Why you are about to pay more for your wine
THE global wine industry is showing signs of recovery after years of oversupply and subdued prices.
Figures from Wine Australia show supply dropping to about 26 billion litres, from a high of about 29 billion litres in 2013.
Meanwhile, demand is expected to steadily increase.
Wine Australia senior analyst Mark Rowley said there were "more positive than negative" aspects to the global market, but it was too early to say farm gate prices would increase.
Mr Rowley said while all the data for this year's vintage was in, anecdotally it appeared the Australian crop was up 5 per cent, following an average to higher-than-average yield last year.
"There are reports yields are up and prices are up a bit, but are coming off a low base," he said.
"South America's tonnage is up a bit, but in Europe it is too early to tell."
Mr Rowley said the recovery of the British pound would help, as Brexit had "smashed the market".
"Retailers hold such power and they want the wineries to take the hit on the exchange rates, so that has been holding back prices," he said.
"If that continues to normalise then that will be a positive in Europe."
Mr Rowley said in 2013 Spain had a crop that was 40 per cent above average, but the exported value of the wine was the same as previous years.
"They sunk their prices and that sunk the market," Mr Rowley said.
"Prices were subdued for everyone and for people who do not care where their wine is coming from, the prices were down.
"Labels such as Jacob's Creek and Yellowtail are dictated to by the commodity end of the market, but other branded wine felt it too."
However, future signs are more positive as there was "generally broader supply and demand balance".
"That huge crop has diminished over the years," Mr Rowley said.
He said there was growth in the market to China, particularly for red wine.
"Ninety-four per cent of the value of our exports to China is red wine," Mr Rowley said.
Total bulk wine imports to China were about 143 million litres, with Australia accounting for about 25 million litres, he said.
Some of this would be blending into Chinese brands to lift quality.
Mr Rowley said of China's bulk wine imports about 86 per cent was from Chile because Chile had ratified a free-trade agreement with China.