Too many eggs in too few wine export baskets

In the past week, the International Organisation for the Vine and Wine (OIV) has told us that Global wine exports have rebounded, after the downturn during the Covid-19 pandemic, with value up 16% and volume 4% (both of which are records: Global wine exports reach record high). However, while export increases are generally seen as A Good Thing, value and volume are only part of the picture.

In particular, I have recently highlighted the potential problems with lack of financial diversity in some parts of the wine industry (The wine industry needs to say: “Cheese”). In particular, wine exports are a potentially very serious source of financial problems (Which countries rely most on wine exports?). As I discuss in this post, some countries are sailing pretty close to the wind, when relying on too few wine export markets.

The data that I will use come from The Observatory of Economic Complexity (OEC). This lists, for each exporting country, the wine value (in $US) exported in 2020 to each of their top-five receiving countries. I have restricted my data to the biggest wine-producing countries by value, plus Moldova, Armenia and Serbia (as discussed below). Other large exporting countries that are mainly re-exporters (not producers), such as the Netherlands, Singapore, and Denmark, have been excluded.

For each country, I have calculated the percentage of wine exports going to the top import country, plus the combined percentage going to the top three importing countries. This will tell us how many of their “eggs” each country is metaphorically putting into their wine basket.

These data are shown in the graph, with each point representing a single country, located horizontally based on export amount to the top country and vertically to the top three.

For most countries, 10—20% of the exports go the main import country, and a bit less than 40% to the top three combined. So, the seven countries at the bottom-left of the graph may be considered to be “situation normal” for what a balanced export portfolio looks like. Indeed, the bottom three countries are all very well placed (12% vs 35%), which they need to be, as big wine industries. Note that Spain and Portugal have almost identical numbers, even though their wine industries are actually quite different.

The next four countries up the graph have fairly similar data (17-20 % vs 37-42 %), but once again they all have very different wine industries. They do, however, seem to have converged on a common approach to wine exports, which they presumably consider to be financially responsible behavior.

The other ten countries are more extreme than these seven. It seems to me that >50% of wine going to just three export countries is getting financially and politically risky; and >50% of wine going to just one export country is quite mad. Four of these countries are grouped together (24-30% vs 50-55%), and all four of these are quite big wine exporters. One hopes that they know what they are doing, although that might be a naive assumption, politically.

The remaining six countries are really rather extreme. That this can be a risky situation has been demonstrated by several of these countries.

For example, Australia put far too many of its wine eggs in the China basket, so that this became far and away its biggest export market; and Australia similarly became the biggest importer into China (Where China get its wine, these days). This is risky in two ways. First, wine consumption can vary through time, and it has definitely done so in China (So, why has China gone off the boil?), and this will eventually catch up with you (Will the slowdown in the Chinese wine market catch up with Australia and Chile?). Second, trade relations can turn sour pretty quickly; and the imposition of Chinese trade tariffs on Australian wine, back in November 2020 (imposed after the data presented above), has hurt the Australian wine industry pretty badly (Australian wine exports fall 26% due to China tariffs and ‘challenging’ conditions ; Aussie wine exports: the pain continues), and continues to do so (Tonnes of grapes ‘left to rot’ as Australia struggles to shift wine).

This has required some pretty fast footwork to find other markets (Challenging market conditions continue but value is starting to flow in some markets). According to Wine Australia, during April 2021 to March 2022, China (including Hong Kong) dropped to the third wine export market (10% of exports), behind the UK (22%) and the USA (20%). These new data (22% to the top country, and 53% to the top three countries) put Australia in the middle group of countries discussed above, which may be a better situation in the long run.

The other prominent recent example of too many eggs in too few baskets concerns the current conflict between Russia and the Ukraine. These two countries are important export markets for several eastern European countries (Exposure to the Russian wine market ; Main wine producers’ wine export dependency on Russia ; Main wine producers’ wine export dependency on Ukraine); and this is A Bad Thing during a war. Several of the affected countries are prominent in the graph above: Georgia (57% of exported wine goes to Russia, 11% to the Ukraine), Armenia (55% to Russia, 4% to the Ukraine), and Serbia (37% to Russia). Moldova is somewhat different — although it relies heavily on wine exports, only 8% goes to Russia. There is only one long-term way out for these exporting countries — develop broader wine markets. Note, incidentally, that these problems are not reciprocal, because Russia’s exports of alcoholic beverages are very small.

This brings our attention, finally, to the remaining two countries at the top of the graph. Austria's main wine exports go to Germany (44%), Switzerland (11%), and the USA (8%); so it is Germany that constitutes their main risk. This assocation is hardly surprising, historically; but Austrian wine deserves a wider audience.

To me, it is New Zealand that is the surprise. There are many things in common between the New Zealand and Australian wine industries, as I have noted before (Australia and New Zealand wine comparisons ; Australia versus New Zealand wine exports), and so I should not really be surprised. However, the Kiwis should have more sense — their industry has grown rapidly over recent decades (The rise and rise of New Zealand wine), but it has apparently not yet diversified. The main current wine export markets are the USA (32%), the UK (25%), and Australia (19%), which shows a distinct cultural and political lack of diversity. Those New Zealanders need to seriously take note of the current problems in the Australian industry.