Australian wine industry still faces a major problem

Even the early removal of Chinese tariffs on wines imported from Australia would not be enough to prevent the wine industry facing several years of oversupply, a new report preidcts.

Rabobank's Wine Quarterly Q3 2023 report says that improved trade relations between the two countries and the recent removal of Chinese tariffs on Australian barley has led to optimism that five-year tariffs placed on Australian wine in March 2021 may be removed early.

But the Rabobank report says even in a “best case scenario”, with tariffs removed this year and Chinese consumption of Australian wine recovering quickly, this would “not be a panacea” with Australia’s wine industry still facing at least two years to work through its current wine surplus.

While this isn’t good news for Australian wine makers, there is an upside for consumers, says the report author: RaboResearch associate analyst Pia Piggott (image).

She says the oversupply is keeping prices of many quality Australian red wines at reduced levels.

So large is the current oversupply, says Piggott, that Australia has the equivalent of 859 Olympic-sized swimming pools worth of wine in storage.

"That’s over two billion litres of wine, or over 2.8 million bottles of the wine,” she said.

The Rabobank report says Chinese anti-dumping tariffs placed on Australian wine had led to significant disruptions for Australia’s wine industry, with Australia’s value of exports decreasing 33% over the past two years.

Piggott said with the tariffs coinciding with significant growth in Australian production and logistics bottlenecks from Covid, the Australian wine industry is now dealing with inventory oversupply which is depressing prices - particularly for commercial red varieties.

“Driven by sustained economic growth, rising incomes as well as the social status of wine drinking and gifting, global wine imports to China grew at an impressive 18% compound annual growth rate (CAGR) in the decade up to 2017 elevating China to be a top five wine importing nation globally,” she said.

“In the four years following the China-Australia Free Trade Agreement in 2015, the tariff on Australian wine reduced from 14% to zero %, helping to double Australia’s market share in China from 12% to 24%.

“When a slew of Chinese anti-dumping tariffs and soft bans hit various products exported by Australia in 2020-2021, wine took the most notable hit, losing about one third of export value from its peak in 2019.

“Unluckily, the tariff coincided with an exceptional growing season - and Australia’s largest crush on record.”