2012: Global Wine Market Assessment - Noteworthy...

2012: Global Wine Assessment

Bill Wittur Noteworthy Wines

2012: Global Wine Market Assessment

Contents

INTRODUCTION ............................................................................................................. 2

GLOBAL WINE PRODUCTION AND CONSUMPTION ......................................................... 2

WINE: 2012 GLOBAL BALANCE? ............................................................................................ 2

PRODUCTION: VINEYARDS, VOLUME & VINTAGE ........................................................................ 3

THE EMERGING BULK MARKET ................................................................................................ 4

CONSUMPTION: DEMAND DRIVERS ......................................................................................... 5

EUROPE: THE 2012 VINTAGE ......................................................................................... 7

FRANCE ............................................................................................................................. 7

ITALY ................................................................................................................................. 8

SPAIN ................................................................................................................................ 8

OTHER EU WINE COUNTRIES.................................................................................................. 8

EUROPEAN REGULATORY REFORM ........................................................................................... 8

MARKET IMPACT ........................................................................................................... 9

CONCLUSIONS AND PERSONAL COMMENTARY ............................................................ 11

BIBLIOGRAPHY ............................................................................................................. 13

APPENDIX I: ADDITIONAL CHARTS & DATA ................................................................. 16

APPENDIX II: HISTORY OF EC WINE REFORM ............................................................... 19

APPENDIX III: ECA ISSUES ASSOCIATED WITH THE VINE PULL SCHEME (VPS) ............... 20

APPENDIX IV: CAP SUBSIDIES & BENEFICIARIES ........................................................... 21



Introduction

Equilibrium.

On the surface, the wine market might approach 'equilibrium', where all wine produced globally is consumed.1

According to the Organisation Internationale de la Vigne et du Vin (OIV), there may be a shortage2.

Historically, the world's wine producers have had to compete with a structural over-supply situation3, a force

which limited price increases.

This essay investigates the state of wine supply and demand on a global basis in 2012 and explores the critical

issues facing Europe's largest producers and the cause of this supposed state of equilibrium.

Global Wine Production and Consumption

Wine: 2012 Global Balance?

Historically, the wine market has seen a state of oversupply. Since the late 1990s, this gap has been as much as

60 million hectolitres per year4. Oversupply has been a chronic issue driven first by excess production and then,

in 2008, a crushing reduction in demand due to the global recession5.

In 2012, the OIV reported that the difference between global wine production and consumption in 2012 will be

closer than ever and will approach equilibrium.6 Specifically, the net difference is projected to be anywhere

between -2.9 Mhl and 14.3 Mhl, with a target of 5.7 Mhl7. Once consideration is made for distilled spirits, the OIV

expects there to be a deficit for the third consecutive year8.

The following offers a snapshot of global supply and demand for wine products9 (next page):

1 OIV, State of the Vitiviniculture World Market, March 2013, p. 8

2 ibid, p. 8.

3 ibid, p. 8.

4 Op cit., OIV, March 2013, p. 8.

5 Rabobank, Q3 2012 Global Wine Industry. From PR Newswire, Oct 9, 2012.

6Op cit., OIV, March 2013, p. 8.

7 ibid, p. 8.

8 ibid, p. 8.

9 OIV, Statistical Report on World Vitiviniculture, 2013, pages 6, 15.



Figure 1: Global Wine Production & Consumption, with Ending Inventories, 2001-2012e

Global consumption has been weak since 200910, but the real change is coming from a decrease in production

starting in 2005.

Production: Vineyards, Volume & Vintage

In 2012, total world vineyards was forecast to be 7.5 million hectares, down approximately 4.4% from the peak in

2002 of 7.9 million hectares11. Most of this decrease was felt in Europe.

Production data shows that there has been a significant shift from the 'Big 3' producers (France, Italy, Spain) to

emerging suppliers, who continue to grow and expand the total area available for vines, with the biggest

increases coming from Chile (+45%), China (+18%) and Portugal (+8%)12.

Yield on a global scale also suffered in 2012, mainly due to disastrous weather in most of the world's major wine

producing countries. Examples include Australian harvests at a 5-year low, Burgundy off 40% from 2011 and Italy

facing its smallest harvest since 195113.

10

United Nations, World Economic Situation and Prospects as 2012, p. 7. 11

Op cit., OIV, 2013, p. 6. 12

ibid, p. 17. 13

Adam Lechmere, 'Prices to rise as global wine production at lowest level for decades', Oct 31, 2012. Other reports: New Zealand, down 20% from 2011; France down roughly 20% (Burgundy off 40%, Champagne off 25%); Spain's Rioja region down 30%, with all of Spain reduced by 6%; Argentina output down 24%.



The following chart summarizes global production trends14:

Million Hectolitres

2000 2012(e) Difference % change

Europe - Fr, Sp, It 150,853 111,874 -38,979 -26%

Europe - Other 25,576 21,614 -3,962 -15%

USA 21,500 20,510 -990 -5%

China 10,500 14,880 4,380 42%

Australia 8,064 12,660 4,596 57%

Chile 6,674 12,554 5,880 88%

Argentina 12,537 11,778 -759 -6%

South Africa 6,949 10,037 3,088 44%

Brazil 3,638 2,917 -721 -20%

World Total 280,000 252,000 -28,000 -10%

Table 1 Global Wine Suppliers, 2000-2012(e)

From a trade perspective, world export volumes grew from 43 million hectolitres to a little more than 100.

Exports from the 5 major countries (France, Italy, Spain, Germany and Portugal) nearly doubled, but the market

share decreased from 80% to 62.3%. Notable countries or regions that have increased market share and volume

of exports include South America, the US, South Africa, Australia and New Zealand15.

The Emerging Bulk Market

The 'bulk market' refers to the shipping of 'raw' wine in bulk (not bottles) to the markets where it will be bottled

and consumed, saving substantially on the cost of shipping and packaging16. Rabobank estimates that this saving

can be as high as USD 1 billion dollars per year17.

There are many benefits associated with bulk shipping18, but Rabobank points out that the key motivation behind

all of this is to supply product 'more geared to consumer demand' in turn leading to the 'democratisation of wine

over the past two decades'19.

14

Op cit., OIV, 2013, p. 16. 15

Op cit., OIV, 2013, p. 16. 16

Rabobank, Industry Note #296, January 2012, p. 1. 17

ibid, p. 1.

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A key contributor to the evolution of the bulk market is the growth of the giant retailer and demand for

consistency and low prices for entry-level wines. Aldi, owner of Trader Joe's, and Tesco, the UK grocery chain, are

a critical function behind the sale and distribution of wine today.

Ultimately, what we're seeing is the commoditisation of wine20, where location of production matters less than

the final style of the wine and 'any price premium accepted by consumers for a given country-of-origin brand has

become relatively small21.

Consumption: Demand Drivers

Economic Trends

Global GDP in 2013 is expected to remain relatively stable. According to the International Monetary Fund (IMF),

the balance of risks to global growth has improved since the October 2012 World Economic Outlook

(WEO), but the road to recovery remains bumpy and uneven for advanced economies.22

That said, America seems to be recovering23, with GDP growth expected to be approximately 1.9% in 2013. The

economies of the European Community remain stable24, despite a number of ongoing debt issues25. Growth in

emerging and developing economies will be aggressive, at 5.3% in 201326.

These growth rates translate to demand. 2012 OECD figures suggest a rise in the 'global middle class' from

around 1.8 million today to 3.2 billion by 2020. Asia Pacific's middle class purchasing power is set to grow from

23% to 59% while North America and Europe may drop substantially27.

This shift in growth is driving demand for wine in new regions of the world28. Industry experts are predicting that

more than 1.2 billion bottles of wine will have to be added to satisfy new demand29.

Consumption by Country

The US is now the world's largest buyer of still wine both with respect to absolute number of consumers30 and

also with respect to total volume31.

Traditional European countries have seen a consumption decline32. However, other countries are picking up the

slack, including sizable gains with China, the UK, Russia, Canada, Japan, Australia and Chile.

18

ibid, p. 2. Examples: environmental value (less fuel used), tax savings, transportation costs and packaging costs. 19

ibid, p. 3. 20

Op cit., Rabobank, p. 7. 21

Op cit., Rabobank, p. 8. 22

International Monetary Fund, World Economic Outlook, April 2013, p. 45. 23

BBC Business News, "IMF Head Warns US Debt Crisis Threatens World Economy", Oct 3, 2013. 24

EC Eurostat, September 2013. 25

WSET Commentary, 'Global Market: Euro Crisis, Backgrounder', 2013. 26

International Monetary Fund, World Economic Outlook, April 2013, p. 13. 27

Andrew Catchpole, The Drinks Business, 'Global Demand Rises Despite Poor Harvests', Feb 6, 2013. 28

ibid. 29

ibid. 30

Wine Market Council, "Forecasting Wine's Future", Slide 2. O'Donnell, Wine Spectator, 'Forecasting Wine's Future', Aug 7, 2013. 31

The OIV still puts France in the lead. Op cit., OIV, 2013, p. 19.



China in particular has shown as significant leap in the volume of consumption, from 10.7 to 17.8 million

hectolitres in 2000 and 2012, respectively, making it a net importer of wine33. What's significant is that China

does not register in terms of per capita consumption34; at just 0.35 litres35. Logically, if per capita consumption in

jumps, we should expect the production/consumption gap grow.

Demand: Other Factors

Other major factors that influence global demand for wine include:

1. Trends with taste preferences,

2. Labelling (and the ability of the end consumer to understand what they're buying),

3. Exchange rates,

4. Demand for local products,

5. Income and wealth changes in emerging countries, particularly China,

6. Regulatory and trade-related threats,

7. Shipping costs

While these topics are beyond the scope of this essay, the trends with taste preferences in the US are worth

noting. The US has emerged as the world's largest consumer of wine36, as taste preferences shift from beer

towards spirits and wine37. Reasons for this shift include health, the economy (especially for lower-income

brackets) and a taste for sweeter products38. Wine drinkers now outnumber beer drinkers in the US by a 2-to-1

ratio39.

Baby Boomers (those aged 49-67) and Gen-Xers (37-48) make up the majority of wine drinkers, but Millennials,

(18-36) are driving the future of the market. They are buying more products like rosé and sparkling, along with

blends from regions and countries other than California and unique varietals40. According to Stephanie Gallo, VP

Marketing with Gallo Wines: "Every morning we wake up there are 11,000 Millennials that turn 21, and they don’t

view wine as an elitist beverage"41.

32

Consumption in Italy, for example, has hit the lowest level since unification of the country in 1861. Lucy Shaw, The Drinks Business, 'Italian Wine Consumption Hits Record Low', Oct 29, 2013. 33

Op cit., OIV, 2013, p. 19. 34

ibid, p. 20. 35

Wikipedia, 'Wine in China, Market Trends'. 36

Wilmore, James, Just Drinks, 'Just 5 Years Ago: US Predicted to Become World's Biggest Wine Consumer', Sep 2, 2013. 37

Derek Thompson, The Atlantic, 'Why Are American Drinkers Turning Against Beer?', Aug 5, 2013. 38

ibid. 39

Wine Market Council, "Forecasting Wine's Future", Slide 1. 100 million wine vs. 50 million wine. 40

ibid, Slide 2. O'Donnell, also Wine Spectator, 'Forecasting Wine's Future', Aug 7, 2013. 41

Patrick Schmitt, The Drinks Business, 'US Wine Sales: 'Nowhere to go but up'", Oct 7, 2013.



Europe: The 2012 Vintage

Historically speaking, up to 80% of world wine was produced in Europe42. In 2012, this figure fell to just 53%43.

France, Italy and Spain account for roughly 80% of European production and they showed the biggest net drops in

wine production over this period44 mainly due to EC market reforms and bad weather.

European production is anticipated to drop 9% from 2011 to 2012, from 156 mhl to 141 mhl, respectively45,

continuing a downward trend.

France

France remains the world's largest wine producer, with 2012 production at 40.6 mhl, down 19% from 2011, the

smallest since 199146. The big year-over-year change is due to an inflated crop in 201147, but also to response to

EC reforms (details below) and climate issues in specific regions.

EC reforms encouraged French farmers to reduce total vineyards from 836,000 hectares in 2009 to 800,000

hectares in 2012.

In Bordeaux, a wet spring lead to 'uneven flowering and a reduced crop'48. Most experienced producers found

themselves cautiously sorting through their harvest. Burgundy growers endured an even more challenging year:

'frosts, hail, poor flowering, mildew, oidium, and excess heat' lead to a 30% reduction in Cote de Nuits and 50% in

Cote de Beaune49. Growers in Champagne and the Loire faced similar trials with weather, both expecting a big

42

Kym Anderson & Signe Nelgen, University of Adelaide, 'Global Wine Markets, 1961 to 2009: A Statistical Compendium', Table 96. Available from http://www.adelaide.edu.au/wine-econ/databases/GWM/. 43

Op cit., OIV, 2013, p. 16. 44

Ornella Bettini, USDA Foreign Agricultural Service, 'EU-27: Wine Annual Report & Statistics', p. 3. 45

ibid, p. 3. 46

Jane Anson, 'Bordeaux 2012: Region Braces Itself for Winemaker's Vintage', Aug 30, 2012. http://www.decanter.com/news/wine-news/530400/bordeaux-2012-region-braces-itself-for-winemaker-s-vintage 47

Op cit., Bettini, p. 3. 48

Wine Spectator, 'Vintage Report, France', Nov 16, 2012. Hourtin-Ducasse, a Cru Bourgeois, said they won't produce a 2012 because of the bad start to the year (Decanter, 'Bordeaux 2012: Cru Bourgeois Property Will Not Make Any 2012', 2012. 49

Op cit., Wine Spectator, Nov 16, 2012.



drop in production. Up to 200 Beaujolais growers have threatened to close their doors permanently because of

the weather50. The Rhone enjoyed better conditions, allowing volume that was 'close to normal'51.

Italy

From 2000 to 2012, Italian vineyards dropped from 908,000 to 769,000 hectares. For the same period,

production was down 22% and from 2011 to 2012 alone, production dropped 8% from 42.7 mhl to 39.3 mhl.

Market reforms and weather issues contributed to the drop and experts report that the Italian harvest was the

lowest in nearly 60 years52. Most major regions of Italy were hit with double-digit declines in production, with the

exception of Sicily, which increased.

Spain

Once again, the reported volume for Spain was the lowest in decades. Like France and Italy, this was a response

to market reforms and weather.

Growers pulled more than 200,000 hectares of land in Spain from 2000 to 2012 in response to market reforms.

Drought hit in 2011 and continued through 2012, having a big impact on the Central Regions, especially La

Mancha. The net result was the production dropped 5.7%, from 33.4 mhl in 2011 to 31.5 mhl in 2012.

Other EU Wine Countries

Germany, Portugal, Greece and Bulgaria reported modest gains in production in 2012, with increases of 2.5%,

4.4%, 4% and 2%, respectively. Romania, Austria and Hungary all reported modest drops in production53.

European Regulatory Reform

Europe has a history of over-production of wine mainly due to a legacy of subsidies and non-market incentives,

starting from the early days of the Common Agricultural Policy (CAP) when 'farmers were paid to produce goods

for which there was no market'54. After hundreds of billions in subsidies55, some of the largest recipients of CAP

funds are those that clearly do not need it56, or funds were used for activities that conflicted with environmentally

sound principles, amongst other things.

In response to routine surpluses, EC reforms began in 2000, with the majority of these changes introduced in

200857.

50

Panos Kakaviatos, Decanter Online, '200 Beaujolais Properties To Close Says French Media', Feb 5, 2013. 51

Op cit., Wine Spectator, Nov 16, 2012. 52


Op cit., Bettini, pp. 4-5. 54

European Crop Protection, Common Agricultural Policy (CAP). As found on http://www.ecpa.eu/information-page/agriculture-today/common-agricultural-policy-cap. 55

Costa et al, Modelling the Effects of the EU Common Agricultural Policy, Dec 2009, p. 15. 56

Paul Flynn, The Costs of the Common Agricultural Policy, Council of Europe Parliamentary Assembly, Report to the Committee on the Environment, Agriculture and Local and Regional Affairs, July 12, 2005. 57

Official Journal (OJ) of the European Union, OJ L 148, 6.6.2008, p. 1.



The core objectives of the reforms were as follows:

Make EU wine producers more competitive: enhance the reputation of European wines and regain

market share both in the EU and outside

Make the market-management rules simpler and more effective: achieve a better balance between

supply and demand

Preserve the traditions of wine growing and boost its social and environmental role in rural areas.

The reforms were grouped into two categories: (i) Support Measures and (ii) Regulatory Measures58. While all of

the components had varying degrees of impact, the most significant of all of these reforms - both in terms of

impact on land available for grape growing and more importantly on the volume of wine produced - was

commonly referred to as the 'Grubbing-Up Scheme' or 'Vine-Pull Scheme' (VPS), part of the Support Measures

reforms.

The VPS refers to financial or other support granted to vine growers to voluntarily pull up their grape vines in a

parcel or holding of land59. Farmers also lost the corresponding planting rights once they received the support60.

The primary objective of the VPS was to eliminate or greatly reduce marginal vine growing acreage and less viable

vineyards61.

The VPS was implemented in 2008 with a budget of €1.074 billion to be used accordingly:

Wine Year 2008/09 2008/09 2008/09 Total

Budget (€ million) 464 334 276 1,074

Aid rates per hectare were based on historical yields, so the actual payment per hectare varied widely from

€1,450/ha to €12,300/ha. The incentives behind the program lead to an exceptional response: over the three-

year period, growers claimed more than 350,000 ha of land, with less than half of that actually accepted (177,171

ha) and ultimately grubbed-up (160,050 ha). Based on the final amount, the average payment was €6,692/ha.

Despite concerns expressed by the European Court of Auditors62, the net effect of the VPS was profound. In 2000,

European vineyards represented 3.3 million hectares (mha) of land, or 57% of all of the world's land under vine.

By 2012, this number was forecast to be a little more than 2.8 mha, or just 48%63.

Market Impact

When Trader Joe's (owned by Germany's discount chain Aldi) increased the price of their famous 'Two-Buck

Chuck' for the first time in the 11 years of its existence, from $1.99 TO $2.49 per bottle, it became apparent that

the basic price of wine is set to change64.

58



European Court of Auditors (ECA), 'The Reform of the Common Organisation of the Market in Wine: Progress to Date', Special Report No 7, p. 19. 61

ibid, p. 24. 62

ibid, pp.25-36. 63

Op cit., OIV, 2013, p. 7.



Of course, the market impact is not just felt on a circumstantial basis. Federico Castellucci, Director General of

the OIV, said ‘there’s a lack of product in bulk. Merchants worldwide are starting to turn to the small countries

for bulk wine65.’ However, demand for bulk wine is driving up prices everywhere. For example66:

Spain: a litre of bulk white wine in Castilla-La Mancha costing €0.48, as compared to €0.28 in 2011

Italy: a litre of Pinot Grigio from the 2012 vintage rose to €1.30-€1.45 from around €1.20-€1.30 last

month, up to a 20% increase

Similarly, according to Nielsen MAT data to 21 July 2012, the average price growth rate for leading countries

represented in UK multiple grocers has soared. Chilean wine saw the largest price hike of 9.7%, with Germany not

far behind at 8.2%67.

In terms of the hardest hit categories, Jeremy Howard, Slurp CEO, highlights the following: "Sauvignon Blanc from

New Zealand will probably see increases at around 18%, Burgundy [is] predicted to rise 30% over the 2011

vintage."68 Slurp also anticipates the end of cheap Pinot Grigio from Italy69.

Other notable increases came from France at 6.6%, the US at 6.5% and Argentina at 6.0%. Even Spain, which has

been regularly highlighted by UK buyers as a current source of good value, delivered an average price increase of

3.9%70.

Global shortages, especially in Europe, are also hitting 'downstream' producers hard. For example, Port relies on

brandy and brandy relies on excess still wine. The cost of grape alcohol has soared by 370% since the EU distilling

subsidies ended in 200871. Therefore, an increase in the price of basic still wine will result in higher prices (or a

shortage of supply) for inputs for distillation and fortified products. The OIV has already predicted a shortage of

spirit72 for the production of Port, resulting in an increase in the price from €1.60 in 2011 to an estimated €3 (as of

late 2012) and higher by the end of 201373.

64

Megan Willett, Business Insider, Trader Joe's Is Raising The Price Of Its 'Two-Buck Chuck', Jan 24, 2013. 65

Adam Lechmere, 'Prices to rise as global wine production at lowest level for decades', Oct 31, 2012. 66

ibid. 67

ibid. 68

Op cit., Catchpole, The Drinks Business, 'Global Demand Rises Despite Poor Harvests', Feb 6, 2013. 69

ibid. 70

Gabriel Savage, The Drinks Business, 'Small 2012 Harvest Sparks Supply Fears', Oct. 30, 2012. 71

Gabriel Savage, The Drinks Business, 'Supply Shortages Demand Structural Change', Jan 30, 2013. 72

Patrick Schmitt, The Drinks Business, 'Brandy Price Surge Hits Port', Oct 29, 2012. 73

ibid.



Conclusions and Personal Commentary

Casual observation of basic factors and data invite the conclusion that the world is in a state of equilibrium when

it comes to global demand and supply for wine. Supply management tools and market reforms leveraged in

Europe, excessively bad weather and moderate changes in global demand seem to have eliminated massive

surpluses of wine.

These changes have lead many experts to anticipate price increases74 and more opportunities for non-European

suppliers and branded wine companies75. Finally, the market situation should also boost demand for quality

products from Europe76.

However, after reviewing many of the details associated with the major European producers and the structure of

demand on a global basis, the market equilibrium may be short-lived.

With respect to demand, the global economy continues to teeter and suffer from a general sense of malaise to a

broader concern of disaster. Whether or not this 'doomsday scenario' will come to fruition is as predictable as

the last major shock experienced in 2008. Until then, the economic stability of the global economy is described as

being 'steady', at best. Within the wine market, what happens in two countries - the US and China - will have a

profound effect on the total market, especially if per capita consumption continues to rise in China and if either

slip economically, demand for cheaper wine will increase, driving delivery of bulk sales.

The supply side of the equation doesn't offer much comfort either. Now that the major non-market incentives

offered by the EC have come to an end or will face tighter scrutiny, there's a risk that producers will simply

increase yields with their crops as opposed to elevate quality, ultimately resulting in a flattening effect with

prices. In fact, it would be prudent for Europe's 'Big 3' to re-evaluate the extensive volume of vines pulled, simply

to respond to the growing demand that should arise from emerging markets.

That said, the ultimate effect of what we're seeing with both production and supply, particularly once the impact

of the bulk market and emergence of big retailers is taken into account, is an inversion of the historical axiom of

the wine market. Traditionally, we've seen the world of wine revolve around location, which dictated varietals

used and ultimately the style of wine.

74

Op cit., Catchpole, Feb 6, 2013. 75

Op cit., Savage, Jan 30, 2013. 76

Op cit., Catchpole, Feb 6, 2013.



Figure 2: How Wine Was Figure 3: How Wine Will Be?

However, more and more commercial suppliers are acting on and generating consumer demand for wines that

focus on style first. Many wines are simply named after adjectives like 'Bodacious'. The average consumer then

asks about varietal and possible location.

Once this inversion becomes universal, the majority of wine produced worldwide will likely tip towards being a

commodity as opposed to a premium good.



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Savage, Gabriel, The Drinks Business, 'Supply Shortages Demand Structural Change,' Jan 30, 2013. Available from

http://www.thedrinksbusiness.com/2013/01/supply-shortages-demand-structural-change/

Schmitt, Patrick, The Drinks Business, 'Brandy Price Surge Hits Port', Oct 29, 2012. Available from

http://www.thedrinksbusiness.com/2012/10/brandy-price-surge-hits-port

Schmitt, Patrick, The Drinks Business, 'US Wine Sales: Nowhere to go but up', Oct 7, 2013. Available from

http://www.thedrinksbusiness.com/2013/10/us-wine-sales-nowhere-to-go-but-up



Shaw, Lucy, The Drinks Business, 'Global Wine Production Hits 37-Year Low', Oct 31, 2012. Available from

http://www.thedrinksbusiness.com/2012/10/global-wine-production-hits-37-year-low

Shaw, Lucy, The Drinks Business, 'Italian Wine Consumption Hits Record Low', Oct 29, 2013. Available from

http://www.thedrinksbusiness.com/2013/10/italian-wine-consumption-hits-record-low

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http://www.thedrinksbusiness.com/2012/10/wine-prices-to-rise-after-poor-2012-harvest/

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http://www.un.org/en/development/desa/policy/wesp/wesp_current/2011wespupdate.pdf.

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http://en.wikipedia.org/wiki/Wine_in_China#Market_trends

Willett, Megan, Business Insider, "Trader Joe's Is Raising The Price of its 'Two Buck Chuck'", Jan 24, 2013.

Available from http://www.businessinsider.com/trader-joes-raises-price-of-two-buck-chuck-wine-2013-1

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consumer_id111374.aspx

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study_id108394.aspx

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September, 2013.

Wine Enthusiast, 2012 Wine Vintage Chart, www.winemag.com/PDFs/Vintage_Chart_WEB2012.pdf‎

Wine Market Council, 2012 US Wine Consumer Trends & Analysis Report. Available from

http://winemarketcouncil.com/research/

Wine Spectator, 'Vintage Report, Europe', Nov 16, 2012. Available from

http://www.winespectator.com/webfeature/show/id/47691.



Appendix I: Additional Charts & Data

World Economic Situation, United Nations, World Economic Situation and Prospects as 2012, p. 7

TOTAL PRODUCTION / CONSUMPTION RAW DATA:

Source: OIV, Statistical Report on World Vitiviniculture, 2013, pages 6, 15.

Consumption Production

Millions hecto litres Difference

% Difference

2012 243 252 9 3.6%

2011 244 267 23 8.6%

2010 242 264 22 8.3%

2009 243 272 29 10.7%

2008 251 269 18 6.7%

2007 255 268 13 4.9%

2006 247 283 36 12.7%

2005 239 278 39 14.0%

2004 239 296 57 19.3%

2003 237 264 27 10.2%

2002 230 257 27 10.5%

2001 228 265 37 14.0%

2000 226 280 54 19.3%



AMERICAN ALCOHOL PREFERENCES:

http://finance.yahoo.com/news/why-american-drinkers-turning-against-175102749.html



DOWNSTREAM PRICE IMPACT

From http://www.thedrinksbusiness.com/2013/01/supply-shortages-demand-structural-change/2/



Appendix II: History of EC Wine Reform

The following is a summary of the European regulatory framework related to wine77:

1957: Treaty of Rome - trade agreement of the founding European trade nations

1962: formation of the Common Organisation of the Market (COM) in wine

o Guaranteed sales through intervention measures such as distillation and export refunds

o Critical to the creation of a structural surplus of wine in Europe

o Establishment of viticultural land register

o Stricter rules on 'quality wines PSR'

1970: definition of different types of wine

o Declaration of free movement in wine

o Rules on wine production

1976: Ban on new planting and the obligation to distil surplus production

1979: introduction of subsidies for concentrated must used for enrichment

1987: series of financial incentives related to VPS

1999: COM reform focused on reinforcing interventionist measures such as export refunds and support

for distillation and storage

2005: Preparatory work on reform launched

2006: Commission communication to the Council and the European Parliament ('Towards a Sustainable

European Wine Sector')

2008: COM reform initiated

o Implementation of grubbing-up scheme

o Elimination of planting rights, which may be reinstated in 2015

o Abolition of the 'crisis distillation scheme', or subsidies paid for distilled wine

o Single payment scheme, coupled with environmental regulations

o Green harvesting

o Mutual funds

o Harvest insurance

o National envelopes created for funding allocations

o Promotion in third-country markets

o Rural development funding

o Organic wine definitions

o Oenological Practices, focusing on changes to sulphite limits

o Labelling requirements, including amendments to allow for indication of grape variety and

allergens

o For details of these reforms, please consult Official Journal of the European Commission, L 148,

6.6.2008, Regulation (EC) No 479/2008 and No 555/2008.

2015-2018: COM expected to re-introduce ability to plant new vines within select areas

77

Council Regulation (EC) No 479/2008; European Commission, 2008a.



Appendix III: ECA Issues Associated With The Vine

Pull Scheme (VPS)

Late in 2012, the European Court of Auditors (ECA) reviewed the VPS and delivered a number of concerns78:

Lack of any specific Key Performance Indicators (KPIs)

Aid rates set at too high levels, as indicated by the volume of claims versus payments

Priority to farmers aged 55 or older

Payments to commercially viable properties

Post-payment land use, mainly with an eye to ensure compliance and adherence to regulatory

requirements (Author note: estates may purchase existing vineyard land. This has attracted investors and

large firms like Antinori into the area. Many farmers are willing to sell, since the co-op subsidies are now

largely gone).

Ineligible actions

Farmers being paid for grubbing-up and replanting

An increase in yield per hectare to offset production from land for vine growing

With respect to yield, the ECA showed that despite the massive decrease in land used for vines, production

actually increased in some regions. For example, France, Spain and Italy all saw increases in total yield compared

to the total change in production related to grubbing up.

78

European Court of Auditors, 'The Reform of the Common Organisation of the Market in Wine: Progress to Date', Special Report No 7, pp. 24-25.



Appendix IV: CAP Subsidies & Beneficiaries

Source: http://assembly.coe.int/ASP/Doc/XrefViewHTML.asp?FileID=10983&Language=EN

The largest 2.5 per cent of holdings account for around 20 per cent of total payments, while the smallest 30 per cent receive less than 6 per cent of the total. Money is being channelled to people and regions who are rich already, while the poor remain poor. The OECD has also calculated that support through CAP goes to the largest farms which are least likely to suffer income problems. The 25% largest farmers receive 70% of support. The consequences of rewarding large scale farming can be seen in environmental damage and dumping on the developing world. This is likely to be exposed further in the UK by the provisions of the Freedom of Information Act 2000. CAP has become a form of income support for the super rich:

Table 11

Landowner Acreage Value Subsidy Entitlement

Duke of Buccleuch 270,900 €857 (£598m) €29.2 (£20.4m)

Estate of Atholl dukedom 147,000 €286 (£200m) €15.7 (£11.0m)

Duchy of Cornwall 141,000 €688 (£480m) €15.2 (£10.6m)

Duke of Northumberland 132,000 €663 (£463m) €14.9 (£9.9m)

Duke of Westminster (excluding London) 129,000 €645 (£450m) €13.2 (£9.2m)

The Department for the Environment, Food and Rural Affairs in the UK decided to publish the recipients of subsidies in March 2005, (names and amounts received), in the financial years 2002-03 and 2003-04. This goes substantially further than the information in Table 11 and confirms the findings of Oxfam discussed in earlier paragraphs. The figures revealed in this release of information are quite staggering. The largest cash subsidy paid out in the year 2003/04 alone is a massive €182m (£127m), paid over three separate claims, to corporate giants Tate & Lyle, who claim a profit of €322m (£225m) for the same year. Another multi-million pound company, Meadow Foods Ltd, receiving a little under €43m (£30m). The problems caused by the EU Sugar regime for the developing world and companies manufacturing goods containing sugar were highlighted on page 7. Subsidies to companies account for the largest amount of CAP payments. The list also includes individual recipients of this income, and a notable figure is the €1.15m (£800,000) paid to the Duke of Westminster over the past two years. This vast sum is small change to Britain's second richest man, worth over €7.1bn (£5bn). The top individual recipient is Sir Richard Sutton, gaining €3.15m (£2.2m) over two years. He owns land with a net worth of €172 (£120m). Even the Royal Family receive subsidy payments, with the Sandringham estate receiving €1m (£700,000), and the Duchy Home Farm, Prince Charles' estate, receiving €430,000 (£300,000). The bottom 100 names on the list received less than €35 (£25) in subsidy in 2004.

Table 12 - Individual recipients of CAP subsidies

Individuals Estate Estimated Personal Wealth in 2004

in € (£s)55

CAP Subsidies Received between 2002 and 2004

in € (£s)56

Sir Richard Sutton Sir Richard Sutton Settled Estates

€172 (£120m) €3.15m (£2.2m)

http://assembly.coe.int/ASP/Doc/XrefViewHTML.asp?FileID=10983&Language=EN#P724_55587

http://assembly.coe.int/ASP/Doc/XrefViewHTML.asp?FileID=10983&Language=EN#P727_55694



The Vestey Family Thurlow Estates €1bn (£700m) €2.15m (£1.5m)

Alan Turner Water Priory and Lovenden Estates

€111m (£78m) €3.5m (£2.5m)

Duke of Marlborough

Bleinheim Farm Partnerships €1.39bn (£97m) €1.43m (£1m)

The Parker Family Blankney Estates €100m (£70m) €1.41m (£986,000)

Earl of Radnor Longford Farm €93m (£65m) €1.29m (£900,000)

Earl of Plymouth Earl of Plymouth Estates €43m (£30m) €1.29m (£900,000)

Duke of Richmond Goodwood Estates. €64.5m (£45m) €1.29m (£900,000)

Duke of Westminster

Grosvenor Estates €7.1bn (£5bn) €1.1m (£799,000)

The Queen Sandringham €368m (£250m) €1m (£700,000)

Duchy of Cornwall Duchy Home Farm €573m (£400m) €430,000 (£300,000)

Table 13 - Top 10 Companies in receipt of CAP subsidies in the UK in euro (£)

2002-03 2003-04

Tate & Lyle Europe €109m (£76.17 m) €139.8m (£97.56m)

Meadow Foods Limited €28.2m (£19.71m) €37.17m (£25.93m)

Tate & Lyle Europe €26.89m (£18.76m) €29.37m (£20.49m)

C Czamikow Sugar Limited €20.57m (£14.56m) €28.04m (£19.56m)

Granox Limited €20.97 (£14.63m) €25.02m (£17.58m)

Co Op Centrale Rai Ffeisen Bank - €21.74m (£15.17m)

Philpot Diary Products Ltd €27.31m (£19.05m) €21.26m (£14.83m)

Fayrefield Foods Ireland Ltd - €20.54m (£14.33m)

Lisburn Proteins €20.32m (£14.18m) €16.75m (£11.69m)

Nestle UK Ltd €28.38m (£19.80m) €16.6m (£11.61m)

This kills the myth that farm subsidies are shoring up poor farmers. Large landowners and companies receive large payments, while many small farmers receive tiny amounts of support year, exploding the myth that CAP primarily helps small farmers. Further enriching the super-rich is a loathsome waste of public money.

CAP has not prevented a decline in agriculture and has stifled innovation by protecting the industry from the realities of the market. To some extent, as farmers have come to rely on CAP payments, they have not needed to attempt other means of making money. CAP has been used as a crutch by some to avoid competition from overseas.

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