Wine Industry Grappling With Oversupply Pressures And Export Demand Weakness

The strengthening of the Australian dollar over the earlier months of 2011 has continued to place a drag on the Australian wine industry, with margins of domestic wine producers coming under a greater squeeze. Domestic wine producer Australian Vintage CEO Neil McGuigan commented that unfavourable exchange rates have dampened the company's margins, although he did not provide further details on the company's financial performance. We believe, however, that there is depreciatory room for the Australian dollar from current levels, and the currency is likely to become less of a threat to domestic wine producers. Of greater concern, on the other hand, are the persistent oversupply pressures in Australian wine, forecast demand weakness in the US and Europe and increasing bulk wine exports.

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