The Wine Glut - Explained!

Written by Ian Robertson on 30th October 2006

I have had a few people ask me about the wine glut – what it really means to the consumer, why is it a problem, and when is it going to end?

So, in a nutshell, I am going to try and explain – Australia’s Wine Glut – the facts in 500 words!

Like any industry, wine works in a supply and demand fashion – the more there is, the lower the price. The less there is, the higher the price.

In the last few years, we have had great vintages in almost every Australian wine region – grapes have not only been fairly good quality (for the most part) but there has also been lots of them.

The fact that almost everywhere has produced bumper crops obviously leads to a lot of product in the market. That reduces the prices that the growers can receive, if they can sell their grapes at all.

Although the Australian wine market is in growth, its growth has certainly not been able to keep up with the oversupply of product. Exports have been ever increasing, especially to the UK, however increased competition from Eastern Europe, Chile, Argentina and South Africa means that Australia is not alone in the ‘cheap but good’ market any more. Add to that the fact that the Old World is learning a few tricks to get into the same market space (France, Italy and Spain are getting it right more often), and Australia’s export growth will slow to a rate that is more realistic than the boom of the 1990’s.

The aforementioned boom in the 1990’s is really at the core of the problems that we are seeing now. When Aussie wine started growing its markets so astronomically fast, it fooled many into thinking that grapes was the place to be. Governments started subsidising vineyards, wild and whacky vineyard based investment schemes flourished, and not so wild and whacky investors planted vineyards as well.

In the end – they planted too many. Australia’s growth has not been able to find enough buyers for all these new grapes.

So, when will it end? What is the answer?

Well, some believe that Mother Nature has a way of evening things out. A few less than stellar vintages, and we will be back to normal. Of course, growers who have been unable to find buyers for a few years who then have a terrible vintage will more than likely go to the wall in such circumstances. Others believe that we will ride out the bad times and find new export markets to increase our consumer pool – Asia is being spied by many as the savour.

Even others are advocating vine pulling to even the balance.

In a time of crisis in any industry, there will be victims – companies will go under, growers will go out of business.

For consumers, wine under $20 is certainly producing some bargains. The cleanskin market has seen a huge increase as producers sell off juice at a lower cost without full brand labelling. (and in some instances to distance themselves from the quality of the product!) However, cleanskins are a real lottery – is the wine a cleanskin for quality reasons or financial reasons?

In the end, to view the glut as an overall industry crisis would be wrong. There are certainly players in the game who are completely unaffected by the current events, most notably higher quality producers who hold onto their customers year in, year out. Those who are affected to a great extent are growers from the “bulk” wine regions – Riverland and Riverina. McGuigan Simeon is an example of a producer who mainly deals in bulk product who has been in the press for reduced financial results.. However, mid level companies are not immune, as evidenced by WA producer Evans & Tate, who are teetering on the edge of financial oblivion.

Is it a good thing for Consumers? Well, an astute buyer can pick up some good wine cheaply that’s for sure, but a healthy industry is needed to avoid cost cutting that may affect quality.

When will it end? Well, I am not smart enough to let you all know for sure, but the unseasonably cold weather at the moment certainly means some will not be having a great vintage in 2007…