- Global wine industry becoming increasingly competitive - Overcapacity in Australia pressuring prices - CBA suggests key for Oz producers will be ability to meet market needs

By Chris Shaw

Over the last 20 years or so wine consumption in Australia has grown strongly, while beer consumption has been relatively flat. As evidence of this, Commonwealth Bank notes wine's share of Australian bar tabs has increased to 37% in 2009/10 from 17% in 1974/75.

In CBA's view, the increase in wine consumption at the expense of beer reflects increasing cultural diversity, a shift in drinking culture, the perceived health benefits of wine and a rise in household incomes.

While wine consumption growth in Australia has been strong, CBA agricultural commodities analyst Luke Mathews points out Australian wine production over the past couple of decades has been exceptional, to the point production has been more than required locally.

Between 1994 and 2004 Australian wine production increased 2.5 times to 1.92 million tonnes, driving export growth of 11% annually over the past decade. Mathews notes exports now account for 63% of total disposals of Australian wine.

Wine grape production in Australia is concentrated in the south-eastern states, with South Australia accounting for nearly half of Australia's total wine area. New South Wales accounts for 27%, followed by Victoria at 17%.

Shiraz is the most commonly produced wine grape in Australia, accounting for about 30% of total wine grape area. Chardonnay is the second most common, followed by Cabernet Sauvignon. Australian total vineyards area in 2009/10 was estimated at 156,632 hectares, of which 97% were fruit bearing. The split is 60% red varieties and 40% whites.

While growth in Australian wine export volumes may be a good thing, the issue according to Mathews is the global wine market is now saturated and export competition has becomes more intense. This, Mathews suggests, is proof not all agricultural commodities are enjoying strong consumption growth, as world wine consumption fell by 1.4% per annum between 1980-2000.