News and Views

Tighter global supply

The European wine grape crop has been hit hard by adverse weather, and with global inventories already tight, the wine available for consumption around the world will be at its lowest point in decades, according to Rabobank’s latest Global Wine Quarterly report.

The report says 2017’s production in France, Italy and Spain has been decimated by frost, heat, drought and hail – with these three countries making up 50 per cent of global production.

“While no official numbers are in, each of these three countries will likely see production fall between 10 and 20 per cent,” says RaboResearch global beverages strategist Stephen Rannekleiv. “And in France, some suggest that this will likely be the smallest harvest since 1945.”

Mr Rannekleiv says in past years it has not been uncommon for one of these three producers to have an off year, “but rarely have we seen such poor harvests for all three simultaneously. And to make matters worse, this is coming on the heels of a pair of very poor harvests in Argentina, the world’s fifth-largest wine producer”.

With global inventories already tight going into 2017, Mr Rannekleiv says the global wine industry is going into 2018 with inventories that are likely to be at least 20m hectolitres (MHL) lower than they were going into 2017 – equivalent to nearly eight per cent of global wine consumption.

“Such a dramatic decline in global wine production will inevitably have tangible implications for the wine industry as a whole,” he says. “Wineries will face higher input costs and declining volumes. While this will likely be felt most acutely in the lower-price tiers of the European market, the knock-on effects will be felt globally.”

Mr Rannekleiv says this will inevitably see global wine consumption in 2018 fall, with the decline expected to be felt most tangibly in the lower-priced tiers.

Australian outlook:

Australian wine exports increased by 16.5 per cent in volume and 11.3 per cent in value in the first half of 2017, with sales of bulk wine outperforming bottled wine (by 19.4 per cent, compared to 13.2 per cent in volume terms). This shift from bottled to bulk wines was seen in the US, with volumes of bottled wine down by 1.8 per cent, while sales of bulk wine were up by 122 per cent.

Exports of bottled wine benefited from a 39.5 per cent increase in sales to China, as well as larger volumes sold to the UK, the Netherlands, and Germany – albeit, the average price per litre was down for all these markets.

Source: Rabobank