Oversupply in the wine industry - is it too much bottled product or too many vineyards?

More wineries and more labels are fighting for the same share of the market. In fact with the downturn of the USA and UK markets, coupled with a strong Australian dollar, there is more wine than ever before packaged and ready to go. And the next vintage is about to unfold.

So, is the problem simply that we are making too much wine or do we simply have too many vineyards (with plantings increasing every week)? Many within the industry believe that the latter is the underlying issue, somewhere in the order of 20% according to Citigroup Global Markets (CGM) analysis. A ‘best case scenario’ has suggested that within the next four to five years the ‘oversupply’ problem will be corrected if vine removal rates continue at current elevated levels.

Recent Australian Bureau of Statistics data indicates that 8.1 hectares of vineyards were removed prior to the 2010 harvest. In addition 13.1 hectares of grapes were left unpicked during the harvest which equates to 8% of industry supply. The message is clear, this needs to continue and the 2011 harvest will be crucial to the speed of correction.

Nature may very well assist with this correction. Significant rainfall over the past few months, coupled with abnormal humidity has resulted in viticultural issues such as downy mildew (a fungal disease specific to grapevines), which can lead to loss of crop and leaves. Whilst this has been widespread in Victoria, other states have also been affected. Recent rainfall and significant floods have not only damaged but destroyed vineyards in Victoria, New South Wales and Queensland.

There is no doubt that the 2011 harvest will be down on the volume that was forecast late last year. No one would argue that the strain within the industry continues with drought followed by bushfires then too much rain and in some cases floods. However despite this unsustainable demand continues to negatively affect the market. CGM research suggests that 19% of current industry demand is unsustainable, in which 16% of this is bulk wine and 3% is cask / bottled wine.

Many of us within the industry can make a difference to the future. We need to look at our past, take stock of where we are at now and strategically plan for the future with a sustainable approach. Our viticultural activities must be sensitive to the environment; volume of production must reflect viable demands within markets (both domestic and export); marketing must embrace brand building and sensible ‘price-point’ positioning and consumers need to continue supporting the Australian wine industry by purchasing, enjoying, sharing and recommending the magnificent range of wine being produced.

If all of this can be achieved in the coming years then the future of the industry has some exciting chapters ahead. Hard decisions will need to be made and discipline applied but the benefit will surely be worth it. One thing is for sure, I am up for the challenge!

Here’s to a great Australia Day tomorrow, I hope one and all enjoy a nice Aussie bottle or two.

Cheers Sarah