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.7 Comments on My take on the global wine shortage story
7 thoughts on “My take on the global wine shortage story”
Totally agree Jamie, especially with the economy the way it is at present – price has a huge impact on consumer spending on ‘luxuries’ such as wine.
I completely agree.
I do agree as well. After looking through the Morgan Stanley Research report, the consumption vs. production levels over a period of time are relative to certain events that really don’t have to do with wine. For example, the report sites production levels are on the decline in France. This may be true as vineyard management and producing few bunches, yet better quality grapes becomes more of a frequent practice. Another example would be California decreasing acres of vines, this is true due to the grape glut that has frequently affected that market. Several farmers in California are uprooting vines for almond tress. Nuts yield higher prices and 90% of the world’s almond production happens in California. With too much wine in the market in California- farmers are switching production and who is going to export a $3 bottle of wine overseas- it doesn’t make sense. Lastly, the report says that consumption exceeded supply when non-wine uses were taken into consideration. For example in France, the quantity restrictions on producers means that a single producer may need to sell excess production to a cassis or vermouth distiller- they are not actually making wine. But the grapes could be used for that if quantity restriction were eased as well. The report is a bit misleading- I do caution though with a terrible harvest in France this year and some heavy damage in Chile due to early frost last month- 2013 may put some strain on supplies. Although I think France may just end up producing a lesser quality wine, rather than not produce it all. Only time will tell.
Good points, all of them.
Though as it turns out, everyone has been suckered by a cheapskate bit of crap analysis and PR, at least according to Felix Salmon at Reuters.
Which at least looks the most believable thing I’ve seen on this sorry business. Banks, eh?!
(Hat tip to Thomas De Waen over at Wine-Pages)
Thanks for bringing this to my attention! I wasn’t aware of a wine shortage. Regardless, I’m in the same boat you are regarding price/demand… Rioja is one of my favorite wines and I always give myself a $15 budget for a decent “every day” rioja (I’m in Ontario, Canada in case you’re wondering about high price!!) I remember a few years where either the vintages were great or perhaps there was a shortage, that nothing under $20 could be found in my local store so I simply stopped buying them and bought something else instead… I’m sure there will always be a wine for everyone’s budget and regardless of the price wars, I’ll stick to it!
Couldn’t agree with you more, Jamie. In fact I wrote something similar recently: http://lovewinewithme.com/2013/10/31/global-shortage-wine-heres-well-confidently-toasting-time-yet/.
Morgan Stanley’s fear mongering is a similar tune to what we’ve heard many times before but never really seen come to fruition. The Reuters blog that Ian points to is spot on, a complete PR beat up. It’s amazing to think that so many journalists and bloggers alike will re-post, almost verbatim, these sorts of ‘facts’ and statistics without a little ground work. I guess the lure of being first to publish and the resulting clicks are just too great.
Shortage? Wot shortage? Not if the EU producers have anything to do with it! I’ve just read these statistics:
Italy: 46.5 Million Hectoliters (+2% on last year)
France: 44.45 Million hectoliters (+7% on last year)
Spain: 43.0 Million Hectoliters (+26% on last year)
EU-28: 169 Million hectoliters (+11.5% on last year)
PS. I was personally responsible for producing 110 Hectoliters this year (+50% on last year), ie 0.00025% of Spanish wine production 🙂