The Rising Cost of Making Wine and More

The big news this week certainly is the OIV report on the state of the wine world. We will cover this in a dedicated article, but that’s not all that happened as China directly and indirectly dominates the headlines as does the rising cost of making wine. All this in the latest edition of the JollyCellarMaster Weekly:

 

Looking Elsewhere For New Friends and Opportunities

Good Things Come In Threes?

An interesting saying but will it be the solution for Australian wine and its China problem? Remember that Australia exports a lot of its production with the actual number being somewhere around 60%, and that almost 40% used to go to China only a few years ago. Then China decided to set duties starting between 116% ad 218% for wines from Down Under for the next five years as a trade dispute between the two countries escalated.

China had launched an investigation and a subsequent ruling established that “dumping and subsidies have occurred in imported Australian wine, which caused substantial damage to the Chinese wine industry“, which led to the measures. Others see it as payback for Australia’s prime minister going on record last year calling for an international investigation into the origins of the coronavirus.

And that was pretty much the end as imports to Australia’s trade former top export market dropped to close to zero as result of the tariffs.

Australia being as pragmatic as it is looked elsewhere to find a new home for its wine and one of the trade deals struck was last year with the UK, but being already a fairly saturated market, it couldn’t cover as much as it was necessary.

So the news that Australia had struck an agreement with India brought big hopes for troubled ears. In a statement, Wine Australia General Manager Corporate Affairs and Regulation Rachel Triggs said that“there is potential for growth in the sale and consumption of Australian wine in India with Australia already having the greatest share of the imported wine market. In particular, the AI ECTA will make India a more viable proposition for small to medium winemakers who have not previously contemplated entering into that market.“

Yet, while the optimism may be warranted to an extent, it is questionable India can replace the enormously important Chinese market.

Wine Australia states that in the 12 months to the end of December 2021, Australian wine exports to India increased by 81 per cent in value to $12 million – a record value of Australian wine exports to India. Volume also increased by 71 per cent to 2.5 million litres, and 74 per cent of this volume of wine was red wine.

That is good news but needs to be put in perspective: in 2019, China became Australia’s first AUD $1 billion (USD $733 million) a year wine market. Compared to the $12 million in India that’s quite a difference. Still, it’s a start and every little helps as they say.

 

The Bigger Picture in China

Talking about China, Australia may have seen the biggest drop in exports of recent for a very specific reason. Yet, the times that China was the solution to all big wine producing countries seem to be over, at least for the time being.

Latest data published on Vino-Joy based on China Customs information shows the continual decline of China’s wine imports, as the ‘zero covid policy’ upheld by the country with 52 million wine drinkers continues to weigh down on demand. From January to March, wine imports to China plummeted 22% in volume to 84.1 million liters, compared to the same period last year. In value terms, wine imports fell 21.1% to approximately RMB 2.23 billion (US$344.5 million).

While this latest drop may be dependent on the another Covid outbreak and resulting lockdown, the greater trend shows that the OIV numbers had been decreasing for some time: reaching the peak in 2017 with 751 million hl per year, imports declined year-on-year to 687 million hl in 2018 to 621 million hl in 2019 (when Australia breached the AUD $1bn mark) to a mere 430 million hl in 2020.

Since the latter are not official numbers, which in general are not always easy to obtain, this could well be Covid-related, too. Still, the overall trend is evident. On the other hand, while things may not be as good as they used to be only a few years ago, that is still a pretty big number, don’t you think?

 

Everything is just getting more expensive

The declining imports of China aren’t the only cause for concern for the wine sector though. It is a number of reasons that make a vintner’s live more difficult and some are obviously connected. Covid, the war in Ukraine, supply chain disruptions and lack of resources – all adds up and the result is an increase in costs, no matter where you are.

That’s also the message from a study presented at the recent Vinitaly in Verona. Entitled “Stress test: Italian wine under the economic test” and put together by Banco Bpm and Prometeia the war in Ukraine has resulted in a downward revision of almost 3 percentage points in the two-year period 2022-2023 due to the growth in world demand of wine. These prediction do not only come from the missing out in market opportunity in the two countries directly involved in the conflict, but the general challenges stemming from it and seen in in rising energy prices, lack of fertilizers and packaging and so on.

This may sound a little abstract and difficult to quantify, but that’s exactly what Coldiretti, the Italian industry body for agriculture, did in another study: a glass bottle costs more than 30 percent more than last year, cork closure are up 20 percent and 40 percent if made of other materials, labels and packaging cartons have seen increases of 35 and 45 percent. Add to that the increasing cost for machinery, road transport, container and sea freight. Doing that, Coldiretti calculated that since the end of February the costs for Italian wine have increased by 35 percent, which eventually will be passed on the consumer.

And that’s all for the week in general terms. In the meantime, if you have an interesting story to tell or simply want to chat about wine as a guest on the Podcast, connect on Twitter or drop me a line. And if you want to stay in the loop about things happening at the JollyCellarMaster and the world of wine, make sure you sign up to our newsletter.

Disclaimer: As always, I’d like to be completely transparent about affiliations, conflicts of interest, my expressed views and liability: Like anywhere else on this website, the views and opinions expressed are solely those of the original authors and other contributors. The material information contained on this website is for general information purposes only. I endeavour to keep this information correct and up-to-date, I do not accept any liability for any falls in accurate or incomplete information or damages arising from technical issues as well as damages arising from clicking on or relying on third-party links. I am not responsible for outside links and information is contained in this article nor does it contain any referrals or affiliations with any of the producers or companies mentioned. As I said, the opinions my own, no liability, just thought it would be important to make this clear. Thanks!

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