The Future of the Australian Wine Sector

Key Take-aways

• The Australian Wine Industry is facing a series of material challenges to its long term sustainability.
• These challenges range across the value change and relate to both past choices of the industry, the impact of being caught in geopolitical cross-fire and changes in consumer preferences across the globe.
• It will take strategic clarity and action from across the sector to rise above the challenges faced if we want to create a sustainable future for the sector

Navigating to a sustainable future depends on transformation

Re-opening of the China market is not a silver bullet for Australian wine

The Australian wine sector is in crisis as growers face unsustainably low prices, increased competition in saturated global markets, and declining wine consumption globally.

Whilst the removal of trade tariffs by the Chinese government is welcome news, it will take much more to solve the issues that Australian wine producers face, including domestic and international oversupply, declining wine consumption, and increasingly competitive export markets.

These marked challenges have put into question the future of the industry for hundreds of Australian growers, with concerns many may not be around to see another vintage.

Recently, Australian Agricultural ministers agreed to the formation of a taskforce, comprised of Government and industry representatives, to determine feasible solutions to the issues afflicting the sector. This is certainly overdue for a sector that needs to establish the foundations to continue to thrive in the future.  Beyond a taskforce, action to drive fundamental reform will be required to address the underlying causes of the current crisis. These reforms will need to go deep to solve the critical issues plaguing the sector and navigate towards long-term sustainability.

Challenges persist across the Australian wine value chain.

Four key challenges across the value chain:

1. Persistent oversupply of wine

National and global wine excess is driving prices down to historical lows. 40-50% of Australian wine remains unsold at full price, and Australian growers are increasingly unable to cover the costs of production.

Abundant harvests from 2020-2021 exacerbated the impact of trade tariffs and heightened domestic oversupply. 2020 and 2021 harvest account for 81% of inventories. Global surplus has made it exceedingly difficult for Australian wine exporters – Rabobank estimated an excess of 2bn litres of Australian wine in 2023

2. Lack of a consumer-led go-to-market strategy

Too much Australian wine is produced with limited understanding of the consumer, and often too little consideration for changing market preferences or desired price points. This has contributed to excess of notable varietals and styles.

Government tax incentives are supporting continued planting of vineyards with limited alignment to market demand and evolving consumption preferences. Global competition is increasing in a category that is inherently brand and price driven. Success stories in Australian Wine represent a small proportion of total production volume.

3. Overreliance on too few markets

Australia has seen a dramatic decline in the volume and value of its wine exports, from a $1.2 billion in 2020 to ~$10 million today¹. Chinese tariffs on Australian wine exports in 2021 exposed the over-reliance on China (40% of Australian wine export value in 2020²).

Wine Australia data shows that wine exports in 4 of the top 5 export destinations (by value) have declined by up to 20% in the 12 months to May 2023; all reflective of declining consumption, as well as trading down by consumers in the face of tough economic conditions.

4. Global decline in wine consumption

From 2020 to 2022, wine consumption in Australia saw a notable decrease of 9% (50 million litres³). This downward trend is reflected internationally, driven by demand side factors:

• increasing health consciousness;
• preference for low- or no-alcohol beverages;
• competition from other alcoholic categories (particularly ready-to-drink alcohol) ;
• reduced discretionary income in challenging economic environments

All players have a role in a sustainable future for Australian Wine

The many challenges facing the Australian Wine sector range across the value change and are potentially significant. However at SPP we believe that with strategic clarity and co-ordination amongst key players there is a sustainable and growing future there for the taking. If you would like to discuss the industries future or your own challenges or opportunities, please get in touch with our SPPs thought leaders Noel Leung and David Mackay

1. ABC News ‘China hints wine tariffs no longer necessary with final decision expected within weeks’ (2024). ↩︎
2. Australian Government Department of Agriculture, Fisheries and Forestry ‘Australian wine in China: Impact of China’s anti-dumping duties’ ↩︎
3. IWSR Report (2023)
   4. Wine Australia, ‘Global opportunities for Australian wine’ (2023) ↩︎