Negative sentiment surrounding Australia's US$1.63 billion wine export industry is threatening long-term damage to the sector, according to a report from KPMG Corporate Finance.

The report said current concerns were overblown and could lead to other nations stealing Australia's market share. "Increased wine market volatility since 2000 has brought a measure of paralysis to the Australian industry. This paralysis extends across wineries, financiers and growers,"

Alexandra McPhee, author of the KPMG report, wrote that more grapes needed to be planted or the industry would risk losing to overseas rivals.

"We don't believe there is a medium term structural over-supply." The report added: "The trap of six monthly reporting detracts from the industry's requirement to take a medium to long-term view."