Global demand rises despite poor harvests

6th February, 2013 by Andrew Catchpole - This article is over multiple pages: 1 2 3

Undersupply replaced a decade-long era of oversupply with autumn 2012’s harvest and the inevitable prices hikes will hurt the entry-level market. Meanwhile global demand continues to rise.

Wine-Tap-DripTWEETS OF the “OMG! We’re going to run out of wine!” variety greeted reports in the autumn of 2012 that grape harvests in the Northern Hemisphere had widely fulfilled predictions of shortfalls across a sweep of major wine-producing regions. This compounded earlier Southern Hemisphere shortfalls at a time when global consumption is growing. Without question, the headline figures made for sobering reading, especially after a decade or more of oversupply being the norm.

As 2012 European harvest volumes were confirmed, the International Organisation of Vine and Wine (OIV) estimated that total global output had fallen from 264.2 million hectolitres in 2011 to 248.4m hl in 2012, representing the lowest level since 1975, when the body began tracking these figures.

Of the world’s best known regions, Burgundy was down 40%, Champagne down 25% and Rioja down 30%, to name but a few, with popular styles such as Pinot Grigio also significantly down. Meanwhile the output of entire countries such as France, down 19% (at a recent historical low), Italy, down 4% (this compared against two previous low vintages), and Spain, down 6%, conspired to produce an unsettling reminder that annual wine supply is predicated as much on climatic factors as man’s intervention.

Furthermore, while highlighting the reduction in vineyard area in many parts of the world, OIV projected a final global consumption for 2012 of between 235.7m and 249.4m hl, with a caveat that 30m hl of wine are absorbed by industrial usage. At a glance, this may appear to bring wine production more into balance with demand, but the situation is far more complex than these figures alone suggest. The world, of course, isn’t about to run out of wine. But with hindsight, the fallout from 2012 could well prove to be the most visible marker of a fundamental shift that is occurring in the global balance of production and consumption – and this is potentially to the detriment of mature wine-drinking markets such as the UK.

Feature findings
  • As global demand exceeds supply, price rises will inevitably ensue, and it is likely that producers will focus on emerging markets at the expense of the UK.
  • Few producers can now sustain the deals expected by UK consumers and make any margin.
  • The likes of Chile, South Africa and California may gain ground on UK shelves, but growth opportunities come at higher price points.
  • Consumers will increasingly be forced to spend more, playing to the strengths of independent merchants and Old World wines.
  • Prices are likely to rise across the board, but the real pressure will be on lower quality wines, so this may be more of a crisis for supermarkets.

“It’s going to be tough, especially at the entry level, because there isn’t a region in the world that has a massive surplus,” admits Dan Jago, Tesco’s group wine director, responsible for overall global wine strategy. “There is a lack of availability in Europe and the high- volume producing nations, with France, Italy and Spain down on volumes, and this is part of a cycle, as with any other [agricultural] commodity, where prices will fluctuate.”

ON THE RISE

Simon Thorpe MW, managing director of Negociants UK, highlights an impasse between cash-strapped consumers on the one hand and margin-squeezed producers on the other. He believes that those who have invested in secure, long- term wine supply, along with producers and brand owners that control their production and distribution, are best placed to weather the coming period.

“It is difficult to predict anything other than price rises [during 2013] across the wine category as harvests have fallen and inflationary pressures on agriculture and production continue,” comments Thorpe.

“The UK, although still a hugely important export market for many producing countries, does not operate in a bubble and while we see demand for wine slowing here there are emerging markets perfectly capable of taking up any demand deficit,” continues Thorpe. “For the first time in a long while global demand will exceed supply and the natural outcome of that economic equation is that prices will rise, which is bad news for the wine category overall given the lack of consumer disposable income and inflationary pressures.”

One Response to “Global demand rises despite poor harvests”

  1. Matt says:

    I love statistics, 249.4mhL per year equates to over 68 million L of wine being consumed around the world every day! Thats almost 50000L of wine being consumed per second! Brilliant!

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