Sydney, Mar 23, 2007 (ACN Newswire) - For the first time in three years there's a rising sense of optimism about the outlook for the Australian wine industry.

Thanks to the drought, frost, hail, bushfires and grower adjustment to ultra low prices, this year's vintage looks like being the lowest since the Olympic year of 2000.  It's something of a bitter pill to realize that the three greatest threats to rural livelihoods, hail, frost and drought, are going to help the industry out of the slough of despond caused by overproduction here and overseas.

And yet as many in the industry start smiling, there's been a timely reminder from the Federal Government's prestigious commodity forecaster, ABARE (The Australian Bureau of Agricultural and Resource Economics) that the wine industry needs to cut costs further and become more efficient if it's to hold its world market position over the next five years.

Why? Because prices are forecast to fall in real terms over the next five years from already low levels.

A recent edition of The Economist magazine has a small feature on the Chilean and Argentinean wine industries and their differing approaches to the same segments Australia operates in. They are both planning more investment and more production in the price segments Australia is in; the huge UK and US markets.

But there's no disguising the improved outlook for this year. According to the February update from the Australian Wine and Brandy Corporation around half the 2007 vintage has been harvested and "is expected to come in at 1.35 million tons".

According to the Corporation there will be 400 million liters less wine than last year. That could mean the surplus stored around the country could be absorbed in about a year and supply-demand might be back in balance in 2008-09.