News Flash: Australian Wine Lake Finally Drying Up

To many American consumers Australia is synonymous with cheap wine. Value brands such as Yellow Tail, et al. have created a perception that the land of Oz is a bottomless well of cheap and fruity quaffs that more than make up for their lack of character and complexity with ridiculously low prices. Much of this perception has been fueled by a surplus of Australian wine that had at one point reached epic proportions. But the lake is drying up.

As recently as January 2006 the surplus wine in Australia was estimated at one billion liters, which created a local crunch on manufacturers, grape growers and distributors as prices sank through the floor. At one point the price for bulk Shiraz had hit a low of $0.30 per liter. "There's going to be a lot of wine dumped or wineries are just going to reduce their intake," Paul Clancy of the Wine Grape Growers of Australia said at the time. But due to climactic factors and the rise of new markets much of the surplus is drying up.

Severe drought, frost and harvest rains cut the 2007 crop by a third, and the conditions have become so bad in some areas that 2008 will be even worse. Particularly hard hit is the Murray Darling area of Southeastern Australia which produces 65% of all Australian wine grapes and is home to the vineyards that produce much of the country's largest brands. According to estimates from the Wine Grape Growers of Australia as much as 10% of the 7500 Australian grape growers could go out of business.

Smaller berry sizes, low bunch weights and yields at their lowest levels in 30 years will mean an overall high level of quality, however, and the outlook remains rosy for the foreseeable future. Emerging markets such as China and India are slurping up bulk wine stockpiles, thus allowing for more of a balance between bulk wine sales and premium wine sales. According to the Australian Wine and Brandy Corporation export sales of Aussie wine had gone up for the last four years while value of those sales had gone down. A correction in this disparity will allow for more sustainable and profitable wine exports in the future.

So what does all this mean for U.S. consumers? Chances are that the value brands will remain firmly entrenched, but the prices on these wines will be higher in the near future. The gap between the value brands and the premium brands will become smaller, thus opening the market for many of the small family-run wineries that for years have garnered critical acclaim both in Australia and the United Kingdom, Australia's largest export market. There will be an increase in both sales and also consumer interest in premium and specialty wineries, thus cementing Australia's place on the world stage as a producer of quality wines and not just value brands.

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