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Jan 27, 2009

For years, Australian wines were the toast of Europe and the US, leading the "New World" challenge to the industry's traditional strongholds in France, Germany and Italy.

Now the bubble has burst, and many wine-makers who joined the industry during the good times are contemplating tearing up their vines. Last year, exports of Australian wine fell by 18 per cent in value, and 11 per cent in volume. In the key markets of Britain and the US, the value of imports fell by 18 and 26 per cent respectively.

Global economic gloom is the killer factor, but the industry – worth A$2.4bn (£1.13bn) a year – was already heading downhill because of a massive wine glut and Australia's prolonged drought. And there is another problem: image. For years, Australian wines have been marketed as an inexpensive, easy-drinking tipple. Yet much of the wine produced here does not fit that description. And some experts believe the industry is 25 per cent too big.

The 2008 export figures, from the Australian Wine and Brandy Corporation, the government marketing agency, are the first setback for the industry in 15 years. In that time, Australian reds and whites comfortably established themselves as reliable, low-risk choices. But in November, exports dropped by 26.3 per cent over a month. Domestic sales fell, with Australian retail chains discounting wine heavily because of the glut. "A lot of growers have said they are just going to let the fruit drop and not even bother to pick it," Winsor Dobbin, wine writer for the Sun-Herald newspaper, reported.

The crisis has hit when, ironically, Australia's vignerons were expecting one of the best harvests for years, thanks to rare good rains and a hot summer. One vineyard, Doonkuna Winery, in a cool-climate wine-growing region north of Canberra, tripled production capacity last year in anticipation of soaring demand from China. Doonkuna's chief wine-maker, Bruce March, said: "We set up to produce all this wine. We spent a lot of money, and then bang, the financial crisis hit us."

China, which is starting to acquire a taste for wine, was a bright spot in last year's export figures. It imported 32 per cent more Australian wine, but from a low base. Mr March said: "Now we're tightening belts and we're into survival mode."

Tim Kirk, who runs the Clonakilla winery, not far from Doonkuna, believes the industry faces a period of reckoning. He said: "We've had massive success with an approach of good wine, good price, cheap and cheerful, sunshine in a bottle. But in some respects that's been the seeds of our undoing. Rather than compete on good wine, great price, we need to focus on regionality, on great wine at maybe a good price. Australia produces world-beating whites and reds, but that is not, generally, how its wines are viewed overseas."

Mr Kirk added: "We have ancient soils, every bit capable of standing shoulder to shoulder with the great wines of Europe. Australia needs to grow up."

Some experts believe that the industry is 25 per cent too big, with newcomers having jumped on the bandwagon in times of plenty. Now too many people are producing too much wine, some of indifferent quality. Mr March said: "I reckon a few growers round here will be pulling out vines by the end of the year."