The Chris Shanahan wine archive: Parochial tastes and world overproduction keep a lid on wine prices

As a nation of wine drinkers Australians are becoming thirstier but more parochial. Per capita consumption of wine nudges 20 litres as the market share for imported wines hits a 10-year low of 2.5 per cent.

By volume Australian wines dominate every segment of the domestic market.

Exports are on the increase too but have a long way to go before they reach pre World War II levels. But while quantities are up, all is not rosy for the producer. Overproduction, virtually all of which has to be absorbed by the domestic market, is keeping returns down.

The most profitable sections of the market are becoming less so as growth in bottled wine sales slow down or halt.

It is also in this profitable end of the market that imported wine has its biggest impact.

A look at Tables A and B shows how fragile the wine industry really is. [Tables not available at the time of publishing to this archive]

Virtually all growth is in table wine sales in soft packs, an area which the producers assure us is only marginally if at all profitable.

At least while sales grow, grapes are sold, the grower is kept afloat, and the consumer gets cheap wine. Wine sold in bulk, soft pack and flagons makes up more than half of all wine sales by volume, but takes only about a quarter of the consumers’ dollars.

There is little doubt competition and relative freedom from government impost at this bottom end of the market has been largely responsible for the rapid increase of wine consumption at the expense of beer.

Anyone who doubts this assertion should look at the huge increase of white soft pack sales for 1978-79 (Table B) that followed massive increases of excise on beer and spirits in the August 1978 budget. [Table B not available at time of publication to this archive]

Of the $840 million that I estimate is spent on wine in Australia, more than half is spent on about a quarter of the litres sold.

It is in this area of bottled table wine and sparkling wine, vitally important for profit, that volume growth has almost ground to a halt.

Bottled white Australian wine sales were down in 1982–83, bottled Australian red wine showed a small increase and Australian bottled rose headed rapidly for oblivion.

Australian tank-fermented and carbonated sparkling wine sales dropped significantly for the third successive year while bottle fermented bubbly continued its decade long growth.

Imported table wines were down 19 per cent in volume but only 11 per cent in F.O.B. value.

Imported sparkling wine dropped 6.5 per cent in volume and 12.6 per cent in value.

On top of the general stagnation of this segment of the market, Australian producers will be alarmed to note that approximately 15 per cent of consumer dollars go on imported products.

Ninety-five per cent of the money spent on imported wines is concentrated on table and sparkling wines.

Distance (a shipping cost of about $1 a bottle from Europe) and protection largely by way of a 20 per cent sales tax have succeeded in keeping imports out of the cheap volume end of the market and compressed them into the smaller middle and top end.

It is interesting to note that several imported table wines which leave their home countries at about $1 a bottle can compete successfully on the local market at prices in excess of $5.

So much for the myth that Australian wines are the best and cheapest in the world.

Robert Furek, of Heublein Wines of the USA, observed in Market Search magazine that global excess wine production in 1982 was of the order of 535 million US gallons or 2,026 million litres.

Robert Hesketh, chairman of the Australian Wine and Brandy Corporation, was recently reported as saying, ‘Surpluses have already reached threatening levels …large numbers of grape growers particularly are staring disaster in the face’.

With world overproduction equal to almost seven years of Australian consumption it is easy to see what Mr Hesketh means.