Australia is no longer suffering from a demand shock. It is operating under a permanently smaller demand ceiling.
Five years after the China Mainland tariff shock first struck in 2021, the latest MAT December 2025 export numbers confirm this is not a temporary crisis – it is a new operating system for Australian wine.
In the 12 months to December 2025, exports declined 8% in value to A3.81. China Mainland drove much of the value drop, falling 17% to A287 million and the United Kingdom 9% in volume to 194 million litres. Yet within the same dataset, Canada, Southeast Asia and higher-priced UK segments continued to expand – early signs not of recovery, but of divergence.
The contraction is structural and uneven. The heaviest pressure falls on low-end reds: below A899 million, while red wine share slipped from 58% to 55% (value -10%, volume -9%). White wine gained share to 42%, volume up 1% to 258 million litres, with Pinot Gris/Grigio up 28% in value. Pockets persist – the A7.50/L increased 15% across key varieties.
Consumers are buying less frequently, favouring smaller formats, lower-alcohol options, and cross-category substitutions (NoLo, RTDs, craft beer). This frequency collapse translates operationally in Australia into curtailed vintage intakes, mounting inventory pressure, and upstream risk migration – effects felt earliest in the most export-reliant system. Global trends reinforce this: France’s exports fell 3% in volume, and the US market dipped below 3 billion cases for the first time in two decades. With more than 70% of production exported, Australia does not just participate in the global frequency collapse – it becomes the system’s earliest stress point.
For two decades, export volume absorbed Australia’s built-in structural surplus. Today, that surplus is being forced back upstream – into the vineyard, the winery, and the balance sheet.
Unpackaged (bulk) exports declined 3% in volume to 416 million litres but rose 2% in average value to A$1.15/L FOB, as low-end pressure lingers. Upstream, the response is widespread: vineyard leases are exiting, 2026 vintage intakes are being curtailed, low-margin grower contracts are not renewed, and capacity is under optimisation review. Inventory risk has migrated upstream: what was once a distribution buffer is now a production liability. This upstream migration is not isolated distress; it is the structural transmission of a permanently constrained demand ceiling.
Once the ceiling falls and inventory flows upstream, the industry is no longer unified. It starts to split into incompatible economic logics – one defending scarcity and pricing power at all costs, the other redesigning acceptability to manufacture frequency in a lower-volume world.
The integrated model that allowed Australia to clear surplus through global scale while trading up through premiumisation has reached its structural limit. These two paths are not complementary – they are mutually exclusive. No organisation can simultaneously starve supply for luxury pricing and flood formats for frequency.
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The luxury narrow path defends scarcity and pricing power.
Treasury Wine Estates illustrates this path. Penfolds is no longer a volume business inside a wine company. It is a luxury house attached to an agricultural system – one where vintage cycles and agricultural cost bases continue to dictate capital and operational reality.
In 1H FY26, Penfolds depletions in China Mainland rose 17.2% (with Bin 389 and 407 up 11.3%), and in Australia 3.5%, yet shipments were deliberately restricted to curb parallel imports and protect pricing. This preserved EBITS margin at 40.1% for Penfolds (well above group 18.2%), but the strategy carried costs: group revenue fell 16%, Americas EBITS dropped 63.6%, interim dividend was suspended, and US assets faced major impairment. The path relies on brand equity and supply discipline to defend premium positioning in a shrinking China Mainland high-price segment – where overall market value still fell 17% – but it is high-cost and narrow-tolerance.
The frequency-manufacturing path redesigns occasions to capture lower-volume relevance.
Australian Vintage demonstrates this path. AVG is not premiumising. It is redesigning occasions to manufacture frequency.
In 1H FY26, revenue held flat despite group pressures, with innovations delivering real traction: Poco Vino achieved daily run rates of around 12,000 bottles, Lemsecco tripled sales, and McGuigan Zero grew 20% in the UK. Asia and North America posted 20% and 18% growth respectively, capturing pockets like Thailand (+39% value), Malaysia (+44%), and UK >A$7.50/L NoLo/Spritz demand. The company exited leases, optimised capacity, and shifted away from low-price red reliance. This is not a path to restore scale. It is a path to remain relevant in a lower-frequency world.
The Australian wine industry is shrinking – but it is not merely shrinking. It is separating into business models that can no longer coexist.
Profitability now depends on three imperatives: ruthless supply-chain control, disciplined portfolio pruning, and capital efficiency over volume pursuit. 2026 is not the recovery year. It is the first year the industry is forced to choose what it wants to be.
What is happening in Australia is not unique. It is simply happening earlier and more visibly. As the most export-dependent major origin, Australia serves as the leading indicator for global frequency collapse. The post-growth wine system is no longer a future scenario. In Australia, it is already operational.
