It is estimated that wine producers will have about 190 million litres of excess wine by June, 80 per cent of it red. The result will probably have the effect of lowering prices across the board for red wine priced below $10.
Small and mid-sized wine producers may try to clear excess stocks via specialist retailers of "cleanskin" (unlabelled) wines.
Citigroup analysts attribute the excess to be the result of large 2002 and 2004 vintages and a slowdown in export growth. Statistics released in September showed that exports in 2003 - 2004 only rose by 13 per cent in volume on those in 2002 - 2003. Growth was almost twice as high in the two years previous in which exports grew at 24 per cent each year.
In addition, export growth in 2005 may be limited by the strength of the Australian dollar. The currency has strengthened 6.4 per cent against the US dollar in the past four months as well as 3.3 per cent against the British pound.
"The dollar has been affecting all Australian exports, it certainly had a dampening effect on the Australian wine industry," said Brian McGuigan, CEO of McGuigan Simeon, Australia's third largest wine company.
Australia does continue to be the largest producer of wine outside of Europe. Britain is its main export market. It overtook France as the biggest supplier of wine to Britain in 2003. The British wine market continues to grow, at about 6 percent annually.
November exports to the United States, Australia's second largest export market were down by A$58 million, 26 per cent from a year earlier. It is hoped that growth will begin to regain some of its momentum as US wine companies begin to ease price reductions on their surplus produce.