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May 19, 2009

AUSTRALIA'S $5 billion wine industry has to "shrink by 20 per cent" within a year to cope with an oversupply of grapes and sharply reduced market share and profitability at home and overseas.

Constellation Wines Australia plans to pull 180 ha of its SA-owned, managed or leased vineyards in the Clare, Coonawarra, Padthaway and Fleurieu regions to remain competitive.

The months leading up to the next vintage in early 2010 are shaping up as the worst the wine business has faced for 20 years, Winemakers Federation chief executive Stephen Strachan says.

After surviving the threat of increased wine taxes in last week's Federal Budget, wine producers have to concentrate on bringing their industry back to a sustainable footing.

"We need to see the industry shrink by 20 per cent," Mr Strachan said. "And we are going to see some fairly significant adjustments between now and the next vintage."

Oversupply of wine grapes is the key issue and to control that there needs to be far less fruit being turned into wine.

Mr Strachan said early industry estimates show 20 per cent of the nation's vineyards need to be "decommissioned, ranging from mothballing to the removal of vines.

Constellation also is restructuring its marketing processes and product range to deliver greater profitability. A company spokeswoman said its own planning figures matched the industry's view of a projected 20 per cent drop in fruit volume required next vintage.

Fosters also has put more than 30 vineyards on the market in areas where it has doubled up and sometimes trebled up on fruit resources formerly designated for separate brands such as Wolf Blass and Penfolds.

Fosters' vineyard sales also are part of a wide-ranging corporate review of its wine business and amount to about 40 per cent of its own holdings across Australia.

The wine giant also plans a small drop in production to meet market demands, according to director of Australian and NZ wine production, Stuart McNab.

Don Oliver from Oliver's Taranga Vineyards, McLaren Vale, said he had pulled out four hectares of merlot and chardonnay vines.

"Wineries don't want merlot because consumers aren't drinking it," he said.

"We will leave it fallow for a year and then plant bush vine grenache.

"Chardonnay has also hit the wall badly and so it is almost uneconomical to grow."