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Student a research
Student’s Name:report
Number: analysing
Jasper
s1087823 Giffordthe operation of the price mechanism
Wine
PROPOSAL
for an Australian
Teacher’s
Class: F Name: industry. Evaluate the market price and provide a
Mr Tonkies
forecast of price trends for the year ahead.

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Contents Page
Table of Content:
1.0 3
Introduction………………………………………………………………………………
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2.0 4-5
Analysis……………………………………………………………………………………
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2.1 Demand
Factors………………………………………………………………………………………
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2.2 Supply
Factors………………………………………………………………………………………
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3.0 6-7
Evaluation…………………………………………………………………………………
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3.1 Price
Forecast……………………………………………………………………………………
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4.0 8
Conclusion…………………………………………………………………………………
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5.0 Reference 9
List…………………………………………………………………………………………
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List of Graphs and Models:

Figure 3

1……………………………………………………………………………………………

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Figure 5

2……………………………………………………………………………………………

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Figure 7

3……………………………………………………………………………………………

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1.0 Introduction
The Australian wine market has seen a handful of significant changes over the past year
which have affected the supply demand and price of said wine. These changes include
but are not limited to; the Australian bushfires which led to the destruction of numerous
vineyards, the COVID-19 pandemic, and the trend of increase of demand within the
Chinese market. According to Wine Australia, 63% of all Australian wine from 1
October 2018 to 30 September was exported to different counties internationally. This
61% of Australian exported wine made up approximately 5% of the worlds wine
produced in 2019. Since August of 2015, China has been steadily importing more wine
from Australia and less from France, and as of August 2019 Australia became China’s
biggest importer of wine (see figure one). Due to this increase in exports to China,
Australian wine exports to china were worth 1.2 billion dollars in 2019. (“Australian
wine exports to China reach new record”, 2019, “Global wine supply moves closer to
demand in 2019,”2019.) In this research essay, I will analyze the changes in demand
and supply factors that have affected wine and evaluate the price forecast.

Figure 1:
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2.0 Analysis

2.1 Demand Factors

Within recent years, the Australian wine market has become somewhat dependent on
China, whether its exporting to china or relying on Chinese tourism. The recent
COVID-19 pandemic has seen a decrease in demand for Australian wine in China. In
the South China Morning post, Su-Lin Tan explains that a possible reason for this
occurrence is the fact that all events that would have used Australian wine would have
been cancelled due to the restrictions and bans put in place. The effects of these
restrictions and bans have been worsened due to the destabilization of the wine market
from the bushfires and drought. (S. Tan, 2020). But within Australia itself, COVID-19
has increased demand for alcohol due to a low consumer sentiment leading to panic
buying. A recent analysis of purchases from CommBank reveals that after COVID-19
restrictions started becoming more serious, the purchasing of alcohol is up 20.4% and
purchasing up alcohol from specifically bottle shops is up 36.8% from the same time
last year. ("An early look at how the Coronavirus is affecting household spending",
2020) Overall, the wine market has experienced factors that increased and decreased the
demand.

2.2 Supply Factors

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Australia’s climate is perfect for agriculture, but is also the perfect mixing pot for
disaster. Since June of 2019, Australia has seen a record bushfire season, which has
greatly affected the supply of wine. According to the ABC, as of the 24 of December,
one third of one of the most prominent wine regions of Australia , the Adelaide hills,
were burnt down (Hough, Herrman & Neindorf, 2019). Also, according to the Wine
Inspector, approximately 1% of Australia’s Vineyard footprint was burnt. The win
inspector also states that up to 4% of this years vintage could be greatly affected by
smoke taint, rendering them useless. Overall, due to the bushfires heavy impact on the
Australian Wine market, we have seen a significant drop in supply (see figure 2)

Figure 2:
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3.0 Evaluation
3.1 Price Forecast

As discussed in 2.1, The Australian wine market has become dependent on exporting to
China. After the COVID-19 restrictions have settled down, assuming the Chinese
imports of Australian wine continue to grow at the same rate, china will be an integral
part in deciding the price of wine. The ABARES predicts that if economic growth in
china in the medium term is constrained and the exchange rate remain unfavorable,
export prices will drop to as low as $2.80/L (see figure 3) The ABARES also predicts
that if conditions are favorable, export prices could rise to as high as $3.90/L (see figure
3) (Xia, 2020).

As discussed in 2.2, Australia has seen a significant drop in supply due to the bushfires.
This significant drop in supply will most likely lead to a steep increase in price in the
2020-2025 vintages. The ABC also thinks this is the case. “The fact that one-third of
[the Adelaide hill] vineyards were wiped out means it will affect the price of wine.”
(Hough, Herrman & Neindorf, 2019). It is only natural for a price increase to occur
because of such a significant decrease in supply.

In economics, elasticity is the measurement of the percentage change of one economic

variable in response to a change in another. Price elasticity of demand (PED) is the
measurement of the percentage change of price in regards to demand. Price elasticity of
supply (PES) is the same, but in stead of demand its in regards to supply. The lower the
PED or PES is, means it is less likely to be affected by changes in supply in demand.
Using data sourced from Wine Australia, a PED of -0.375 and a PES of -0.5 were
calculated. (“Australian wine exports to China reach new record”, 2019, “Global wine
supply moves closer to demand in 2019,”2019.) Since these numbers are below one, it
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would suggest that they are very inelastic, meaning they wont be affected much by the
changes in supply and demand much.

Figure 3:
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4.0 Conclusion

In conclusion, there have been numerous factors to consider when trying to discuss the
price mechanism of wine and determining a price forecast. Australia produces 5% of the
worlds wine and exports 63% of the wine created in Australia. (“Australian wine
exports to China reach new record”, 2019, “Global wine supply moves closer to demand
in 2019,”2019.) Because of covid-19, there was a significant decrease in exports to
china, yet a significant increase in the purchasing of alcohol from establishments within
Australia. The bushfires put a massive dent into the Australian wine supply. The price
of wine in the future will be dependent on how china’s economy does. Wine has a low
PED and PES meaning it’s price within Australia will not be dramatically affected.
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5.0 Reference List

An early look at how the Coronavirus is affecting household spending. (2020). Retrieved
from https://www.commbank.com.au/guidance/business/an-early-look-at-how-the-
coronavirus-is-affecting-household-spen-202003.html
Australian wine exports to China reach new record. (2019). Retrieved from
https://www.wineaustralia.com/news/media-releases/australian-wine-exports-to-china-
reach-new-record
Global wine supply moves closer to demand in 2019. (2019). Retrieved from
https://www.wineaustralia.com/news/market-bulletin/issue-183
Hough, C., Herrman, B., & Neindorf, B. (2019). Adelaide Hills loses a third of the region's
vineyards. Retrieved from https://www.abc.net.au/news/rural/2019-12-24/adelaide-
hills-bushfire-destroys-one-third-of-vineyards/11824064
Tan, S. (2020). China’s appetite for Australian wine cools as virus outbreak saps demand.
Retrieved from https://www.scmp.com/economy/china-
economy/article/3077085/coronavirus-chinas-appetite-australian-wine-cools-outbreak
Xia, C. (2020). Wine and wine grapes: March quarter 2020 - Department of Agriculture.
Retrieved from https://www.agriculture.gov.au/abares/research-topics/agricultural-
outlook/wine