Winemakers Is Threaten by the Oversupply Issue

Name:   Thi Hong Tram Nguyen (Lucy)

Student ID: 376711226

Subject Code: AFFIN102A

Subject Name: Principles of Economics and Economic Theory in Practice        

Assessment: Personal Learning Journal 2

Winemakers is threaten by the oversupply issue

The wine’s industry is getting more anxious about the grape glut, and wine owners are calling for a solution from Australian government. A suggestion was shown that to promote the wine market, it has to be sell wine products from domestic to overseas through the new statutory authority (England, 2014). If the issue could not be solved, a vine pull scheme might happen. The vine pull scheme is a program whereby grape growers receive a financial incentive to pull up their grape vines. In particular, the growers were paid to destroy more than hundred thousand hectares of vineyards, yet it will reduce the grape glut from over-production and declining demand (Wikipedia, 2014). In Australia, the vine pull scheme was legislated by South Australian Government in 1987, growers such as Barossa, Clare and Angle removed hundred hectares of Australia’s oldest vines which produced the highest quality grapes and left their land unplanted. As a result, the price of wines rose in 1989 and absorbed the profitability for wine producers (Haxton, 2006). Suppose now that the vine pull scheme will be applied, it will impact the vines’ supply. In particular, the grape suppliers will decrease and then the price of grape wines might increase, with the condition being stable demand.

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The Australia wine market illustrates an oversupply before the vine pull is proposed. It is clear that the oversupply market (or surplus) appears at any price where the quantity supplied is greater than quantity demanded (Allan Layton, 2012, p. 72). The winemakers would like to sell more wines but cannot. According to a report, the number of wine producers has grown dramatically - from 617 producers in 1991, to nearly 1,800 in 2004, and over 2,400 in 2012 (Winemakers' Federation of Australia, 2013). However, the vast majority of producers is very small operators. Moreover, the WET rebate policy was encouraging a proliferation of tiny wineries which did not assist wines’ sales to overseas market (The Advertiser, 2014). Therefore, if the government could not find any solution for tackle the oversupply issue, a vine pull scheme should be the only option to ensure the industry’s future (Haxton, 2006).

If the vine pull scheme was applied, it could have brought the production and sales back to the equilibrium. A vine pull scam will cost the government a lot of budgets, and it will force the tiny wineries get out of the industry. Therefore, this factor change makes the supply curve will shift to the left. It will indicate the decrease of quantity of supplied, and then the wine price will rise. Thus, the producers could have more profit and save the industry.

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References

Allan Layton, T. R. I. B. T., 2012. Economics for today. 4th ed. Melbourne: Cengage Learning.