Australian wine industry stocks have reached 2 Billion liters, as production outpaces demand.

Worldwide wine production is fairly higher than the actual demand. This is the key reason for low cost problem faced by Australian wine makers & grape growers, as per latest ABARE (Australian Bureau of Agricultural Resource Economics) report. The study also warns about the inability of Australia in influencing the global wine market, as it has just 5% of global wine production.

Stocks in Australia are higher as compared to industry preference, but reducing stocks of the country won't help increase prices for domestic manufacturers unless worldwide supply matches worldwide demand, as per Karen Schneider of ABARE.

Global producer & consumer responses to recent low prices hold the key to achieve balance in supply & demand and to improve prices, she added, as low costs encourage wine makers to decrease output & motivate wine lovers to have more wine.

In longer term, however, improvements in productivity for both wine makers & grape growers will be important for international competitiveness & future growth of Australian wine industry.

With lower prices of wine grape in 2005-06, farm incomes are expected to decline further. This could result in a considerable increase in amount of growers thus further declining farm income.

"Some strong structural alterations are required. An overall reduction of around 10-12 % of wine grapes plantations in Australia is needed to counter glut problems," said an analyst at RNCOS.

As per a recent research, each Aussie consumes around 22 liters of wine each year, reports Sydney Morning Herald. Wine industry is facing crisis because of competition between two key retail chains (Woolworths & Coles Myer), which has resulted in overcrowding of suppliers & the market is already struggling with glut. As the industry depends heavily on exports, only large producers are able to afford marketing costs.

Australia, a successful wine exporter, had exports totaling over 60 % of wine sales in Australia in 2004-05. Australia is the key exporter to UK & US. Volume of wine exports reached 661 million liters in 2004-05 from 57 million liters in 1990-91. Despite the success, wine stocks have reached an estimated value of 2 billion liters.

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