Ship shape: Bulk wine battles back
This time last year (November), the looming challenges that lay ahead for the bulk wine industry were substantial.
The 2017 harvest was among the smallest ever recorded, with much of Europe, including France, Spain and Italy, hit hard by frost, heat, drought and hail, while South America also declared a relatively meagre crop for a second year running, this time thanks to damaging spring frosts, rather than El Niño, which reduced the 2016 vintage.
An ongoing drought in South Africa continued to squeeze volumes there, down by 15% on 2017, according to bulk wine broker Ciatti, while South Australia had a plentiful crop, but neither produced enough to offset the dramatic drop in volumes elsewhere. This cocktail of pressures led to warnings of a bulk wine shortage, tighter supply and escalating prices, against a backdrop of Brexit, with buyers urged to shore up supply early.
Adding salt to the wound was the news of a scandal at one of the world’s biggest bulk wine producers. In March 2018, French police released details of an enormous fraud perpetrated by a leading bottler in the Côtes du Rhône, which was of such size that at one point up to 15% of all Côtes du Rhône was thought to be falsely labelled.
It followed the arrest of Guillaume Ryckwaert, the owner of bulk bottler Raphaël Michel, in relation to “a great number of violations” from October 2013 to March 2017, discovered during a routine audit of the company’s records. In a statement released by the Direction générale de la concurrence, de la consommation et de la répression des fraudes, the French government’s anti-fraud department, it was revealed that 480,000 hectolitres of table wine, totalling many tens of millions of bottles and the equivalent of 15% of Côtes du Rhône production – enough to fill 13 Olympic swimming pools – was passed off as Côtes du Rhône, Côtes du Rhône Villages and even Châteauneuf-du-Pape between October 2013 and June 2016.
Since then, Labruyère Développement & Industries (LDI) has acquired the bulk bottler and renamed it Anagram, with the ambition to “regain its position as the European leader in [the] bulk wine blending and trading sector, with volumes exceeding 400,000hl per year within three years”.
A positive end, perhaps, but it was all rather gloomy.
Onwards and upwards
As we approached the end of 2018, another harvest behind us, the outlook for the bulk wine industry was infinitely brighter. Moving from a period marked by supply shortages and rising prices, which put the power in the hands of growers, a plentiful 2018 vintage looks set to reverse this trend, putting buyers back in control.
“What was unique about this cycle is that many countries contributed to the supply deficit,” notes Denys Hornabrook, managing director of digital bulk wine trading platform Vinex, referring to the 2017 harvest in both hemispheres, and the subsequent supply and price pressures that continued to affect the first half of 2018. “When there is a supply deficit it’s generally from only one or two countries. There are always substitutes. When you have three or five, that is unusual.”
Since the start of 2018, bulk wine prices had been rising. According to Vinex’s Global Price Index, which combines the major producing countries trading each variety to determine an average weight price, since the index began in January 2013 bulk wine prices have increased by nearly 30%, but hit a record peak in February 2018, reflective of reduced supply. Prices are now stabilising, and have already dropped by 6% in the past five months, according to Hornabrook.
“We expect that average prices will drop by a further 10% by the time we get to the end of the year,” he says. “There is supply and demand coming back into the market. The 2018 harvest is going to be huge, and that brings back France, Spain and Italy, which together account for a very large volume of global supply.
That inventory coming back into the supply system is having a profound affect on pricing.”
2018 harvest
Regarding the 2018 harvest, the majority of regions achieved, or are expected to achieve, as much as a 20% uplift in volumes compared with 2017, marking a shift from scarcity to normality that will have a significant impact on pricing.“With the 2018 harvest finishing in the northern hemisphere, even if the 2019 harvest in the southern hemisphere is average, we will see a lot of inventory coming back into the system and a return to competitive pricing,” says Hornabrook. “The wine world is moving towards a more pure market. There’s more market knowledge available, better access and greater choice.”
Southern hemisphere
In the southern hemisphere 2018 volumes were “broadly similar to that of a year earlier, as a larger-than-expected harvest in Argentina is more than offset by the short production of South Africa”, reported Rabobank in its 2018 Q3 Wine Quarterly. “Strong demand from China and other Asian markets, in particular for Australian and Chilean wines, is supporting prices.”While still relatively modest in volume, those wines are already coming into the bulk wine market, releasing some of the price pressure felt by buyers over the past 12 months. Negotiations here are already under way, but there will be an “arm wrestle” between buyers and growers, says Hornabrook, as growers fight to maintain higher prices.
“Current grape pricing is not sustainable,” he says. “Growers have to move beyond a local view, and take on a global one. If they can’t, buyers will take in less. The remaining stocks that wineries have are priced high. Buyers are not going to take in more grapes at a higher price. There will be an arm wrestle. Certainly, the next few months will provide some buying opportunities from the southern hemisphere, where we are seeing the current vintage wines reducing in price and producers more receptive to negotiating prices. We always see this trend of the cycle where producers are far more willing to negotiate pricing ahead of the next vintage.”
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Northern hemisphere
At the time of writing, the northern hemisphere harvest was still being accounted for, but indications suggest that 2018 will see yields bounce back, returning to normality. After intense heatwaves in June and July, the second half of August brought cooler temperatures to France, Spain, Italy and California, prolonging ripening and “normalising harvest kick-off times after a couple of years where they’ve been early or late”, said bulk wine broker Ciatti in its September 2018 Global Market Report, predicting an “average-plus in volume” harvest. In its 2018 Q3 report, Rabobank added: “European wine production is expected to show marked improvement over 2017 levels, which should theoretically lead to easing bulk wine prices.
However, growing concerns over exceptionally wet weather in France and Spain are keeping an upward pressure on prices.”
So what does the next year have in store for the bulk wine trade? Wines from the 2018 northern hemisphere harvest will take some months to come to market. But indications show that prices are holding firm. “High but stable” is how Rabobank regards bulk wine prices. “We are seeing that prices are holding relatively well, and there are already signs of lower prices in Spain,” said Maria Castroviejo, senior drinks analyst at the company. “We are not seeing a collapse in prices.”
That will lead to some tough negotiations for growers in the northern hemisphere until Christmas, says Hornabrook, with buyers likely to hold out for a better deal than snap up early stocks. “Buyers know that they are back in the driving seat. They have space, the supply, and sound quality, and that empowers them, so I don’t think they will respond quickly. I think they will protract their negotiations for the northern hemisphere harvest because there won’t be any need to act with haste.”
Australia/China
Australia has the biggest challenge on its hands, says Hornabrook, and he believes the country is potentially pricing itself out of global supply. “In the past 12 months Australia’s prices have increased by 27.6%,” he says. “The only country higher than that is South Africa, and that was for obvious reasons because of their very short 2018 vintage. But Australia is not sustainable at these high prices. What China can’t take from Australia at these high prices, it’s just not going to take. I think Australia has the hardest conversations ahead with growers.”
According to Ciatti, the average purchase price of AU$609 (£335) per tonne was up by 8% on the price of AU$565 per tonne in 2017 – the highest since 2008. It is the fourth consecutive vintage where the average purchase price for wine grapes has increased, while each of the top 10 red varieties increased in price on the previous year.
Supply dynamics are also shifting in this market, notes Castroviejo, with China increasingly importing more wine in bulk, much of it from Australia, which stands to limit Australia’s supply to other countries. China was the fifth-biggest importer of bulk wine in 2017, according to Il Corriere Vinicola, importing US$158m (£124m) worth of bulk wine – a 7% increase on 2008. “More and more Australian wine is being sold to China, which means that there will be less competition from them in other markets,” says Castroviejo. “So it will be interesting to see what’s going on, not only in terms of prices but also strategic trends.”
Chile and Argentina
Chile will remain competitive, following a good quality harvest, combined with the Chilean peso trending weaker against the dollar and other major currencies, “making its competitive bulk wine pricing look even more attractive on the world stage”, says Chiatti. “We have seen price reductions in the short term in Chile, and all indications are that it should be a good vintage in 2018, so they will be priced competitively,” adds Hornabrook.
Similarly, Argentina’s devaluation of its peso is making it an attractive market for bulk wine buyers. Also, on 3 September Argentina’s president, Mauricio Macri, imposed a four-pesos-per-dollar levy on the export of primary products, and a three-pesos-per-dollar levy on the export of finished products, with the aim of reducing uncertainty surrounding the government’s financing capability.
“It is too soon to know what the impact will be on Argentina’s bulk wine export prices of this most recent slide in the peso and the subsequent imposition of new export taxes, but it will likely mean even better opportunities for the buyer to negotiate deals that are attractive from their point of view,” notes Ciatti.
Eastern Europe
But the “shining light” is the ongoing emergence of Eastern Europe. “There’s very exciting supply and competitive prices from Moldova, Romania and Bulgaria now, and even Ukraine, to a lesser degree,” says Hornabrook. “These four offer particularly good quality varietal wines at very reasonable prices, and are delivering well. They still have a long way to go. They don’t have the size of plantings that Chile and South Africa has. It’s only going to be supplementary to supply, but if there are any further hiccups in the New World supply or pricing that inhibits a competitive market, then there are these alternatives. We now have producers in the East that have been supplying Western wine buyers for more than three years, so they know the prices.”
Otilia Romero de Condés, CEO of the World Bulk Wine Exhibition in Amsterdam agrees, recognising a growing interest in and rising quality of wines from Eastern Europe. “We are increasingly finding better wines in more regions, such as the Eastern countries, that each year never cease to amaze us through the quality and originality of their wines,” she says. “Also, small wineries are more active in the market. They provide excellent quality, and no longer consider bulk wine as a ‘younger brother’, and take advantage of opportunities for trading a part of their production in bulk.”
At its heart, bulk wine enables wines of all qualities to be shipped thousands of miles cheaply and efficiently, and bottled in their destination markets, bringing producers closer to buyers, and allowing for a wider range of wines to be offered to consumers at a competitive price.
While it’s often dismissed as the unglamorous partner of bottled wine, bound for high-volume, entry-level wines, were it not for bulk wine, the world’s wine aisles would be a lot more bland, not to mention more expensive.
As Romero de Condés sums up: “There is an increasing number of wineries that understand the evident economic benefits of taking away some of their production in bulk, without this resulting in a loss in quality in terms of the wine or for the winery ‘brand’.
“Bulk wine has become a way of selling wine, whatever the quality. This revolution is bringing great happiness to large and small wineries.”
Should predictions ring true then the abundant 2018 harvest marks a return to form for the bulk wine industry, one that buyers would be wise to take advantage of.
