Wine Club Newsletter - February 2014

Global Wine Shortfall Predicted

New study shows major changes to come.

By Diana Goodman

A worldwide shortage of wine is on the way, with global consumer demand already exceeding supply.

That's the conclusion of a new report from international banking firm Morgan Stanley, which shows there was an under-supply of about 300 million cases in 2012 – the "deepest shortfall in over 40 years."  

According to Melbourne-based researchers Tom Kierath and Crystal Wang: "Data suggests there may be insufficient supply to meet demand in coming years, as current vintages are released." Their statistics show that global wine consumption has been rising steadily since 1996, apart from a fall between 2008 and 2009, and currently stands at around 3 billion cases. By comparison, total production is estimated at 2.8 billion cases.

Figures released this week by the International Organization for Vines and Wines (OIV) showed that production in 2013 reached a seven-year high despite the world's vineyard area shrinking by 3,000 square kilometers since 2006. 

“After five modest harvests in a row and an exceptionally weak 2012 harvest, wine production in 2013 can be qualified as relatively high,” said OIV director-general Federico Castellucci.

However, the Morgan Stanley pair state: "Global wine production peaked in 2004 and continues to decline." Similarly, they say, excess supply peaked in the same year. It has "been in balance/under supply since 2006, working down excess inventories following an extended period of surplus."

When those inventories are exhausted, the world's wine producers will not be able to match demand.

The report says that while France remains the largest wine market in the world, the U.S. runs a very close second, consuming around 12 percent of global output (while producing 8 percent). Per capita consumption has almost doubled in the last 15 years.

China is now the fifth-largest wine importer (buying 9 percent of world supply), and together the two superpowers are "the main drivers of consumption growth." They are expected to consume more than 800 million cases by 2016.

Chinese vineyards account for 7 percent of global production, but imports will continue to grow.

While the number of U.S. producers has "expanded dramatically" in the last 15 years as "lifestyle operators" have entered the industry, the report says "this is not driving material growth in industry supply." China's wine industry, meanwhile, is still in its infancy, though it now turns out 7 percent of world production.

At the same time, Europe has 10 percent less winemaking capacity than it did in 2005, with "plummeting production, driven by ongoing vine pull and poor weather."

So, what lies ahead? The Morgan Stanley researchers forecast that the current production shortfall will "culminate in a significant increase in export demand and higher prices for exports globally." A further rise in consumption may exacerbate the shortage. 

New World producers, including Australia, Chile, Argentina, South Africa and New Zealand, stand to benefit most from increasing demand, the report predicts. It notes that the New World already represents around 30 percent of global exports, compared to less than 3 percent in the early 1980’s.