There are two main operating models present in the Australian wine industry. Many producers are vertically integrated and grow the grapes they use for wine production. Other producers purchase grapes under contract from individual growers. This structure has contributed to the chronic oversupply of wine in the market, as producers have continued converting all grape supplies into wine. Producers have belatedly addressed the problem over the past five years, by writing down assets, closing down wineries and destroying vines.
The industry is over supplied and will face challenging times before the market returns to balance. However, conditions are expected to be less challenging in 2014-15. The anticipated fall in the Australian dollar will improve the competitiveness of exports and better position them in overseas markets. Consequently, industry revenue is expected to rebound slightly in 2014-15, posting marginal growth of 0.2%.
The industry is expected to rebound over the next five years. Industry operators are anticipated to shift production towards premium wines, while Asian export markets will play an increasingly important role in the industry's future. Vertically integrated winemakers are likely to work on producing single vineyard wines and focus more on cellar-door and online sales. Over the five years through 2019-20, industry revenue is forecast to grow at an annualised 2.1%, to $6.4 billion.
Revenue has been growing over the past five years to reach $7.8billion for 2014-15. This expected to continue for the foreseeable future to grow to $6.4billion in 2019-20.
Export sales suffered a dramatic decline to bottom out at 33.57% of total revenue. This will steadily grow as Asian markets are opened up to 36% in 2019/20.
Source: Ibis Worldwide Report,Wine Production in Australia August 2014