BOTTLE SHOCK
RABOBANK REPORT FINDS WINE SUPPLIERS CAUGHT BETWEEN LOWER U.S. CONSUMER DEMAND
AND AN INCREASED IMPORT SUPPLY
It is news that will likely not surprise those who work in the wine industry and weathered the economic ground shift that marked 2009. Still, it provides a bitter aftertaste to those who had enjoyed a steady growth in sales of ultra-premium wines for several years. California's wine producing areas have contributed to growth in jobs,tourism and small businesses that support the industry and any decline resonates far beyond winery balance sheets.
A report by Rabobank, a global leader in banking for agriculture, finds "the decline in demand for higher priced wines, coupled with increased imports of lower-priced wines has changed the landscape for wine suppliers".
“Domestic suppliers have been caught between consumers, who are demanding less higher priced wine, and an influx of imported lower-cost bulk wine,” said Rabobank Food & Agribusiness Research and Advisory Executive Director Stephen Rannekleiv. “The net affect for U.S. producers, particularly those in California, was a rocky 2009.”
WHAT THE REPORT SHOWS:
"In 2009, the U.S. market saw a reversal of the premiumization trend – where consumers began to migrate toward lower priced wines. For example, super-premium wines (those over $15 per bottle), which had enjoyed the strongest growth before the recession, fell by approximately 10 percent, and wines above $30 were down by an estimated 15 percent, even as overall wine sales grew.
Theoretically, this should have created an opportunity for California grape growers that supply fruit for lower priced wines. However, because the United States has gradually become the most important export destination for international wines, New World suppliers (such as Chile and Australia) flooded the market with an increasing amount of low-cost bulk wine, which filled the gap created by the increase in demand..
Additional highlights from the report, which delves further into analyzing topics and trends in the global wine sector, include:
California: The dramatic decline in super-premium wine sales appears to have sparked a decline in the number of sales of high-profile, super-premium wineries in California, because buyers and sellers have widely divergent price expectations. However, 2010 may see an increase in winery sales as pressure to sell increases, buyer and seller price expectations converge and alternative buyers increasingly enter the market.
Argentina: A dramatic 23 percent decline in production in 2009 due to drought, caused a 34 percent volume decrease of total exports. However, most of the decline was a reduction of bulk wine exports, while bottled exports grew. In spite of the dramatic decline in volumes, export values only declined 1.3 percent.
Australia: Soft global demand in 2009 aggravated oversupply. Production was down approximately 5 percent over 2008 and 18 percent below 2006 levels.
EU: The uprooting scheme, aimed at reducing oversupply, continues well behind schedule, and grape growers seem to expect subsidies to continue. Overall EU-15 production was down slightly (-0.2%) from 2008, but exports from key regions such as Champagne and Rioja have fallen dramatically."
About Rabobank:
Rabobank, N.A. is a California community bank that provides personalized service and a full array of quality products to individuals, businesses, and agricultural clients. With 92 retail branches and 15 commercial banking centers serving the needs of communities from Sacramento to the Imperial Valley through local decision making and active community involvement by employees.
Rabobank, N.A. is the U.S. retail banking division of the Rabobank Group, a premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 46 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the largest and safest banks in the world.