Blair Speedy | August 08, 2007

INCREASING export sales and a smaller 2007 vintage in Italy and France are expected to speed the recovery of the Australian wine-making sector, as the drought helps soak up a surplus of 1 billion litres.

The domestic surplus, created by a rash of vine-planting in the late 1990s, was enough to pour a glass for every man, woman and child on earth.

But this wine lake is now forecast to be completely sold off by 2008-09 as increasing demand catches up with supply, which has been temporarily reduced.

Australia 's annual wine exports topped $3 billion in value for the first time over the 12 months to the end of July, up 8 per cent over the same period a year earlier.

Volumes grew 10 per cent to a record 805 million litres, according to the federal Government's Australian Wine & Brandy Corporation (AWBC).

Industry leaders said they were encouraged by growth in sales of bottled wine, which commands higher prices and is therefore more lucrative for producers.

While the average price of wine sold for export was down 2 per cent over the period to $3.73 per litre, the average price of bottled wine was up 6c per litre to $4.86.

A hot summer in Italy and Spain coupled with wet conditions in France are expected to reduce European wine production this year, potentially boosting demand for Australian output and reducing downward pressure on sale prices.

The Australian Bureau of Agricultural & Resource Economics is forecasting domestic winegrape production of 1.5 million tonnes for the 2008 vintage, assuming average rainfall, down from the record 2005 harvest of 2 billion tonnes.

"The surplus is certainly going to be brought down by the smaller vintages this year and next year, and the increase in export sales are a very positive sign for us," said AWBC chief executive Sam Tolley.

Southern Cross Equities' Alexandra McPhee said another Australian vintage like the drought-affected output this year would bring supply in line with demand -- two years earlier than had been forecast by AWBC last year.

AWBC analyst Lawrie Stanford said foreign drinkers of Aussie plonk appeared to have "traded up", and growth in sales of wine costing more than $5 per litre was rising 25 per cent over the 12-month period, compared with growth of just 5 per cent in the sub-$5 category.

Bottled wine sales were up 6 per cent over the 12-month period, driven by a 30 million litre increase in sales of bottled red wine.

Shipments of bulk wine, which is typically exported in plastic-lined shipping containers holding thousands of litres, grew by 20 per cent to 228 million litres. However, the rate of increase was less than half the 50 per cent growth seen in the previous 12-month period.

"To achieve strong overall growth without relying so heavily on bulk sales is an important trend," said Mr Tolley.

"It shows that consumers are appreciating the diversity of the Australian wine offering and that our marketing messages are getting through."

The Winemakers Federation of Australia (WFA) and AWBC in May released a strategy to boost exports through marketing strategies aimed at encouraging drinkers to move up to higher-quality wines.

WFA chief executive Stephen Strachan said the impact of the drought on the 2007 vintage, which at 1.4 million tonnes was down 25 per cent from the previous year, had led producers to cease flogging their wine at the fire-sale prices seen during the height of the glut.

"The market has recalibrated expectations of Australian wine because they recognise that those very cheap sales of distressed stock are no longer available," he said.

"That builds a bit of stability back into the marketplace."

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