Australia’s wine sector is projected to shrink again in 2026-27.

Australia’s wine grape and wine trade sector is expected to shrink again in the 2026-27 financial year, with lower production, fewer grapes sent to wineries and weaker export earnings, according to a quarterly report released Sept. 1 by the Australian Bureau of Agricultural and Resource Economics and Sciences, or ABARES.

The government agency said the gross value of wine grape production is forecast to fall 4% to A$700 million. The volume of grapes processed for wine is expected to decline 5% to 1.2 million metric tons, while the value of wine exports is projected to drop 12% to A$2.1 billion. The estimates are based on Australia’s financial year, which runs from July through June, and ABARES noted that 2025-26 figures may still be revised by the Australian Bureau of Statistics.

Even with the updated forecast for grape production value, the industry remains well below recent norms. In inflation-adjusted terms, the value of wine grape production in 2026-27 would be 41% below the average of the 10 years ending in 2025-26. The amount of grapes processed would be 21% below that average, and the value of wine exports would be 18% lower. ABARES said the downturn reflects more than a single weak season. It pointed to soft demand, still-high inventories, reduced grape intake at wineries and continued pressure on grower margins.

The September update marks a clear shift from the agency’s March outlook. In March, ABARES estimated that in 2026-27 wine grape production would be worth A$644 million, with a national average grape price of A$515 per ton, wine exports of A$2.3 billion, export sales of 628 million liters and 1.25 million tons of grapes processed for winemaking. Six months later, the forecast value of grape production has been raised to A$700 million and the national average price to A$584 per ton, but the export forecast has been cut by A$200 million and 43 million liters, while the estimate for grapes processed has been lowered by 50,000 tons. ABARES also said its September estimate for grape production value is A$79 million higher than the figure published in June because consultations with the industry led to an upward revision in expected prices.

That higher value forecast does not signal a recovery in volume. ABARES said the expected fall in physical production will outweigh a 1% rise in the average grape price. Water, fuel and fertilizer costs remain high, and the El Niño event in place during 2026 could bring drier and hotter conditions across several wine regions. Domestic demand is steady but not growing, and international consumption remains weak. Together, those factors are reducing winery purchases of grapes and limiting the incentive to keep vineyards at full production. The report also cited evidence of vineyard removals among small and medium-sized growers in Riverina and Riverland.

The pressure is most visible in Australia’s warm inland regions, including Riverland, Riverina and Murray-Darling Swan Hill. For 2026-27, ABARES expects prices for major red varieties in those areas to range from A$240 to A$260 per ton. For white varieties, it sees prices between A$325 and A$410 per ton. Both ranges would remain below the 10-year average in real terms despite the slight upward revision in the new forecast.

Red grapes remain under especially heavy strain. ABARES said China’s return as a market in 2024 produced a temporary lift in prices, but it did not change the broader market balance. Shiraz, Cabernet Sauvignon and Merlot continue to face weak pricing because sales remain soft and productive capacity has adjusted only slowly. The agency said there is some room for improvement in certain red varieties if wineries move closer to inventory balance after a smaller intake of red grapes in 2025-26. In white varieties, weak domestic demand is coinciding with a large Pinot Grigio and Sauvignon Blanc harvest in New Zealand, adding pressure to Australian prices.

ABARES’ regional data for 2025-26 showed how sharply grape intake fell in the three major inland growing zones. The amount of grapes processed declined in every main variety except Chardonnay, which rose 2%. Shiraz and Cabernet Sauvignon each fell 42%, Merlot dropped 33%, Pinot Gris or Pinot Grigio declined 18% and Sauvignon Blanc fell 11%. Lower intake will reduce future wine availability and could help ease inventories, but the agency said domestic and international demand are also expected to remain weak.

Weather and water supply are adding more uncertainty. ABARES said that if forecasts for below-average rainfall along Australia’s east coast from August through October are realized, grape yields and total output could fall in both irrigated inland areas and cooler climate regions. Winter rains have temporarily lowered irrigation needs, but low storage levels in the main southern basins and high water prices continue to shape growers’ decisions.

Trade conditions look even weaker than production conditions. Australia’s wine export value already fell 9% in 2025-26 to A$2.4 billion. ABARES said the main reason was slower shipments to mainland China after the first phase of restocking ended following the removal of tariffs. Sales also declined in the United States, the United Kingdom and Hong Kong, and a modest gain in Canada did not offset those losses. For 2026-27, the agency expects another 12% drop, taking export value down to A$2.1 billion.

The decline is expected to affect both volume and price. Export volume is forecast to fall 4% to 585 million liters, while the average export price is projected to drop 8% to A$3.55 per liter. In real terms, that price would be 18% below the 10-year average. ABARES said the deterioration reflects cost-of-living pressure on households, changes in consumer habits, tariffs and disruptions in transport and energy markets that are weighing on confidence and wine spending in major destination markets.

Canada was a partial exception in 2025-26. ABARES said a tariff dispute between the United States and Canada reduced the presence of U.S. wines on Canadian shelves and created more room for Australian suppliers. Australian export volumes to Canada rose to 6% above the 10-year average. But shipments to the United Kingdom, the United States and China remained below their usual levels, and Australia’s monthly wine exports fell to decade lows in August and January during the 2025-26 year.

The Australian downturn is unfolding against a global market that is also contracting in both vineyard area and consumption. Citing data from the International Organisation of Vine and Wine, ABARES said global vineyard area fell in 2025 for the sixth straight year, to around 7 million hectares, with vineyard removals reported from southwestern France to California. Even with less vineyard area, world wine production rose slightly in 2025 to 226.7 million hectoliters. Consumption, however, fell to 208 million hectoliters, the lowest level since 1961.

ABARES said lower international supply has not yet been enough to restore balance to the sector. Falling consumption in mature markets, along with social and demographic changes and weaker consumer preference for wine among some groups, continues to weigh on prices and inventories. In Australia, those trends are moving through the whole supply chain. Wineries are buying fewer grapes, prices remain low and the economic viability of part of the vineyard base is deteriorating.

The Australian government expects a mandatory Code of Conduct for the purchase of wine grapes to take effect on Jan. 1, 2027. The rules are intended to set minimum standards for contracts, pricing, good-faith negotiations and dispute resolution, with the goal of improving transparency and giving growers more stability in their dealings with large wineries. ABARES said the code may improve commercial relationships, but it will not by itself solve oversupply, weak export demand or the broader decline in wine consumption.