AUSTRALIAN wine producers are finding it hard to swallow the glut of cheap reds and whites, many retailing for as little as $1.99 a bottle, flooding the market.
While consumers soak up bargain basement drops - being sold more cheaply than bottled water and known as ''Two Buck Chuck'' - industry experts are warning that the oversupply is not only crippling grape growers and winemakers, but also damaging the international reputation of Australian wine.
According to a recent report by four major Australian wine industry groups, the nation has a surplus of at least 100 million cases a year, which is expected to double within two years.
Supermarket giants Woolworths and Coles expect wine prices to continue to defy belief for at least the next 12 months, despite the Australian wine industry working to cut its over-supply problem by reducing the amount of fruit to be harvested in the 2010 vintage.
Just two days before Christmas, Constellation Wines terminated all grower contracts in the Murray Valley.
The company wants to drastically reduce its intake of fruit from irrigated inland regions by 70,000 tonnes, but even cutting its growers free won't be enough to reduce the 2010 vintage.
''There is going to be a reduction but not in the order of what the industry needs,'' says Murray Valley Winegrowers chief executive Mike Stone.
About 300,000 tonnes of fruit - equivalent to 112 million cases of wine - needs to vanish from the national harvest if the glut is to be reversed.
But industry leaders say it's just not going to happen. Which means more wines in the $1.99 to $4.99 price range will be hitting the shelves.
The cheap wines are mainly flowing from the inland regions of Riverland, Murray Valley and Riverina, where bulk wine can be bought for as little as 40 cents a litre.
A decision two weeks ago by Australia's biggest wine producer, Foster's, looks set to keep the bad times flowing for growers in the Murray Valley and Riverland.
The beverage giant will halve the price it pays for chardonnay in the coming vintage, dropping the rate to as low as $150 a tonne.
Littore Family Wines, which has vineyards in the Murray Valley and Geelong, is one of Coles' main suppliers of $1.99 and $2.99 bottles of wine.
Coles Liquor general manager Tony Leon says the company bottles wine on demand for the store.
''We buy what we need on a weekly basis so they are always running a production line,'' Mr Leon said.
But he is mindful that such low prices scarcely leave a drop of profit for the producers. ''We don't want the industry to go broke,'' Mr Leon said.
''I say to the guys here we need to help our suppliers because if they go broke, who's going to supply us? We need to buy from them at a price where they stay in business,'' he said.
Littore chief executive Vince Littore does not mince words when discussing his view of making ''el cheapo'' wines. ''We hate it,'' he says.
''Selling at prices that we're not happy with is terrible and we all hate it, but the other thing we also hate is full wine tanks when you have a vintage approaching. Ultimately, we've got no choice.''
Mr Leon said the Australian Wine and Brandy Corporation was seeking a meeting with Coles in the new year to discuss its concerns about the lack of profits and the damage being done to the reputation of local wines in the eyes of foreign connoisseurs.
According to Woolworths, which operates liquor barn chain Dan Murphy's, the sourcing of $1.99 and $2.99 bottled wines is intermittent and depends on the market.
''We offer it when we can get it,'' says Woolworths merchandise and marketing manager, Steve Donohue. ''We are not out there pushing it.''
Because of a similar wine glut across the Tasman, New Zealand sauvignon blanc was selling in Australia this year for as little as $4.08 a bottle - and that was with the lure of a slab of Corona thrown in with every dozen sold.
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