The Australian Wine and Brandy Corporation has forecast lower wine harvest yields next year, but said that current plantings will be adequate to meet projected demand.

The announcement today (28 November) follows an estimate last year that a balance between wine supply and demand may not be achieved until 2009-10, based on yield trends. The AWBC's latest estimate of oversupply - as at June 2006 - is now 460m litres above ideal stock levels.

The AWBC's manager of information and analysis, Lawrie Stanford, said that the impact of frost damage, low rainfall, lower water allocations and reduced fruitfulness from smaller bunch sizes could lead to low yielding in 2007.

"Based on experience over the past 20 years, and the prospect of 2007 being an extreme season, a scenario of a 20% yield reduction is a realistic starting point to assess the impact," he said. "This would provide for a 2007 harvest of about 1.56m tones, compared with a potential 1.94m tones in an average season."

Stanford said it was likely the impact of the recent frost damage in some cooler climate regions would still be felt in 2008, and unlikely that even normal winter rains would sufficiently replenish water reserves to allow a return to full water allocations.

However, he said that current plantings had the capacity to meet projected wine demand over the next five years, despite a likely increase in demand from both the domestic and overseas markets, and noted that the varietal mix may change in response to evolving consumer tastes.

The AWBC forecast that export demand would rise by 33% to 980m litres, and domestic demand by 2% to 504m litres by 2010-11, but that Australia would remain the single biggest market.

Stanford warned that, while the rate of growth was 18% in 2000-01, it would be around 9% in 2006-07, and 5% by 2010-11.

"Apart from seasonal factors, there are a number of reasons for this forecast, including increased competition from other wine producing countries and constrained profitability due to consolidation in the grocery retail sector and continued global oversupply of wine," he said. "It also has to be kept in mind that we are growing from a larger base, so percentage growth is harder to maintain."

The UK is expected to still be the largest buyer of Australian wine in 2010-11, while the US is predicted to be the main driver of new demand, with a growth rate of 7% over the next five years, the AWBC said.