Wine and wine grapes: December quarter 2020
Peter Collins and Charley Xia
Mixed movements in wine prices
Movements in wine prices around the world are likely to be mixed over the remainder of 2020–21. Prices of white wines are likely to rise as stocks fall, partly due to the COVID-19–related distillation of wine stocks into industrial alcohol in Europe. Measures implemented to combat COVID-19 reduced demand for red wine imports in China are expected to continue to put downward pressure on red wine prices. Additionally, on 27 November 2020, the Chinese Ministry of Commerce announced that from 28 November 2020, Australian wine imported into China will be subject to anti-dumping security deposits. These will further drive down the prices of Australian red wine grapes as they will significantly reduce wine exports to China. Movements in prices of Australian white wine grapes are expected to move in line with world markets.
Measures to contain the spread of COVID-19 have had mixed effects on Australian wine exports. Consumption of premium wine (more than $10 per litre) outside the home has fallen in China in 2020 but consumption of less expensive commercial wine at home has grown in the United Kingdom and the United States.
Wine & wine grape production
Australian wine grape production is expected to recover to just below average in 2020–21 from very low production in 2019–20. Production in 2019–20 was reduced by drought conditions and lower than average supplies of irrigation water. Together these two factors resulted in higher than average prices for irrigation water and reduced use in vineyards. Some smaller growing districts like the Adelaide Hills, the Hunter Valley and Gippsland were also affected by bushfires but these did not have a significant impact in Australia's largest wine grape growing regions. Australian wine grape production was also affected by smoke taint in 2019–20 in some regions. However, this impact will not be large nationally. Bud formation for the 2020–21 crop took place when large parts of Australia were still in drought, but seasonal conditions after summer were generally more favourable than in 2019–20. It is expected most wine grape producers will be able to harvest the 2020–21 crop as reduced supply of overseas labour is not expected to cause significant problems in harvesting. The volume of wine production is expected to be around average.
Australian wine stocks to rise
Australian wine stocks will likely rise over the remainder of 2020–21. Stocks fell following below average production in 2019–20. Production is expected to increase to around average in 2020–21, while the volume of wine exports are expected to fall over the remainder of 2020–21 following developments in the Chinese market.
Difficult time ahead for Australian wine exports to China
Exporting wine from Australia to China will be a challenge for the remainder of 2020–21 because of falling consumption of premium wine and investigations into the Australian wine industry by Chinese authorities.
Reduced Chinese consumption of wine
Chinese consumption of wine has fallen in 2020, resulting in falling imports. Imports from all exporters slowed in the first 3 quarters of 2020. According to the General Administration of Customs, in the third quarter of 2020 volume fell by 29% and value by 20% compared with the same quarter in 2019. Demand has fallen with economic activity due to measures to contain the spread of COVID-19. Significant volumes of premium wine are sold in hotels and restaurants in China and these were hit hard by the slowdown.

Australia has been China's largest supplier of imported wine. Australian exports of wine to China fell in the first 2 quarters of 2020 in line with the overall drop in imports into China. Volume fell by 23% and value by 16% compared with the same period in 2019. This was followed by a turnaround in the September quarter, when volume rose by 7% and value by 29% year on year. Export data indicates this growth took place in the premium end of the market (more than $10 per litre). Export value in this segment of the market grew by 46% year on year in the September quarter compared to 29% across all the other segments combined. Premium wine comprised around 64% of the value of Australian wine exports to China in the September quarter. The increase in Australian wine exports to China in the September quarter appears to be the result of Chinese importers building stocks ahead of an anticipated imposition of the recently announced anti-dumping security deposits on Australian wine.

Wine exports to China face an uncertain future
Chinese authorities recently launched anti-dumping and countervailing duties investigations into the Australian wine industry. These investigations were launched under World Trade Organisation rules. They are expected to take about one year to complete. In the interim, Chinese authorities decided to implement anti-dumping security deposits well ahead of the investigations being finalised. The Chinese Ministry of Commerce issued a statement on 27 November 2020 in which it announced the anti-dumping security deposits ranging from 107.1% to 212.1% would be applied to Australian wine imported into China from 28 November 2020. This measure is presently in place for 4 months.
This move by Chinese authorities will drive outcomes for the Australian wine industry over the remainder of 2020–21. The magnitude of these measures will likely halt Australian exports of wine into China. The average value of Australian red wine exports is expected to fall because high-quality wine formerly expected to be exported to China will be sold into other markets at lower prices. The volume of wine exports is also expected to fall slightly as it is unlikely that all the wine previously expected to be exported to China will be redirected to other markets in the short term. Faced with lower export prices, wineries will likely redirect red wine grapes in the forthcoming vintage into lower-value products and pay lower prices for red wine grapes.
The Chinese ruling applies to Australian wine shipped to China in containers up to the volume of two litres. It is unclear whether there will be any changes in the composition of wine exports to China through increased exports of bulk wine to be bottled in China.
Opportunities for domestic demand
The further lifting of travel restrictions in Australia heading into the summer holiday season provides a positive opportunity for wine tourism and cellar door sales. These activities were curtailed by COVID-19 restrictions and their revival will provide a welcome financial boost to these businesses.
Wine exports to the United Kingdom and United States to continue doing well
Wine exports to the United Kingdom and United States are expected to remain high for the rest of 2020–21. UK and US demand is strong for lower-value, bulk 'commercial' wines (under $10 per litre). Australian exports to both markets grew in the first 3 quarters of 2020 compared with the same period in 2019. Home consumption of lower-value wine grew when measures to contain the spread of COVID-19 restricted travel and consumer options to dine away from home. For many people, lower-value bulk commercial wines remained affordable when employment and incomes were uncertain. There is also likely to be some diversion of higher value wines from the Chinese to UK and US markets, following the developments in the Chinese market.


Labour available for Australian grape farms
Reduced supply of overseas labour is not expected to cause significant problems in harvesting or processing Australian wine grapes into early 2021. The Riverland, Riverina and Murray Valley regions together produce around 75% of Australian wine grapes. Nearly all grapes in these regions are picked by mechanical harvesters and the wineries employ local labour.
Manual picking of wine grapes by overseas labourers is more prevalent in smaller growing regions that produce premium labels, particularly the Adelaide Hills, Barossa, Coonawarra, Margaret River and Yarra Valley regions. Vineyards in the Hunter, McLaren Vale and Sunraysia also use overseas labour but to a lesser extent.
Most demand for overseas labour for wine grape picking is likely to be met. The number of people holding Working Holiday Maker visas has fallen since March, but as at 25 October 2020, around 60,000 visa holders remained in Australia. It is likely that a higher proportion of these visa holders will seek rural work – including in vineyards – than in previous years. This is because a general increase in unemployment is likely to lead to greater competition in urban areas from local labour. Additionally, Government income support is not available to foreign nationals. For individuals seeking a visa extension there is a requirement to work in regional areas in jobs including grape picking, which is an attractive option because of the proximity of many growing regions to major urban centres.
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