A portrait of the actual Italian bulk wine market
Luigino Lazzaretto, bulk wine broker and president of Intermediazioni Lazzaretto S.r.l. Luigino, examines how the Italian bulk wine market is currently evolving.
Lately, the Italian bulk market has changed significantly in terms of purchase timing, negotiation, and final destination markets. It is no longer about simply moving it from the South to the North of Italy, where the main Italian bulk merchants and bottlers are set, nor to the traditional European markets. Nowadays, markets are more linked to one another and what happens in this single ‘unknown market’ – as I like to call it – shall determine the movement of the whole chain, to the final price of the bottle on the supermarket shelf.
Container transport has become the best way chosen for shipping wine all around the world, not only in Italy. More than 40% of all wine produced in the world gets exported. Moreover, according to our data, about 30% of this gets shipped in bulk, an increasing trend. In some foreign countries, more than 60% of its production gets shipped in bulk. Much of this wine will be sent to Germany, The United Kingdom and other European nations where big bottling plants are located. Some European bottlers are so efficient, that it costs less for a South American country to bottle their wine in Germany or in the UK and then send it back, than to bottle it in their native countries.
In my opinion, you can have two well-defined and distinct Italian bulk wine markets right now. The first is the commodity market for entry-level red, white and rosé bulk wine, where Italian producers have to win over several fierce wine competitors such as Spain, South Africa, Argentina, Chile and the eastern European countries. In the commodity market, any decision to close a contract of thousands of liters of wine plays out in a few cents. The second market belongs to IGT/IGP, DOC/DOP and DOCG wines, whereas each wine gets its own value and its success is due to its export markets – although a small positive trend is emerging in the domestic business, which grew 1.2% last year, after several years of decreasing. Inside Europe itself, it is important to highlight that the total consumption of wine within three traditional markets such as Germany, Switzerland and the Netherlands has been slightly suffering, i.e. around -1.8% regarding to the first two and about -2.3% regarding to Holland.
In 2016, Italy produced about 50m hl altogether. Spain reported a smaller crop of about 39 m hl, which is more or less the same as the previous two years, while France produced around 43.5m hl, according to OIV.
According to proper figures currently available, the whole world produced about 267m hl of wine in 2016, which stands for a decrease of approximately 3% over 2015. World consumption is about 242 m hl as a standard, therefore if we consider the approximately 20m hl of material needed for juices, concentrates, distillation and food sector, we can undoubtedly assert that the world is almost in balance.
Many reports predicted Italian firms would lead that market, thanks to their higher production, and by December 2016 the forecast had been borne out, thanks to the acceptable quality of the entry level wine there produced. That situation allowed indeed Italian producers to recoup their market shares, particularly from traditional countries such as Germany and France, alongside some eastern countries as Czech and Slovak Republics, Hungary and so forth. Spanish prices have got to be more competitive, in order to keep their market shares, since the end of January and the beginning of February 2017. Spanish generic white wine and some varieties like Cabernet Sauvignon are sold at especially good costs.
The southern hemisphere harvests have almost finished and the picture is mixed: Australia, New Zealand and South Africa seem to have standard crops, while Argentina and Chile had smaller crops for the second successive year. Up until the middle of April, European markets have been very calm. That is why key bottlers and merchants had searched for their wine on a monthly basis. They did not see any risk of a lack of supply from Italy, especially for generic red wine, even if generic white wine and sparkling bases had already been on a slightly limited provision. At the end of April, bad weather hit many European countries, with temperatures going below zero in Austria, France, Germany, Italy, Eastern countries and some areas in the North of Spain. Frost was strong and persistent not only there, but also in some areas of Italy – i.e. Region Veneto, Prosecco DOC and DOCG area, the South of Piedmont, Modena, Franciacorta and some parts of central Italy. We will need to wait for a more fastidious framework of any loss caused by frost. The feeling is that 2017’s crop will not be that large. For this reason, the market has been currently very active in Italy, as many companies are really afraid of a dangerous price increase. They are moving to cover their needs at least until either the end of 2017 or their selling contracts.
The Italian situation
From January to December 2016, Italy exported about 20.6 m hl of wine, with an uptrend of about 4.4%, of which about 5,473 m hl was bulk wine with an average price of €0.70 per litre, according to ISTAT.
In general, exchanges have been working quite well, so that bulk wine has been well purchased and it is loading quite fast, leaving sellers gratified. On the overall, bulk producers achieved good sales up to December 2016, benefiting from wine good availability, while the first two months of 2017 was a steady time both for bulk and bottled wine.
On the whole, Italian wine exports are being driven by sparkling wines in general – Prosecco wine in particular. Beside Italian Prosecco phenomenon, other kinds of wine just follow their regular sales trends.
After vintage 2017, there will be two important changes: Pinot Grigio IGT/IGP delle Venezie/Veneto, and Nero d’Avola and Grillo IGT/IGP Terre Siciliane will become DOC only. Some major buyers are already demanding some alternatives, such as Pinot Grigio from Sicily or other regions, in order to continue selling Pinot Grigio blends like Garganega-Pinot Grigio IGT/IGP, which is not going to be allowed any longer under the new DOC Delle Venezie.
Italy has had the biggest production in the world for two harvests in a row. That fact helped the fake belief of getting high-quality wine easily at a very cheap price. Competition between private bottling companies and big production cooperatives – which started bottling too – together with major foreign bottling companies, has pushed bottling over capacity – in fact, final bottle prices and profits to the limit so much that some players had to close their contracts with very small gain margins. If the market keeps its stability with a good global production, consumers will enjoy another year of equilibrium and stable prices. On the other hand, if the damage caused by the frost badly affects European production, the price of many types of wine – e.g. white ones – will likely increase. Under that circumstance, companies without covered needs will have to face tough times.