Hard Times for Australia's Once Dominant Wine Industry

Last year, Australian wine exports fell by almost 10 percent, the first decrease in a decade. It was a sign that after a long boom, the country's vineyards are struggling under the weight of increased competition from lower-cost rivals in Chile, Argentina and South Africa and the changing tastes of international consumers. A long drought also has brought higher irrigation costs, especially in the parched wine belt in southeast Australia. Relatively high wages also undermine Australia's international competitiveness at a time when prices for exported wine have fallen. The average price per liter of Australian wine sold overseas is about 25 percent lower than it was a decade ago.

Sluggish demand in Great Britain, a key overseas market, is likely to force a fundamental restructuring of Australia's wine trade, although exports to the United States remain positive. Wine trade experts think that sales to Asia could help Australian vineyards recover from the downturn.

Kym Anderson, an economist at the University of Adelaide, says that there are opportunities in both China and Japan.

"They certainly are growing markets but from a very low base, and Japan has been a steady growing but, of course, there is a recession going on there at the moment. But tastes are changing there and in China, too, the middle class is looking in particular for red wine, which Australia is good at producing," said Anderson. In recent years, Australia's ability to sell vast amounts of relatively inexpensive wine to the U.S. and Britain made it the fourth-largest global exporter.

Australia's success in producing and marketing low-cost varieties has been keenly watched and emulated by its rivals, especially in South America. Now, some wine experts say Australia needs to promote its higher-end wines, and not rely on exporting its mass-market varieties, such as shiraz, which is losing favor in many markets.

Wine experts warn that Australia's wine industry may have to cut production by up to a fifth to stay afloat in an increasingly competitive international market. By Phil Mercer Sydney