The Chris Shanahan wine archive: High sales, low prices increase wine tax fears

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.

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.

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.

Given the disadvantage of distance from the large Northern Hemisphere wine markets, and the glut of wine which the northern countries themselves must face, it seems the Australian wine industry is at a crucial turning point in its history.

With low levels of exports in the short term, excess production will have to be absorbed domestically.

The question is, to what extent Australia has a future as an exporter of wine.

On the domestic front, the clear connection between low price in relation to other alcoholic beverages and continued sales growth makes the industry very nervous about the timing of the long-expected wine sales tax which will certainly alter consumption patterns.

TABLE A: AUSTRALIA
Sales of domestic wines, imports and exports

Year	Sparkling Aust.	Sparkling Import	Sparkling Total	Table Aust.	Table Import	Table Total	Other Aust.	Other Import	Other Total	Total Aust.	Total Import	Total wine	Exports
1975-76	19,947	1,851	21,798	92,036	4,183	96,219	61,853	891	62,744	173,840	6,925	180,765	6,132
1976-77	22,692	2,114	24,806	101,281	4,782	106,043	59,585	1,222	60,807	183,553	8,098	191,651	4,924
1977-78	23,725	1,769	25,494	116,647	5,232	121,889	54,299	793	55,092	194,671	7,802	202,473	4,628
1978-79	27,130	2,178	29,308	143,209	5,569	148,778	57,389	734	58,123	226,647	8,481	235,128	5,239
1979-80	29,915	1,408	31,323	160,807	5,068	165,935	54,256	400	54,656	245,040	6,876	251,914	6,112
1980-81	29,569	1,496	31,065	179,278	6,608	185,886	54,026	388	54,414	262,873	8,492	270,365	7,470
1981-82	27,749	1,745	29,494	197,904	6,704	204,608	52,942	543	53,485	278,595	8,992	287,587	8,430
1982-83	27,022	1,632	28,654	216,948	5,430	222,378	49,612	397	50,009	293,582	7,459	301,041	—

Source: Sales of Australian wine and brandy by winemakers compiled by Australian Bureau of Statistics. Import figures based on Customs. At variance with ABS figures. Adjustment has been made for Marcus Rose, which is classified as a carbonated wine for duty. Discrepancies in totals are due to rounding.

TABLE B: Sales of Australian table wine
by container type — ‘000 litres

Year	White 1 litre & under	White over 1 litre	White soft pack	White bulk	Red 1 litre & under	Red over 1 litre	Red soft pack	Red bulk	Rosé 1 litre & under	Rosé over 1 litre	Rosé soft pack	Rosé bulk
1977-78	29,573	21,436	22,695	5,631	10,312	6,369	7,050	4,528	2,191	3,423	2,370	554
1978-79	31,547	27,936	37,904	8,448	10,288	6,710	7,497	3,768	1,890	3,403	2,370	721
1979-80	34,300	30,176	51,148	8,966	11,507	5,483	7,451	3,226	1,768	3,076	3,204	563
1980-81	36,709	28,706	69,525	9,988	12,455	5,383	8,871	2,549	1,721	3,076	3,204	563
1981-82	39,368	28,107	84,680	7,683	12,252	5,092	11,263	1,754	1,668	2,456	3,563	351
1982-83	38,644	28,252	103,585	6,782	12,657	4,925	12,787	1,487	1,347	1,948	4,289	246

Source: Australian Bureau of Statistics. Note: Because of some under-reporting of sales, figures for years prior to 1980-81 are not strictly comparable with later figures.