THE Australian wine industry must shed half its producers and brands to avoid ruin.

That's the message from former Winemakers' Federation of Australia president Alister Purbrick, who said the industry's oversupply was so severe it had become "totally unsustainable".

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Mr Purbrick, the managing director of Tahbilk in central Victoria, said it "beggars belief" that the number of Australian wine producers had increased last year.

Mr Purbrick was referring to the latest Australian and New Zealand Wine Industry Directory, which found the number of producers had risen by 100 to 2420.

"That is an absolutely staggering increase when there is so much bad news in the industry," Mr Purbrick said.

"To think some people have their heads so firmly stuck in the sand that they are still opening wineries just beggars belief."

Mr Purbrick said the number of wine producers had to be halved for the industry to become sustainable.

The number of brands had to be cut by a similar amount and most vineyards had to be at least 80ha.

Otherwise, small producers had to pool their resources and use contract winemaking and bottling facilities, he said.

Mr Purbrick also warned that too much of the current large-scale removal of vineyards was happening in warm climate areas.

"We seem to be removing vineyards in a way where we get the tonnages right but the wrong vineyard mix," he said.

"The attrition seems to be happening mostly in the warmer climate regions and not enough in the moderate climate areas."

Industry figures show the oversupply has pushed desperate growers to abandon or rip out close to 8000ha of vineyards in the Murray Valley and Riverland in the past two years.

Murray Valley Winegrowers chief executive Mike Stone said Mr Purbrick was "dead right".

"Much of the vineyard removal is occurring where the industry, if it is really honest, doesn't want it to occur," Mr Stone said.

He said not enough vineyards were being removed in cool climate regions, which contributed relatively little to Australia's wine exports.

"There is too much C and D-grade fruit being sold in A and B areas," he said.

Brown Brothers chief executive Ross Brown agreed the industry had to "rationalise significantly".

But Mr Brown also warned radical downsizing could impair its capacity to meet future demand.

"We were pulling out shiraz in the 1970s and three years later we started planting it again," he said.