The Australian wine industry faces a defining moment in 2025. Despite smaller harvests, the sector continues to grapple with a deep supply-demand imbalance, depressed bulk wine prices, and structural challenges that stretch back decades.
The KPMG report “Wine Industry Insights – September 2025” highlights the economic pressures and strategic decisions now confronting growers, wineries, and financiers.
Persistent Price Pressures
The 2025 crush amounted to 1.57 million tonnes, the third consecutive year below the ten-year average of 1.71 million tonnes. Yet lower yields have not translated into higher grape prices. Bulk red varietals such as Shiraz, Cabernet Sauvignon, and Merlot remain at historic lows. For many growers, returns sit below production costs, with some leaving grapes unharvested.
This disconnect is driven by the enormous red wine surplus, which by mid-2023 equaled Australia’s annual domestic wine consumption—three times what China imported at its pre-tariff peak. Even with tariffs removed in 2023, demand has not recovered sufficiently to rebalance the market.
Historical Roots of Oversupply
The seeds of today’s oversupply were planted in the 1990s, when generous tax incentives and expansionist winery strategies drove a boom in vineyard plantings. Despite warnings after the 2008 Global Financial Crisis about structural surpluses damaging profitability, the rise of China in the 2010s masked the problem by absorbing excess stock.
The sudden imposition of punitive Chinese tariffs in 2020, coupled with the COVID-19 pandemic, exposed the industry’s vulnerability. Even now, vineyard removals have lagged behind demand shifts, leaving production capacity well above sustainable levels.
Pressures Across the Value Chain
- Growers: Many cannot sell fruit at viable prices; without contracts, some are forced to drop grapes, effectively taking a negative price once labor and disposal are considered. Calls for government subsidies to uproot red grapes or replant whites echo the controversial 1986 vine-pull program.
- Wineries: Struggling to maintain competitiveness, wineries hesitate to incentivize growers while also facing international market softness.
- Financiers: With inventories swelling and bulk wine values falling, lenders are increasingly wary. Falling book values may constrain borrowing capacity, forcing debt reduction and stricter financial discipline.
Strategic Pathways
The report stresses that the industry must rethink supply expectations and prepare for structural adjustment:
- Cashflow focus – “Cash is king”; meeting the bulk wine market may be necessary for survival.
- Contract engagement – Growers should negotiate early with wineries to understand future varietal needs.
- Cost management – Forecast modeling and asset optimization are critical for economic return.
- Industry consolidation – Larger, well-capitalized businesses are expected to acquire premium vineyards and established brands, while family wineries may exit. Private equity is poised to accelerate dealmaking.
- Voluntary administration as lifeline – The report emphasizes that restructuring, if done proactively, can preserve businesses rather than end them.
Looking Ahead
Australia’s wine industry is caught between oversupply and weak global demand, especially for red wine. The challenges are severe: vineyard overcapacity, falling prices, and uncertain export growth. Yet within this crisis lies opportunity. Premium regions and strong brands retain value, and consolidation may strengthen the industry’s competitiveness.
The question is not whether adjustment will happen, but how quickly and strategically the industry can reset to sustainable production levels.
Source: KPMG, Vinetur