The report, Australian wine industry: challenges for the future, was released today by Ms Karen Schneider, acting Executive Director of ABARE.

"Australian stocks are higher than the industry prefers, but reducing Australia's stocks will not lift prices to domestic producers unless global supply is also better matched to global demand. With only 5 per cent of global wine production, Australia does not have a major influence on the world market," explained Ms Schneider.

"Global producer and consumer responses to current low prices will be the most effective way for the world supply–demand balance, and hence Australian prices, to improve. This will happen as low prices encourage producers to reduce output and consumers potentially to drink more wine," said Ms Schneider.

"In the longer term, productivity improvements for both grape growers and wine makers will be crucial to Australia's international competitiveness and the future viability of the industry."

ABARE's survey of wine grape growers in McLaren Vale and the Riverina for 2004-05 reveals that, on average, growers achieved rates of return of 3.4 and 2.4 per cent respectively. The survey data reveal that larger operations performed considerably better than average in each region.

Initial indications are that, with lower wine grape prices in 2005-06, farm incomes will be lower than in 2004-05. It is estimated that this will result in a significant increase in the proportion of growers recording negative farm cash income.