On the up
The International Organisation of Vine and Wine (OIV) released information on “the potential wine production, assessment of the harvest, and state of the market and international trade in 2015” at its Paris HQ on April 18.
World wine production increased by 2.2 per cent in 2015 to reach 274.4mhl (millions of hectolitres). This was an increase on 2014 but still below 2013 and way below the 2004 high of 296 mhl.
The average for this century is 272.12 mhl, which in our opinion is too high. Not that TKR’s opinion will change the world’s grape growing or wine production trends. It’s amazing how a few make really good money and others lose or barely break even in both aspects of the grape.
How good would it be if each of the countries listed below reduced their crops 10 per cent?
- Italy is the biggest producer in the world: 49.5mhl
- France: 47.5mhl
- Spain: 37.2mhl
- US: 22.1mhl
- Argentina: 13.4mhl
- Chile: 12.9mhl
- Australia: 11.9mhl
- South Africa: 11.2mhl
- China: 11mhl
Global wine consumption is estimated at 240mhl for 2015, with the average for 16 years being 239.5mhl. This, on average, has left surplus production of 32.6mhl each year. Italian consumption (20.5mhl) is less than half its production, as is France’s (27.2mhl). Spain’s consumption (10mhl) is even worse, at a third of production. The excess needs to find a home in export markets, the same markets in which Australia is looking for share.
The chart on the right shows the millions of hectolitres exported in 2015 from the following countries:
The good side of the story is that the world wine trade grew in 1.8 per cent in volume to 104.3mhl, and the value totalled €28.3 billion ($41.54 billion), up 10.6 per cent.
The size of the global area under vines rose to 7534kha (thousands of hectares). China increased its area under vine by 34kha. Europe went in the opposite direction, reducing vineyards by 26kha.
Still wine volume sales in UK supermarkets have stalled, increasing just 0.4 per cent, but prosecco sales have grown 34 per cent and now account for 39 million litres valued at £356 million ($654.5 million). Supermarket own label accounts for 12 per cent of total sales.
In comparison, champagne sales increased a mere 1 per cent, to £251 million in value and 10 million litres in volume.
The total UK sparkling/champagne sector is worth £905 million in value and 85 million litres in volume.
Still wines totalled £5.9 billion, down 1.8 per cent, with white wine down 1.6 per cent and red down 1.2 per cent. Wines from the New World are still in favour, with wines from Argentina, Chile, New Zealand and Australia all recording growth.
Early this month the Bourgogne wine industry published its first report into sustainable development. It runs to 72 pages and is as yet only available in French, so we can only go by the English media release. The release is big on self-praise:
“‘On reading this report, we should congratulate ourselves on how we have collectively embraced this issue,’ said Michel Baldassini, President of the Sustainable Development Commission of the Bourgogne Wine Board (BIVB).”
Burgundy is complex. The region is divided into many different plots and operated by a huge diversity of businesses. This relatively small region comprises 4000 estates, négoces (wholesalers), and cooperatives. It’s a lot to get working together.
“The Bourgogne wine region has chosen to tackle the three elements of Sustainable Development head on. These include the environment, of course, but also the local economy, and local society. This approach involves seven key thrusts that have been developed into an action plan along with industry stakeholders. The Bourgogne Wine Board (BIVB) is driving this key issue, which featured back in 2011 in the Bourgogne Amplitude 2015 plan, and is further underscored in our new Bourgogne 2020 strategy. However, the Bourgogne wine region’s strategy for Sustainable Development is deliberately being seen as an issue to be dealt with collectively.”
Argentina set to tango
Argentina wine exports were US$921 million ($1.2 billion) in 2012. By 2015 they had fallen to US$818 million. The decline would have continued had a change of government and policies not come to the rescue.
President Mauricio Macri has done away with a 5 per cent export tax, which is said to have injected US$50 million into the wine industry. He also removed the peso from an “official” rate of 9.83 pesos to the US dollar to find its own market rate, which is about 14 pesos. This has reduced the price of Argentine wine in export markets.
The next issue to curb is inflation, which has risen dramatically this year, as the graph below shows, making wine expensive in its home country.
Argentine wines will take time to become a challenge to Australian markets, but be assured they will challenge next year and beyond.
High inflation is especially hard on Argentine consumers, whose real wages drop as prices rise, and this makes it tough to raise prices in the domestic market.