Australia’s oversupply of wine has eased to levels not seen since 1995, but the country’s winemaking federation has warned that the industry is still vulnerable to oversupply problems.

The Winemakers’ Federation of Australia (WFA) announced today that the 2012 vintage is expected to be 4 percent larger than last year. The federation’s annual harvest survey estimates the total national crush was 1.66 million tonnes, compared with 1.6m tonnes in 2011. This is close to the latest five-year average of 1.63m tonnes, but well below the peak of 1.93m in 2005.

In terms of quality, the WFA claims that 2012 "will be recognised as a standout vintage.”

The sector’s inventory-to-sales ratio is down to the lowest level since 1995, which means a slight easing of the oversupply, which has caused major problems for Australian producers including an increase in bulk shipments, depressed prices and a fall in profitability industry-wide.

“While overall grape production now appears close to balance with total sales, we are vulnerable to returning to oversupply because our current bearing area [i.e. area currently in production] could produce higher yields in future vintages,” said Paul van der Lee, WFA’s manager of economics and policy.

A significant amount of current production and sales are not viable in the long term, says the WFA, because they provide an insufficient return on capital. Nevertheless the demand for quality wine continues to expand in markets such as the United States, China and other parts of Asia, "providing an avenue for committed brand owners to convert some of the surplus into sustainable sales," it reports.

In other trends, WFA note that production of red and white wines is running just about neck in neck; shiraz has pipped chardonnay as the highest individual variety by volume; and pinot gris/grigio has continued its rapid growth – up by 40 percent on the previous year's figures.

To read the vintage report in full, click here. A summary of accompanying regional reports can be downloaded at www.wfa.org.au/vintage_reports.aspx.