The Australian wine industry is officially considered to be in crisis

The Australian wine industry is periodically considered to be in crisis. For example, a couple of decades ago we had this: Big trouble Down Under: crisis in Australian wine, when 3 years of rising harvests from 2004—2006 left Australia awash in bulk wine. These situations usually result in what is called a “vine pull scheme”, in which some vine farmers depart the industry.

Well, Australia is now considered to be in another such crisis, which has been reported for a year or so (eg. in 2023: Australian wine is in crisis; here’s why). This has resulted in the production of a recent official report, which is worth looking at here.

Over the past few months there have been repeated articles, from around the world, about the situation specifically in Australia; for example:

• It’s all change for Australian wine in 2024
• Australian farmers rip out millions of vines amid wine glut
• The world has too much wine, and Australian farmers are ripping up vines
• The future of the Australian wine sector
• The world is drinking less wine, and decades-old vines are being torn up

So, people are taking it seriously, and are attributing it, at least in part, to a global wine-industry problem. However, the Australian situation itself is being addressed by appeals for federal and state government reaction, from various industry groups; for example: First Families call for help ‘to save a wine industry in crisis’.

The Australia’s First Families of Wine (a group of premium wine producers) has described the situation thus:

The global wine oversupply, high interest rates, rising operational costs due to high inflation, previously imposed Chinese tariffs, environmental challenges and a market suppressed by cost-of-living pressures, both domestically and in critical export markets, have wreaked havoc on the wine industry which is now in crisis.

Many winery owners are communicating that this period is the most challenging period they have ever faced. Even more challenging than the mid-1980s when the now-infamous vine pull scheme was introduced.

The most concerning symptom is an enormous surplus of unsold bulk red wine, with Wine Australia reporting that red wine stock levels are now at 2.77 times current annual sales forecast. Under current conditions it will take many years to clear the industry’s red wine surplus.

To ensure long-term sustainability, the sad reality is that inland and other regional red grape producing vineyards need to be removed, and the industry needs to be drastically downsized by 25—30%. We call on the Federal Government to provide assistance in the form of supporting an environmentally-friendly exit from the industry for grape-growers that need it.

There have been various other discussions of the situation (eg. A retailer’s view of the Australian wine industry crisis), including detailed discussions from long-term industry commentators (eg. The discussions Australian wine needs to have — An independent and informed assessment of Australian wine’s present and future). These are well worth reading.

The response from Wine Australia, the official national industry body, was, in early May this year, to commission a report as a contribution to the federal-ministerial Viticulture and Wine Sector Working Group and thereby to the national government’s One Grape & Wine Sector Plan. This report (by Emeritus Professor Kym Anderson, founding Executive Director of the Wine Economics Research Centre) was published on 18 July (Australia’s Wine Industry Crisis and Ways Forward: An Independent Review).

Everyone interested should consult the report directly, but I will summarize a few points here, by way of introduction.

The table of contents summarizes what is happening:

1. Introduction
2. Anatomy of the current boom-slump cycle
3. Contributions of recent demand trends and shocks
4. Contributions of recent supply trends and shocks
5. Options for reducing the current over-supply of red wine stocks
6. Nudging the industry toward a sustainable supply-demand balance
7. Ways forward: actions needed by producers and governments

Note that chapter 5 explicitly points to red-wine over-supply as the principal characteristic of the current crisis, notably from the large irrigated areas of inland Australia that produce the generic box wines for which Australia is [in]famous. The suggested actions are therefore targeted at reducing this particular over-supply, and getting back into a better balance between future supply and demand.

The meat of the discussion is in chapter 6. Note that the wine industry is to be “nudged” forward, rather than forced or dragged. The six options listed are obvious ones, some of which have been tried before. Interestingly, the author notes: “The results of the 1986 vine-pull subsidy program were not viewed favourably in retrospect, even from within the industry.” However, the European Union has offered subsidies this year to pull out vines in Bordeaux, which is proceeding (Bordeaux vineyard ‘grubbing up’ scheme hampered by weather), although growers in California’s Central Valley are doing it on their own (The 50,000 acre dilemma: California's grape growers and the state’s biggest wineries grapple with overages).

The optimism is in chapter 7 of the report. However, the author does not pull any punches, and notes:

A crisis is often the best and sometimes the only time to bring about unpopular but necessary changes that in the past have been kicked down the road, because it was perceived that they would harm a significant subset of stakeholders. The industry itself needs to own the problems it faces, and step up its leadership in finding appropriate and workable solutions.

Needless to say, actions by producers, industry organizations, and governments require agreeing at the outset on market prospects under various scenarios. The report lists 14 characteristics of such scenarios, from various perspectives. In particular: “While government enthusiasm for supporting structural adjustment [within the wine industry] has been lacking, it is more likely to materialize if the industry takes a lead.”

So, the bottom line is that the industry needs to react, with actions not just proposals, before any government reaction can be expected. It is the industry that has the crisis, not the governments.

Actually, some of the most interesting information in the document is in the background appendices (which are always an important part of all of Kym Anderson’s reports).

How much longer can we continue packaging in the current wine bottles?

By now, people in the wine industry should be familiar with the idea that the biggest contributor to the carbon footprint of the wine industry is the glass bottles, as shown in the first figure below. Basically, the heat produced when turning silica sand into glass involves an horrendous amount of carbon (although see: Fueled by renewables, Verallia fires up breakthrough electric glass furnace). Under these circumstances, other packaging options start to look pretty good, some of which I will discuss here.

The change of wine-industry attitude required to address this issue is probably less problematic for me, personally, because I come originally from the land Down Under. This is the land that has embraced the screw cap for bottle tops. My wine bottles from Europe and North America still have corks, and my bottles from Australia and New Zealand almost all have screw caps — this seems to make no difference to the quality of the stored wine. The same may turn out to be true of the glass container as well. *

The above graph of carbon-dioxide footprints is from Systembolaget, my local alcohol retail chain here in Sweden (Packaging with lower carbon footprint). Decanter (Alternative wine packaging: thinking inside the box) comment about the data:

In 2018–2019, the alcohol monopolies of Sweden, Finland and Norway jointly calculated the average CO2 per litre emitted in the manufacture of different forms of wine packaging. The results (see chart, above) are striking. Glass bottles have by far the highest carbon impact. The footprint of cans and PET bottles is substantially lower, but it is BIBs, pouches and cartons that have the lowest emissions. The difference is bigger still if you include transportation.

This is of interest to me, because Systembolaget has set itself goals for the sustainability of its future products (Why develop our own guidance?), which is why it was involved in producing the graphed data in the first place. ** Usefully, the Decanter article (linked above) also has a table summarizing the  various alternatives to glass packaging, along with their pros and cons, so I will not repeat it here. Sustainable Wine Roundtable has also produced a report (June 2023): Reducing wine bottle weight. An assessment of the potential for the reduction in wine bottle weight.

Basically, in addition to the environmental consequences of the actions when actually producing wine (as listed in the figure immediately above), there are two big issues with packaging, notably:

• what containers we can keep our wine in if we wish to store it for any length of time
• the concept of recycling.

The Decanter author (as linked above) is very clear on the first of these two issues:

To be clear, glass bottles currently remain the only viable format for cellaring wines. Wine in BIB, pouch, PET bottle and aluminium can has a limited shelf life (though wines in PET bottles reportedly keep for up to 18 months, and I have tasted canned wines that were still fresh after two years). But most people buy wine for immediate drinking: almost all the wine consumed around the world (some 90%) is drunk within a few weeks of purchase. There is no need for such wines to be packaged in glass bottles.

This latter point is of utmost importance. The only thing we really need glass for is long–term storage. You may well ask yourself: Would you drink fine wine from a paper bottle? Still, there are apparently some worthwhile options:

• Seriously, boxed wine is really good now
• 10 boxed wines that are really good, seriously
• Aluminum and paper wine bottles are here to stay; here are 3 to try
  
• The absolute best canned wines to drink right now

As for recycling (the second issue listed above), this is really big here in the Nordic countries, in general. For example, Anora launches new wine assortment as Finland’s Alcohol Act comes into force:

Its packaging options include rPET bottles made from recycled plastic and fully recyclable Bag-in-Boxes, which have an up to 90% lower carbon footprint compared to traditional glass bottles. Anora added that its products are bottled and packed close to the end consumers in Finland, reducing the environmental impact of wines considerably. ***

There is also the matter of re-using the container, of course: 60 Oregon wineries to adopt Revino's refillable bottles; or Master the art of re-corking: a step-by-step guide to resealing your wine bottle like a pro. There is also the concept of a flat bottle (How sustainable is ‘green’ wine packaging?), or a hexagonal bottle (Napa entrepreneur’s hexagonally shaped bottle innovates), or a light-weight glass bottle (Glass reimagined: towards a carbon-free wine packaging era). These are all worthwhile options if we insist on continuing with glass. However, sometimes even recycling the glass is problematic (The rocky rollout of California’s new Bottle Bill).

One wine region that is taking all of this seriously is Burgundy (Burgundy wines lighten their bottles, and their carbon footprint). The Burgundy wine marketing bureau (BIVB) has set a particularly ambitious target: it aims to reduce greenhouse gas emissions by 60% by 2035, with glass bottles identified as the first target. This is in complete contrast to the recent comment from Australian wine commentator Jeremy Oliver: “Some of the bottles sent to me are so heavy you could be fooled for thinking they contained twice what they do.”

For the final word, however, Australian film director Peter Weir (From Hitchcock and Hanging Rock to Hollywood: Peter Weir reflects on his Brilliant Career) has noted:

Films, like most wines, are meant to be consumed in the year of their release. It’s a small miracle when they endure.

Very true!

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* Indeed, the Voyager Estate 2019 Project Sparkling Chenin Blanc, which I drank last Friday, actually has a standard metal “crown cork” bottle cap, just like a beer bottle!

** I have even noticed a recent ad from them on Youtube, about their “climate smart” philosophy.

*** This is a totally different concept of package-at-destination from the recent report involving: Use of Spanish bulk wine in Portugal, Germany and France is a growing concern!

What are the current causes for optimism in the wine industry?

Last week I looked at the wine industry in different countries (Is the global wine slump almost solely due to China?), and pointed out that the data show static wine consumption through recent times in all major countries except China, which has a 25% decrease over the past few years. So, while the industry is not booming, it is not heading for bust either. I am not the first to have noticed this (Is the future of wine really in trouble?).

This week, I will look at a number of other issues that provide cause for optimism, if you happen to be in the wine industry.

As Tom Wark has noted, the basic issue is to distinguish between what are called structural changes versus transitory changes (The structural and transitory changes to the wine industry):

Structural conditions impacting the health of the wine industry are those factors that set the guardrails for the industry and are unlikely to change without considerable effort if at all. Then there are transitory conditions such as interest rates, inflationary trends, general economic growth patterns, weather-induced catastrophes, and tariff policies. All of these can impact the health wine industry negatively or positively, but they also are subject to eventual change or mitigation.

Tom notes that many of the recent changes in the wine industry have been transitory changes, which have certainly severely impacted the wine industry, but that they will eventually change again, for better or worse. We do not have to assume that latter.

One of the obvious changes has been the rise to dominance of younger people — notably, younger generations (Millennials and Generation Z) are drinking less wine than the generations before them (Can the wine industry adapt to the ‘lifestyle generations’?). This is the so-called “Life-style generation”, whose impact is greater and greater — they are dealing in their lives with a combination of health concerns, social media and public image, variety and choice, and also financial insecurity.

Of this list of topics, the obvious one for the wine industry is health. As Katherine Cole has noted: We are all doomed to die; but wine won’t do us in. Sure, hard-drinking is risky, but hundreds of studies show that moderate tipplers enjoy health benefits. Katherine cites some useful data in this regard.

Similarly, in this blog I have discussed the World Health Organization’s recent scare campaign (There is much medical evidence that wine consumption is good for your health). Some other good discussions of different parts of this topic include:

• Scientists prove drinking good wine ‘makes you happier’
• Couples who drink together live longer, study suggests
• Why social drinking is integral to a longer life
• We don’t drink wine just for intoxication

Importantly, the concept of Wellness wines, loosely defined as “better-for-you” wines, has taken off over the past half-decade, or so:

The audience for better-for-you wines is generally younger—Millennial and Gen Z drinkers—and is often comprised of people who desire to maintain social interaction and enjoy wine while adhering to health values or goals ... Twelve leading brands combined for an 14% increase in 2023, reaching 2.07 million cases, according to Impact Databank. Volume of those leading 12 brands has more than quadrupled since 2020.

Also, it has been noted that: Pemiumisation remains the key driver in on-trade drinks sales:

The trend to premium drinking is predicted to continue as consumers continue to drink less but better, according to the latest insights from analyst CGA by NIQ. Moreover, while ‘value-for-money’ remains key, this is about drinks ‘worth the price’, rather than ‘cheap’.

Another optimistic note is in the 2024 Tasting Room Survey Report: revenue steady amid rising stakes for direct sales. That is, while visitation and wine club recruitment declined slightly in 2023, wineries appear to have been able to hold the line on direct sales revenue.

As I have noted before, Global wine production has exceeded consumption for decades. However, that is not an insoluble problem. The basic issue is that the back-log of inventory will not go away if sales volumes are flat, as shown in the graph immediately above (from Silicon Valley Bank), so presumably distributors will pursue discounts and promotions to reduce the back-log.

The alternative is to remove actual vineyards (Digging deeper into wine's vine-pull battle). This is one reason why the industry is concerned (The story behind the American wine crisis). This is a global issue, not a local one.

As recently noted: Are things getting better for the wine industry? SVB says yes — and no. Let us focus on the Yes part, shall we?

Is the global wine slump almost solely due to China?

I recently wrote a post about The demise of the (old) wine industry. There seem to be two issues that combine to create this situation:
    — declining consumption of alcohol among younger drinkers
    — declining consumption of wine relative to other forms of alcohol, especially cheaper wines.

This topic is worth looking at again, because it is not necessarily as simple as it is often painted. The situation is usually as presented in this first graph. Things do not look too good (Global wine demand drops to 27-year low as high prices hit). The OIV (International Organization of Vine and Wine) estimated world wine consumption in 2023 at 221 million hectoliters (mhl), down 2.6% from 2022, and 7.5% below 2018.

Quite a number of wine commentators have looked at this situation, but not all of them are despondent. There are, indeed, a number of things to take into account, when evaluating this situation. I will start by looking at what seems to me to be the most important one (next week I will look at some others).

The situation at hand was highlighted by the OIV, as reported by Just Drinks: China drives decline in global wine consumption in 2023. They produced the following graph, based on the data from the OIV. They note that the fall in demand last year was particularly big in China, estimated at minus 25%. The OIV noted:

In China, approximately 24.7% less wine was consumed in 2023 compared to 2022, placing strain on an already diminishing world market. This figure has been declining since 2018 — when consumption sat at 17.6m hectolitres. The two decades prior were characterised by rapid growth in consumption. While Chinese wine consumption had risen sharply at the start of the century in line with a growing middle class, it shed more than 60% over the past five years to 6.8 mhl due to COVID-19 restrictions and price pressures which tend to have a bigger effect on younger markets like China.

I think that this graph has not been given the attention that it deserves. The only place with a wine consumption problem is China (as shown by the red line) — everywhere else has a static situation in terms of the volume of wine consumed, and has had for some years. So, the answer to my title question appears to be: Yes.

The current situation in China is therefore worth looking at briefly. The country’s wine-making actually dates back more than 4,000 years (Lenz Moser: ‘We arrogant Europeans can learn a lot from China’). China currently has 800,000 hectares under vine, making it the third-largest wine producer by area in the world. However, only 40% of the wines consumed in China are domestically produced, so imports play a key role (Sober times for China’s wine sellers). China’s modern wine market really began in 2001, when the country entered the World Trade Organization; and from 2004 onwards, wines, especially imported ones, entered a rapid growth period, until 2017.

In general, it is likely that the West is grossly out-competed by China (China has clearly won the first round):

The success of China is evident, but it also contains the seeds of its own downfall, eventually. China is using the BRICS as an economic lever to get the Global South on its side, getting their support and fortifying their own economy in turn, by increased trade with them, thus flanking both the Anglosphere and the European Union. It is a beautiful move by experts in the game of Go, where the goal is not to kill the opponent (chess), or to bluff him (poker), but to progressively capture enough physical space and resources to render him weak and impotent as times go by.

Nevertheless, there are problems in wine sales within China itself (Flash sale frenzy: the controversial strategy reshaping China’s wine market):

Driven by economic pressure and an oversupply of wine, these flash sales are becoming a lifeline for cash-strapped merchants while simultaneously posing challenges to wineries’ financial health and sustainable growth. According to industry experts, the recent downturn in the market has led to an excess of clearance wines, which these platforms are now selling rapidly at minimal prices.

This situation obviously has relevance to the problem of Australian wine getting back into China, after the removal of the import tariffs, as I discussed a few weeks ago (Is Australia likely to recover from the devastating loss of the China wine market?). Indeed, this situation is apparently even more complex than I discussed at the time (Jeremy Oliver, the Aussie wine critic most active in China, explains the post-tariff market). This is thus also a situation worth keeping an eye on.

Ethics in the wine industry, once more

Last year I wrote a blog post about The ethics of presenting the wine industry. Recently, another example has arisen that reflects a similar issue, which I will write about here.

Ethics in the wine industry is an ongoing topic — it usually involves questioning the (lack of?) ethics of some (many?) people in the industry. I have not written much about wine-industry ethics in this blog. This is not from a lack of interest in the topic, but for lack of anything much to say that might be a bit different from any other wine blogger.

However, in the previous post, I wrote about my experience seeing some of the vineyards in South Africa, notably the fact that those around Cape Town are right next to an enormous shanty town called Khayelitsha. I wrote:

The massive shanty town (as an Australian would call it) south-east of Cape Town was a great shock to my bus-load of middle-class Swedish tourists. The contrast with the Kruger National Park (lions, elephants, giraffes, buffalo, etc), and the lower-middle-class servers in the tourist industry, was stark. Everyone on the bus noticed, and everyone expressed concern.

One cannot miss the contrast, when you are there. However, you don’t see it in any of the wine-industry photos.

Recently, an article appeared in the Swedish media: Hot och slavlöner bakom viner sålda i Sverige. This translates as: Threats and slave wages behind wines sold in Sweden. It is based on a report from Swedwatch, a group that investigates the products sold commercially in Sweden, and the social circumstances under which those products are produced.

In this case, the object of their scrutiny is the Swedish national retail-alcohol chain, Systembolaget, insisting that they step up their sustainability efforts in the supply chain. The report concerns serious workers’ rights abuses on South African farms, linked to wines eventually sold at Systembolaget (and elsewhere, in other countries). They consequently “urge Systembolaget to better use its leverage as a large public retailer to drive meaningful change, including by implementing stricter and results-based human rights and environmental due diligence tailored for high-risk locations.”

The important point I wish to make here is much more general than this. Swedwatch target a single retail chain, but it is clear that the same claims can be made about all retailers of South African wine, everywhere. So, there are international implications for the Swedwatch investigation, which everyone in the wine industry should take onboard.

Swedwatch provide a full English-language summary of their report. However, their Key Research Findings are:

• Those interviewed reported working an average of nine hours per day, five days a week, earning R4,576 (around €223) a month — insufficient to adequately support their families.
• Various housing problems including leaking roofs (which may contain asbestos), broken electrical plugs, and limited access to drinking water and leaking toilets and taps that cause flooding.
• Discrimination against union members, for example by employers only granting permission to a leave or giving other benefits to non-union members.
• Exposure to hazardous pesticides without proper safety measures. Chemical compounds identified by the workers include Paraquat, which is banned in the EU and classified as harmful to the environment and health.

Swedwatch conclude that:

The testimonies show that the measures Systembolaget has taken so far to fulfill its obligations according to international guidelines have been insufficient. The organization also criticizes the lack of transparency in the supply chain. Systembolaget has read the report, and they claim to be aware of the problems depicted, and state that they are continuously working on the issues.

As noted above, Swedwatch target a single retail chain, but it is clear that the same claims can be made about all retailers of South African wine, worldwide, and they can all thus be asked to answer. This is, after all, an essential component of ethics in the wine industry. So, it would be interesting to know whether retailers in other countries are also willing to take onboard the issues highlighted.