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In November 2020, the Australian wine industry was jolted by the decision of the Chinese government to impose punitive tariffs on the importation of Australian wine. At the time, 37% of the annual value of Australian wine exports were to China at a value of $1 billion.

Exports to China and in aggregate fell sharply, driven by the Chinese tariff decision but compounded by trade, travel and social dislocations with the COVID pandemic.

Wine producers responded to this hit to their businesses by redirecting exports to other countries and reducing their wine inventory and production discounting wine in the local market.

The ability to find alternative export markets to China was, according to Wine Australia, reasonably successful. In 2023 there was solid growth in sales, in value terms to Hong Kong, Taiwan and Thailand with the level of exports remaining strong to the UK, Singapore, Japan, the United State and Canada.

The steady to lower level of the Australian dollar, which eased from a broad range of US$0.7000 to US$0.7500 in 2021 and 2022 to around US$0.6300 to US$0.68 in 2023 and in the early part of 2024. Against the Euro, the Australian dollar was marginally lower, which aided the export diversification.

The extent of price pressure on wine producers is confirmed in the ABS inflation data.

At the time where the surge in inflation to a three-decade high which forced many firms to pass on their higher input costs, wine producers largely absorbed these extreme cost pressures.

In the period from the March quarter 2021 to the December quarter 2023, a time when the overall inflation rate was 15.4 per cent, wine prices rose by just 1.9 per cent, with tax increases accounting for much of this rise.

Despite these positive price pressures for consumers, per capita wine consumption has fallen by more than 10 per cent over the past three years to an average of just over litres per person per annum.

The outlook for the wine industry is positive, both in the domestic market but for exporters as well.

The recent decision of China to rescind its tariffs on Australian wine will reopen a lucrative export market. Some exporters are approaching the re-entry to the Chinese market with caution, noting that a reversal of the decision could occur at any time given a range of geopolitical concerns including the position of Taiwan.

It is also the case that the forced redirection of exports after the Chinese Tariff decision has forced a diversity in customers then many producers are keen to maintain and build upon.

While per capita wine consumption is trending lower in Australia, strong population growth and the early stages of an easing in cost of living pressures, including sizable income tax cuts from 1 July 2024, will help support the sector.

The fall in global inflation pressures and easing in the labour skills shortage will help wine producer’s cost base.