May 24 2018
Australian grape growers and winemakers have been reaping the benefits of positive export conditions over the past five years. A wine glut that followed the global financial crisis initially forced wineries to sell their output at a loss, and caused a long-term mismatch between supply and demand. However, a depreciating Australian dollar and free trade agreements (FTAs) signed with China, Japan and South Korea have since fuelled strong growth in exports. These factors are expected to create more stable and beneficial operating conditions for grape growers and winemakers, with profit and revenue both rising.
Soaring international demand has seen grape exports increase rapidly over the past five years. Overall, grape exports, which mostly consist of fresh table grapes, are expected to rise at an annualised 30.0% over the five years through 2016-17. This is encouraging grape growers to increase their production volumes and capitalise on the substantial growth opportunities in foreign markets.
The FTA with China was ratified in 2015 and domestic growers have been quick to establish supply links with Chinese buyers. While the Korean FTA has already removed tariffs on imported Australian grapes and wine, the full effect of the Chinese and Japanese FTAs will not come into full force until 2019. Many grape growers and winemakers have already begun setting up early business connections and brand awareness in China, which is expected to increase profitability over the next five years.
Compared with other wine-producing nations, Australians generally consume less wine per capita. Per capita alcohol consumption in Australia has declined every year for almost ten years. This has led to a strong reliance on global markets, as Australian wine production has substantially outweighed local demand. Fortunately, international demand for Australian wine has grown rapidly since 2013-14. This has also caused the domestic price of wine grapes to rise.
The growing Chinese middle class has increased the number of urban professionals that are encouraging a drinking culture in China. Along with the FTAs and a depreciating Australian dollar, the growing middle class has increased demand for Australian wines, particularly premium varieties (such as single-vineyard wines). In 2016-17, over 40% of wine producer revenue is expected to be generated from export markets.
Following challenging conditions that lingered after the global financial crisis, Australian grape growers and winemakers are finally benefiting from positive operating conditions. Strong demand from export markets is expected to continue boosting revenue and profit over the next five years, as the FTAs with China and Japan come into full effect and the industries become increasingly globally oriented.