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).