Wine glut: Overproduction tanks Australia's grape crop

Stories about places where alcohol is cheaper than water are fairly common currency; anybody who has traveled to Prague, Amsterdam, or almost anywhere else in Europe can tell stories of drinking mass quantities of beer in the interests of economy. However, when stories recently leaked out that Australian wine has become cheaper than bottled water, the focus wasn't on the incredibly high cost of water, but rather on the incredibly low cost of Aussie wine.

The rough outline of the tale should seem familiar to anyone who has recently been following the auto industry's debacles: amid massive demand, manufacturers jack up production. When demand drops, the market gluts, prices plunge, and companies have to cut back. In the case of car companies, this means a backlog of automobiles sitting on lots. In the case of wine, however, it means that vineyards are slashing prices on wines, selling fields, and even refusing to harvest grapes.

The story really begins a decade ago, when rising sales of Australian wines led vineyards to double the amount of land under cultivation. However, as competitors from other countries entered the marketplace, Australian wines failed to live up to their forecasts. This year, even with drought causing production to drop, the country is producing an estimated 20 percent more wine than is sustainable.

Ironically, Australia's neighbor, New Zealand, is experiencing a different problem, with a very similar result. Even after wine makers heavily pruned to reduce the volume of their harvest, good growing weather resulted in a significant increase in production. Many farmers are hoping that the record harvest will help insulate them from falling prices, but it's clear that they may be fighting a glut of their own very soon.