The impact of coronavirus on the Chinese economy is adding to the hangover the Australian wine industry is suffering because of a global glut of wine.
Wine supplies in Europe, South America and the US remain high due to a big carry-over of stocks from the 2018 vintage.
The national commodity forecaster, ABARES, says a below average 2019 vintage will moderate price falls in Australia but warns wine consumption is dropping in some major importing countries, notably the United States.
But the good news is in 2019 Australia managed to increase the value of its wine exports to China which cut back its overall imports because of deteriorating economic conditions.
Imports of Australian premium wine priced at $10 per litre and above has driven most of this growth as demand from wealthier Chinese consumers continues to increase.
ABARES says the impact of coronavirus (Covid-19) is expected to reduce China's demand for Australian wine in the first and second quarters of 2020.
ABARES assumes Covid-19 in China will be largely contained by 2020-21 which will restore consumer confidence and lift demand for Australian wine, particularly among well-heeled consumers.
Over the medium term to 2024-25, economic growth in China will be a key driver of Australian wine prices but we will face increased competition from France and Chile, ABARES says.
In 2018-19 the value of Australian wine exports to China exceeded the sum of exports to Australia's three other largest markets - Canada, the United Kingdom and the United States.
High stocks and declining consumption in the US is providing challenging conditions for Australian wine exporters.
However, Australian exports of cheap wines to the US market are expected to benefit from a further depreciation of the Australian dollar in 2020.
In 2019-20 US tariffs on French and Italian wines are expected to increase US demand for Australian premium wine which, unfortunately, will be in short supply because of a below-average 2020 vintage, thanks to drought, heatwaves, hailstorms and bushfires.
Australian wine grape production for the 2020 vintage is estimated by ABARES to be around 1.4 million tonnes, the smallest harvest since 2013-14.
In the UK market, continuing economic uncertainty and high taxes on wine relative to other alcoholic beverages are expected to reduce wine consumption in 2020.
A risk to this forecast is that prices of imported wine in the UK market could rise as a result of Brexit.
Falling grape prices and continued high water costs are likely to lead to below average production in 2021, ABARES says.
Assuming demand for Australian wine from China recovers in 2020-21, the increase in export demand and decrease in wine grape supply are tipped to support higher prices for the 2021 vintage.
The total vineyard area in Australia is expected to remain stable over the medium term.
Vernon Graham
Former editor of The Land, former Fairfax Media Agricultural Editor
Former editor of The Land, former Fairfax Media Agricultural Editor
