Rising costs challenge Australia’s wine industry
Like all of us at the moment, one of the challenges that wine producers are facing are rising costs. From smaller boutique wineries to high-end producers, escalating production costs, along with a substantial wine surplus, are two major pressures currently impacting the Australian wine industry.
The cost to produce premium quality wines continues to increase in the current landscape due to a range of contributing factors. Rising costs in the vineyard, in the form of escalating expenses for diesel, water, and labour, plus increased efforts in sustainability and organic and biodynamic conversion, is one facet. In the winery, the cost for imported oak barrels, along with increasing costs for electricity, wine storage, glass and labels, is another pressure producers face, along with increasing costs for the transport of their wine when it is ready for the consumer market.
Esculating costs of diesel, water and labour.
Producers are also coming off some challenging years, with crops and whole harvests being impacted by environmental and weather-related factors like hail, flooding and bushfires, ultimately resulting in lower yields in some regions. This has led to a big demand for good quality grapes.
“Provenance is becoming more and more important in Australian wine, and that costs more to produce. We’re talking smaller regions with smaller yields, but big demand. Costs for Yarra Valley Pinot Noir and cold climate Chardonnay grapes are at record prices right now.”
Quality is, understandably, a much-desired trait in the wine world. Some Australian winemakers are decreasing harvest sizes to focus on growing fruit of a higher quality to suit the premium wine market, while many are branching out into growing different grape varieties that are increasingly popular with consumers. Such transitions also incur costs.
These additional factors, along with price increases impacting every part of the growing and winemaking process, have resulted in winemakers having to hold firm or increase their prices to help cope with this pressure and ensure long term sustainability.
A significant over supply of over 2 billion litres of wine.
But what about the wine glut? Recent findings from Rabobank revealed a significant oversupply of over two billion litres of wine, stored in excess in some Australian regions. This glut is primarily limited to Shiraz and Cabernet Sauvignon, particularly at the bulk or cheaper end of the market where these wines that retail for less than $12 a bottle. This surplus has a few factors that have created it including trade tariffs, export markets and consumer preferences. And while the current glut does present a substantial challenge to Aussie producers and might put downward pressure on consumer prices in some areas, the increased costs for production expenses like storage, glass and freight, cancel out reductions in the price of grapes in many instances.
In short, it’s a challenging time for the industry and many winemakers are facing pressures which impact the cost of their wines. There has always been, and will continue to be, great value in the mid to premium end of our market, and this is not the last glut that Australian Wine producers will face. But it does reinforce to us as supporters of the industry that buying Australian, and supporting producers of premium, high quality wine is a noble thing to do.