Australian wine industry challenged as trade wars and coronavirus erode consumption


The value of Australia's wine industry is rising each year, but producers will need to embrace new marketing and sales strategies to overcome slowdown in consumption in key markets, particularly the US and China, according to Rabobank's latest global Wine Quarterly report.

While a recent boom in wine values to China has helped stabilise the impact of falling US consumption for Australian wine producers, the latest Q1 report reveals issues with declining consumption will be exacerbated by ongoing trade disruptions stemming from the COVID-19 coronavirus which is wreaking havoc in Australia's largest wine market – China.

Rabobank senior wine industry analyst Hayden Higgins expects the global wine industry will continue to face significant uncertainty regarding international wine trade throughout 2020.

He said the first half of this year would be especially challenging for Australian wine exporters, reflecting the impact of the coronavirus in Australia's largest market.

The Q1 report notes that while Australian bulk wine exports declined by 12 per cent last year in volume, they rose three per cent in value, and bottled wine exports declined five per cent in volume but increased seven per cent in value. Wine priced above AUD 20 per litre increased in value by close to 30 per cent (year-on-year).

And despite a 17 per cent decline in volume to China, sales increased in value by 12 per cent, with Australia now the largest wine exporter to China by value, and, in turn, China is the largest market for Australian wine by value.

The report found trade tensions between the US and China, Brexit negotiations and trade agreement negotiations all had an impact on wine sales and export volumes during 2019, which will continue in 2020, it said.

"A major element affecting the global wine industry in recent months has been stagnant domestic demand in the United States, but now we are also seeing a shut-down in China due to the COVID-19 outbreak which is adding to the slowdown in Chinese wine imports experienced in 2019," Mr Higgins said.

"The coronavirus outbreak is not only affecting actual consumption and trade flows of all goods, including wine, at the moment, but its economic consequences may undermine demand for wine even after the disease subsides."

The Q1 report found US tariffs on selected EU wines were only in effect for the final two months of 2019, yet may affect the entire year in 2020.

"All these factors may destabilise a market that is already reflecting the impact of ample inventories and slow trade," Mr Higgins said.

He said while there were concerns about the impact that persisting drought may have in the forthcoming southern hemisphere harvests, the abundance of global stock (in particular of red wines) and uncertainties about demand were keeping prices "in check".

The report found it was now imperative the industry quickly finds a way to boost consumption in other key markets and broaden its appeal to attract new consumers.

It said the traditional focal point of most wine marketing – wine scores, tasting rooms, vineyard soil quality, etc. – seem to be less relevant for the younger generation and it was becoming clear that wineries need to re- think marketing strategies to reach the emerging consumer.

"With sales growth slowing, the industry will need to take bold action to find new ways to engage the market and connect with an evolving consumer," the report said.

"This will require investments to build out e-commerce capabilities and improve brand-building skills to help reach a consumer that engages brands differently."

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