Friday, May 27, 2016

Global wine exports

So, where does all of this wine production go? Obviously, some of it is consumed by the inhabitants of each producing country, but a lot of it is also exported. Indeed, wine is an important source of foreign income for many countries.

The first graph here shows the top 11 countries according to the 2015 data recently provided by the International Organisation of Vine and Wine (OIV), in terms of volume of wine exported.

Top countries for wine export by volume

There are no real surprises here.

However, things become a bit more interesting when we consider the monetary value of the wine. After all, it makes a difference whether one is exporting cheap wine or expensive wine. There are serious differences in the monetary stakes between countries, as shown in the next graph.

Top countries for wine export by money

Indeed, the order of the first three countries changes completely. Apparently, Spain is exporting much cheaper wine than is either France and Italy.

This becomes more obvious if we combine the two data sets, and thus calculate who makes the most money per volume of exports. This is shown in the third graph.

Top money-earning countries for wine exports

Clearly, France is exporting much more expensive wine than is anyone else, followed by New Zealand. There is a massive difference in wine production between these two places (New Zealand didn't even make it into the graphs in the previous post), but they are both treating wine as a value added commodity for export. That is, the inhabitants are keeping the cheap stuff for themselves, while exporting some of the good stuff.

Spain, South Africa, Chile and Australia, on the other hand, are the world's main purveyors of cheap wine. These countries are trying to make money out of quantity, not quality.

It is thus interesting to compare neighboring countries, such as Chile with Argentina, and Australia with New Zealand. In both cases, there are obviously considerable differences in approach to wine exports between the neighbors, in spite of very similar quality in terms of the wine produced.

This is especially true in the case of Australia and New Zealand, where Australia produces far more high-quality wine than does New Zealand, due to its much larger vineyard area, and yet apparently it is not exporting very much of it. As far as I can see, there is no good reason why Australia could not be making as much money per litre of exports as New Zealand, or the USA, and yet it is apparently choosing not to do so. This does not make much economic sense.

Indeed, this ridiculous situation has been pointed out by a number of commentators on the Australian wine scene, notably Jeremy Oliver and Philip White.

In the 2016 edition of The Australian Wine Annual, Oliver notes that "According to the 2015 Production Profitability Analysis for the Australian Winegrape industry produced by the Winemakers Federation of Australia, 85% of Australian vineyards operate at a loss ... One of the reasons Australian wine is in its current shape is chronic oversupply — a legacy of the industry's previous approach to doing business that confused volume for profitability".

In a similar vein, White highlights the increasing centralization of the Australian wine industry all along the supply chain, in terms of grape growing, wine making and wine sales — the two biggest supermarket chains (Woolworths and Coles) not only completely dominate wine sales but they now also have significant financial control over wine making (see Pollster finds Woolies' way: stranglehold on liquor retail). This inevitably drives down the average price of wine, to the point where the business is uneconomic — see the essay by Malcolm Knox (Supermarket monsters: Coles, Woolworths and the price we pay for their domination).

It is difficult to see how this can be good for the future of the Australian wine industry.

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