles. Worldwide wine consumption has been declining, driven by economic constraints, moderation trends in alcohol consumption, and increased competition from alternative beverages.
Mr. Bailey outlined the ongoing challenges:
"Global wine imports to China have dropped by two-thirds since 2017, making it unlikely we will return to previous export levels. Sales to other markets, including Australia, continue to face pressures from declining consumption and heightened competition. A return to the long-term production average of 1.2 billion litres seems distant."
Strategic Adjustments for the Future
The Australian wine industry is at a critical juncture. To address these challenges, Wine Australia and producers are exploring strategies to:
- Diversify markets beyond China and traditional strongholds.
- Innovate in wine production to meet shifting consumer preferences.
- Reduce oversupply, particularly in red wine, while aligning production with demand.
In the face of uncertainty, the industry is demonstrating resilience and adaptability. While challenges remain, the alignment of production and sales in recent years shows promise for achieving a more sustainable balance in the future.
Source: Wine Australia