Wine is in the news again. Apparently there is soon going to be a global shortage. More people are drinking wine while vineyard area is decreasing. At the moment, consumption is higher than production, but we aren’t feeling the pinch yet because there’s still plenty of wine from previous vintages in the pipeline: remember, it wasn’t so long ago that we had a surplus.
So this is bad news for us consumers, apparently. We’ll soon have to be paying much more for wine.
And good news for producers, who have been struggling to make a living in many cases? No doubt producers have been licking their lips, thinking that suddenly they will be able to ramp up their prices.
Not necessarily. What no one seems to be factoring into this equation is that demand is outstripping supply at current price levels. The assumption is that when any excess inventory is used up, then prices will rise, because of demand outstripping supply. But demand is in large part dependent on price. Raise prices, and demand softens.
The only people who will be able to raise prices without demand softening are those with wines where demand isn’t terribly price dependent. They have already successfully raised their prices over the last decade or so, to the point that many wines I used to buy are now beyond my budget. That’s old news.
For more commercial wines, there is simply no market for some of them at significantly higher prices. If you raised the price of every wine in Tesco by £2, Tesco would see wine sales fall off a cliff (and I am assuming that other supermarkets impose similar price increases). Wine is already losing ground to beers, ciders and spirits in the UK (it lost 3% last year), largely because of price rises.
It would only take a small increase in wine prices to see this supply demand imbalance corrected.