(BA) - WINE Victoria believes the free trade agreement with Japan can help to ease the oversupply issue restricting the state's wine industry.

The agreement, announced last week, included removing the 15 per cent import tariff on bottled, sparkling and bulk wine exported to Japan.

Wine Victoria chair Damien Sheehan said 70 per cent of Victorian wine companies received less than 40 per cent of their total wine sales from exports in 2012/13.

"This issue is a worrying trend, as the wine industry is in a state of oversupply and the retailing market is restricting domestic market growth," he said.

"This situation is leading to major profitability issues for the industry.

"Building new markets for Victorian wine is imperative for the future of our industry."

Wine Victoria also predicted up to 90 per cent of Victorian wine producers did not make a profit in the 2011/12 financial year.

Mr Sheehan said the agreement could position Victoria "as a supplier of premium products for export in key markets like Japan".

"We believe that this will provide an excellent opportunity for the wine industry," he said.