The Global Economics of Wine Revisited: Hello China!

Introduction

I last looked at the global wine market in 2008, just before the global recession hit. Major recessions often speed up changes already underway, and this latest one is no exception. Below, I describe developments since the recession started in late 2008: wine production, consumption, and trade. In the second article in this series, I will analyze the challenges facing wine exporting nations.

Production

According to the Organisation for Vine and Wine, wine production fell 3% between 2008 and 2010. However, OIV does not include China in their production data. A report by Vinexpo/IWSR shows China produced 6,688 million liters of wine in 2009, up 28 per cent from the previous year. Vinexpo/IWSR speculated that growth in the Chinese wine industry continues at the same rate the country will produce 11,890 million liters of wine in 2012, more than Australia is projected to produce (11,240).

Table 1. –Wine Production, Leading Countries  (mil. liters)

Source: International Organisation of Vine and Wine (OIV), Vinexpo/IWSR and author’s estimate

Consumption

Data on wine consumption are presented in Table 2. Overall, OIV estimates that global wine consumption fell 3.6% from 2008 to 2010, with at least part of this resulting from the global recession. In the top six wine-consuming countries, the largest decline occurred in Spain (-17.1%). Recession? China was again “the elephant in the room”, with wine consumption growing by 50%!

Table 2. – Wine Consumption, Leading Countries  (mil. liters)

Source: International Organisation of Vine and Wine (OIV) Vinexpo and author’s estimate

Global Balances

OIV estimates global production and consumption of wine annually and arrives at a figure for an overall global balance. Their latest estimate is presented in Table 3. It appears that the world has been producing surpluses since 2008. The 3-year surpluses totaling 81,300 thl (34% of annual consumption) is putting downward pressure on prices.

Table 3. – World Wine Balances (mil. liters)

Source: International Organisation of Vine and Wine (OIV)

Exports

Approximately 40% of wine consumed worldwide comes from international trade. How export market shares have changed over the last three decades is illustrated in the following graph. The groupings are as follows: Five Leading EU countries are: France, Italy, Spain, Germany and Portugal; Southern Hemisphere countries include: Argentina, Australia, Chile, New Zealand, and South Africa; Eastern European countries include: Bulgaria, Hungary, and Romania.

Most striking:

  • the decline in market share of the major European Union (EU) exporters;
  • the growing importance of the lower priced/good quality wines from Southern Hemisphere countries, and
  • Eastern European countries’ loss in market share.

Graph 1 . – Changing Market Shares

These trends can be expected to continue. To limit the loss in market share, EU countries will have to reduce prices further.

Wine exports of the leading exporting countries for the 2008 – 2010 period are presented in Table 4. Overall, exports are still down 3.3% since 2008. Chile and New Zealand outshine all other countries as their exports continue to grow rapidly.

It should be noted that the changes presented in the fourth column of this table are not necessarily a sign of strength. For example, the growth of Australia’s exports resulted from effectively “dumping” very cheap bulk wine into the global market. The marketing and supply problems some of these countries face will be discussed in the next article in this series.

Table 4. – Wine Exports, 2008 – 2010 (in mil. liters)

Source: OIV and various US Dept. of Agriculture GAIN report

Imports

Wine imports have grown 7.3% since 2008, with China again leading the way followed by Russia. The data in Table 5 aggregate all European countries so that trade between them is netted out. However, this trade is significant. For example, FAOSTAT reports that in 2008 (the latest year FAOSTAT has published data), imports of the leading European countries were: Germany (1,366 ml), UK (1,080 ml), France (5,700 ml), and The Netherlands (3,567 ml). This means that Germany imported more from its European neighbors and the outside world than the European nations taken as a single entity imported from the rest of the world.

Table 5. – Wine Imports, 2008 – 2010 (mil. liters)

Source: Various reports, US. Dept. of Agriculture, Foreign Agriculture Service, and author’s estimates.

Conclusions

The global recession clearly had an impact on the global demand for wine. But that is mostly behind us, and world demand, driven by emerging market countries, is growing. The market in the developed nations is becoming increasingly competitive as consumers become more knowledgeable and Southern Hemisphere countries offer good wines at very low prices. For these markets, the European nations will continue to lose market share even as they offer wines for lower prices. But as I reported in my previous article, the growing markets of Asia offer great new opportunities for the “vanity” European wines.

The content above was saved on the old Morss Global Finance website, just in case anyone was looking for it (with the help of archive.org):
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