Wine producers look to smaller markets24th April, 2012 by Martin Crummy
Wine producers are looking to smaller markets like Canada for strong growth potential and better pricing, according to most recent Rabobank Wine Quarterly report.
It is the sixth-largest wine importer and consumes about 480 million litres of wine per year, making it roughly one third the size of the UK market.
Yet unlike the UK, which has seen a slide on wine sales and profits, Canada is carrying momentum with consumption growing by 30% since 2006. Prices are also growing faster than volumes (dollar sales rose 8% in 2011, while volume growth was 5%).
Many exporters are able to attain prices in Canada that are well above their global averages. This is because Canada tends to import higher quality wines than many other markets and suppliers have to deal with state-run provincial retail monopolies that can require them to pay part of the marketing costs for their brands.
There is, however, at least one dark cloud for wineries as provincial Canadian governments are currently facing budget deficits and are looking for ways to close the gap.
Ontario, for example, has a CA$15 billion current account deficit (CAD) and as part of its reduction plan, the Ministry of Finance has suggested that the Liquor Control Board of Ontario (LCBO), should “use its purchasing power more effectively and improve its markup structure for setting retail prices”.
This would lead to a squeeze on margins for importers.
“On the whole, the Canadian market appears poised for continued growth in wine consumption, both in volume and value,” said Stephen Rannekleiv, executive director, Food and Agribusiness Research & Advisory at Rabobank.
“However, while growth is likely to continue, suppliers may soon begin to feel greater margin squeeze as global suppliers continue to look to the Canadian market in search of greener pastures and provincial monopolies are likely to apply greater pricing pressure.”
The Rabobank report also deals with international wine supply and according to the USDA total California wine grape production declined 7% in 2011, though the total grape crush was down only 3%, as more raisin and table grapes were crushed for wine.
The 2011 EU wine production was down roughly 2% compared to that of 2010 but with significant variation between regions. Production increases in France (11%), Germany (30%) and Hungary (38%), were offset by declining production in Italy (-14%), Spain (-2%) and Portugal (-17%).
The 2012 Australian and New Zealand wine harvest has experienced delays due to flooding and an unseasonably cool growing seasons.
In trade circles, France, Italy and Spain all registered healthy growth in exports in 2011, while Australia, and to a lesser degree Chile, saw notable declines.