Almost half of the Australian wineries that participated in a financial survey by Deloitte reported pre-tax losses for 2004 as the firm's new report warns the situation is unsustainable.
Those in the AUS$10m to $20m (€6.26m - €12.52m) revenue range were the worst hit, recording average losses worth 8.7 per cent of sales.
"These wineries compete with larger wineries in most markets but do not have similar scale efficiencies in terms of production costs," said Stephen Harvey, leader of Deloitte's Wine Industry Group.
Businesses with sales between $5m and $10m also recorded average losses of 4.2 per cent of their revenue, prompting Harvey to suggest many wineries may have to merge with others to save costs, or leave the market.
Meanwhile, wineries with revenues greater than $20m and the large listed wine companies recorded average profits worth 10 and 14 per cent of sales respectively. Harvey said these firms benefited from cheaper costs on grapes, wine, overheads per litre and packaging, as well as better distribution networks.
Many larger wineries can negotiate better deals with suppliers and retailers, and listed firms have benefited from cutting jobs and rationalisation.
The situation in Australia bares a striking resemblance to well-documented financial problems of many French wine makers in recent months, presenting a worldwide challenge for smaller vintners if they are to survive.
"Effectively managing all aspects of the business cost-effectively, matching production volumes to demand (not sales budget) and establishing a point of difference for your brands are critical factors for survival," said Harvey.
Problems are especially acute this year because of recent harvest gluts. Australia produced more wine in 2005 than ever before, rising two per cent on the year before, while 'old world' producers France, Italy and Spain all increased their wine stocks.
The Australian government, like its French counterpart and the EU Commission before it, has stepped in to offer wineries a rebate of up to $290,000.
Stephen Strachan, chief executive of the Winemakers' Federation of Australia, said the money should help to ease pressure on smaller businesses, but warned of a tough time ahead.
More than half of wineries in the $10m-$20m revenue category rely on increasingly competitive export markets for a significant proportion of sales.
Australian wine exports were valued at around $2.75bn in 2004 and consumption is at least rising in the country's main export markets, the US and UK.
But, the Australian Wine and Brandy Corporation recently warned of a threat from rising global competition in wine, and last month's VinExpo conference in Bordeaux revealed a definite resurgence in French wine makers' marketing aggression.