11 January 2010
Australia's Massive 'Wine Lake'
Australia's once mighty wine industry is facing one of the biggest ever surpluses as supply levels soar and sales shrink. The country's wine surplus is estimated at about 100 million cases. That figure is expected to increase by 40 percent over the coming year as a strong Australian dollar continues to erode key markets in the United States and the United Kingdom.
In the past seven years, Australia has planted 75,000 hectares of new grape vines, as much as was sown in the previous quarter century.
Such frantic activity reflected an industry enjoying great success that began in the mid-1990s, when high prices for grapes encouraged massive investment in Australia vineyards. Pension funds joined the rush to invest in grape harvesting as demand for Australian wines spread across the United States and much of Europe.
As prices have fallen, however, the boom has crumbled. Australia now has vast reserves of cheap wine it can not sell. The so-called 'wine lake' is estimated at about 100 million cases and will likely increase by 40 percent this year.
Around the country, growers are abandoning the industry in large numbers.
Graeme McManus has ripped up his fruit trees in the southern state of Victoria after accepting a government grant of about $100,000 to help indebted farmers leave the land.
McManus says he is extremely disappointed to be walking away from a once thriving business.
"It was very heartbreaking, very hard. This time of year it should be green out there now and as you can see it is just dirt and there is a lump of dead vines. We took the money, we got out, paid off our bills, got a job. That is all we can do at this stage, can not do anymore," McManus said.
As prices tumble, those grape producers who decide to stay in business face the prospect of being paid less per ton than it costs them to grow the crop.
A strong Australian dollar has also damaged the lucrative export trade with the United States and Great Britain.
Australia's competitors in New Zealand, California, Argentina and other South American nations are facing similar over-supply problems.
Some industry experts say the solution lies in the wholesale removal of large areas of Australian vines.
While another tough year looms for this troubled industry, Australian consumers are enjoying sharply falling prices, with retailers selling popular brands of chardonnay and cabernet merlot for less than $2 a bottle.