Wine and wine grapes: September quarter 2021
- The average price of wine grapes is forecast to fall slightly in 2021–22.
- Wine and wine grape production is forecast to be slightly above average in 2021–22.
- The volume of wine exports is expected to increase slightly in 2021–22. This follows a fall in 2020–21 due to the loss of China as a major market.
- The value of wine exports is expected to fall by 12% in 2021–22 with the average unit value falling following the loss of China as a major market.
- Wine stocks rose in 2020–21 and are forecast to recover to the longer-term average in 2021–22, following 3 successive years of decline to 2019–20.
Wine grape price to fall slightly in 2021–22
The average price of Australian wine grapes is forecast to fall by 2% in 2021–22 to $690 per tonne (Figure 1). This follows an unexpected price increase in 2020–21 of 1% to $701 per tonne, despite the loss of China as a major export market following the imposition by Chinese authorities of high anti-dumping duties in 2020. This was expected to drive down the price of red wine grapes, which was expected to dominate changes to the overall average price. The price of red wine grapes did fall in 2020–21, but this was more than offset by an increase in the average price paid for white wine grapes. This was driven by an increased willingness by wineries to pay for white wine grapes due to the falling share of white wine grape in the vintage. Wine stocks were also below average in 2020–21.
The loss of China as a major export market and the falling share of white wine grapes in the vintage are expected to continue influencing wine grape prices into 2021–22. However, wine stocks rose in 2020–21, following a well above average vintage, and are forecast to rise again in 2021–22 after an expected slightly above average vintage. Rising stocks are expected to dampen the upward influence that a falling share of white wine grapes will have on the overall average price of wine grapes.
The price forecast for 2021–22 has 2 downside risks. First, if wine exports to markets other than China do not increase by as much as forecast. Second, if the 2021–22 vintage is larger than forecast. If these eventuate, both possibilities would add to forecast stocks and place additional downward pressure on the average price of wine grapes.
Wine grape and wine production to be above average
The volume of wine grape production was higher than expected in 2020–21 and well above average. After a favourable winter in 2020, conditions were almost ideal in most wine grape–growing regions during the following spring and summer.
Winter conditions in 2021 were also favourable and have set a solid foundation for another above average vintage in 2021–22. However, it is unlikely that ideal conditions over spring and summer will be as widespread as in 2020–21. Wine grape production in 2021–22 is therefore forecast to be 5% above the 10-year average to 2019–20. In 2020–21 wine grape production was 13% above the 10-year average to 2019–20.
Wine exports lower after the loss of China as a major market
With the loss of China as a major export market in December 2020, the volume of wine exports fell by 5% in 2020–21 to 709 million litres, down from 744 million litres in 2019–20. The value of wine exports fell by 9% to $2.6 billion, down from $2.9 billion in 2019–20. Value fell proportionally more than volume because the average unit value of wine exported to China was higher than the average unit value of wine exported to all other markets.
A precise picture of the impact made by the loss of China as a major export market is given by comparing wine exports in the seven months from December 2020, when China was lost as a major market, with the same period in 2019–20. During these months, wine exports to China were 95% (59.7 million litres) lower in 2020–21 than in 2019–20. Most of the reduction (56.2 million litres) was due to lower red wine exports. Some wine was still being exported to China in 2020–21, but at an average unit value that was 44% lower than in 2019–20. During the same months, exports to all markets other than China were 1% (3.5 million litres) lower in 2020–21 than in 2019–20.
It appears that some of the red wine formerly exported to China was exported to other markets after the loss of China as a major market, but at the expense of other wine exports. Red wine exports to other markets were 12.9 million litres higher in the 7 months from December 2020 than the same period in 2019-20, but exports of all other wine were 16.4 million litres lower. This apparent substitution was most pronounced in exports to the United Kingdom, where red wine exports were 7.6 million litres higher in the 7 months from December 2020 than for the same period in 2019–20. However, other wine exports were 7.1 million litres lower.
The volume of wine exports is forecast to increase marginally in 2021–22 to 713 million litres, up from 709 million litres in 2020–21 (Figure 2). However, the value of wine exports is expected to fall by 12.2% to $2.3 billion, down from $2.6 billion in 2020–21. The forecast fall in value, alongside a forecast rise in volume, reflects an expected 13% fall in the average unit value of wine exported. This is because the average unit value of wine exported to China was much higher than for wine exported to all other markets.
Following the loss of China as a major market, winemakers are expected to substitute towards lower-valued wines to sell into the remaining markets. As a result, some grapes formerly used to produce high-value wine will be blended with other grapes to produce the lower-value wine more likely to meet consumer price points in the remaining markets. The major export markets for Australian wine in 2021–22 are expected to be the United Kingdom, the United States and Canada.
To achieve the forecast volume of exports in 2021–22, markets other than China are expected to import around 8% more wine from Australia than in 2020–21 and return to a level similar to immediately before China became a major export market. This will be assisted by the ongoing rollout of COVID-19 vaccines in major wine markets and the subsequent economic recovery.
Australian wine stocks to rise
Wine stocks fell for the third successive year in 2019–20 to around 7% below the 10-year average to 2018–19. Stocks fell as a result of 2 below average vintages in those years and high demand from China for Australian red wine. Stocks rose in 2020–21 following a well above average vintage and the loss of China as a major export market. Stocks are expected to rise again in 2021–22 to be around average for the 10 years to 2019–20. This is expected to result from a slightly above average vintage in 2021–22 and only a small increase in wine exports.
Opportunities and challenges
Australian wine industry without China as a major export market
The loss of China as a major export market for Australian wine is expected to constrain industry growth and be the major influence on the immediate future of the Australian wine industry. This presents opportunities and challenges.
Australia’s domestic market may provide only limited opportunities for industry growth, especially with ongoing COVID-19 restrictions curtailing travel and hospitality. The pace at which these restrictions can be lifted will influence opportunities for wine tourism and cellar door sales. Revival of these activities will provide a welcome financial boost to these businesses, especially if these activities resume before the forthcoming summer holiday season.
The sheer size of the global wine market means it will most likely provide the best opportunity for future growth. But the industry may be challenged to identify opportunities to expand. Marketing campaigns may increase demand for wine in existing markets and open new markets. However, such campaigns take time to generate benefits and these are unlikely to be fully realised in 2021–22.
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