The Western Australia Margaret River region is overcrowded with wine companies, according to the Australian Winemakers Federation. Further investment in the region would create serious oversupply and force lower grape prices, the Federation has warned.

The region is one of many where there were large vineyard plantings in the 1990s, which in hindsight was speculative and unsustainable, the Federation believes.

Chief executive Stephen Strachan said that local industry must concentrate on creating strong export markets going forward.

Plantings in WA's nine wine regions, including Margaret River, have increased 80% in the past six years to more than 12,000 hectares.