A Furby shortage can put a damper on the fun of shopping for holiday gifts, no doubt. But how much darker would the season be if there were a scarcity of wine for all those holiday toasts?
That's the question we may be forced to ask ourselves if we're to believe a recent research study that suggested the world may be running out of wine. In October, Morgan Stanley Research warned that wine production in 2012 was 300 million cases short of filling all the globe’s goblets. This, the report said, was the worst deficit in half a century.
And researchers said matters were likely to worsen as growers reduced crops while wine consumption boomed. Their somber conclusion: “Data suggests there may be insufficient supply to meet demand in coming years, as current vintages are released.”
Glass Half Empty
The Morgan Stanley analysts, who work out of the company’s Australian office, included in their report a plug for Treasury Wine Estates, an Australian public company, and it may be that their enthusiasm for wine investments has clouded their insight into the wine business. Because when you talk to people in the wine industry, the overriding attitude seems to be: shortage? What shortage?
“My personal opinion is that if demand continues to grow at current levels, yes, long term we will be looking at a tight market for wine but, paradoxically, right now we have plenty of wine,” says Mark Chandler, a wine grape grower in Lodi, California, and executive director of Wine America, a Washington-based trade association of 800 wineries in 48 states. Chandler points to record grape harvests in California the past two years as the cause of the current robust supply.
Nancy Light, a vice president at The Wine Institute, a San Francisco-based trade group that represents 1,000 California wineries, says her group's figures suggest that what’s really happening is that wine production and wine consumption have come into balance after years of significant over-supply. And the main factor creating that balance is efforts by European governments to reduce wine production.
“There was a very large surplus of wine in the EU for many years,” Light explains. “It’s decreased, but it’s still at 700 million gallons of wine. Europeans have been paying growers to distill that into alcohol for various purposes. They've also paid growers to pull out their vineyards.”
Who's Stomping Grapes?
As a region, Europe still leads the world in wine production by a wide margin. Italy, France and Spain top the list of wine-producing countries and together, create 44 percent of the 2.8 billion cases of annual global wine output. But they aren't nearly as dominant as they used to be, with the big three’s output declining about 13 percent from 2009 to 2012, according to The Wine Institute.
The United States, the world’s fourth-largest wine producer, increased its output by about 1 percent over that same span. China, meanwhile, boosted its wine production by nearly half, although it still makes only about a third as much as the U.S.
It’s not clear what the world’s 1 million wine producers are supposed to make of this froth of data, markets and government management. Long term, most experts agree, global wine production is declining, at least for the moment. Consumption, meanwhile, is increasing outside the wine-producing European countries, which have seen sustained drops in wine consumption.
Complicating the scenario is the fact that wine doesn’t exactly grow on trees. Rather, it comes from grapevines, which take seven years after planting to produce their first vintage. So if the world were, in fact, facing a wine shortage in 2013, it might not be alleviated until about 2020.
Not that that would necessarily worry wine makers, who are used to the ups and downs of this industry. “It's important for people to understand that this is a cyclical business," Chandler says, "and supply depends on a lot of factors, including weather and government policies.”
Historically, cycles of over-supply and under-supply have lasted seven to eight years, and Chandler says that in his three decades in the industry, he’s been through three of them. “Globalization has extended the cycle to perhaps 10 years," he notes, "which is a long time between profitable seasons, I can tell you.”
Growth in consumption also factors in. The U.S. is the largest market for wine and per capita consumption here is growing, up from just over 9 liters per person per year in 2009 to nearly 10.5 in 2012, according to The Wine Institute. Yet Americans’ thirst still lags far behind the likes of France, at 44 liters per person per year.
Red, White (And Blue) Vintages
When it comes to assessing the outlook for American wine businesses, developments in the U.S. wine industry may be more important than European government policies. Chief among these is the ability to ship vintages directly to consumers. Direct sales were once widely illegal in the U.S., but it's now allowed in a majority of states, which make up 89 percent of the U.S. population, Light says. That's especially important for smaller winemakers who aren’t able to get into widespread retail distribution. “It’s changed things dramatically,” Light notes.
Another change is in the expansion of wine making beyond traditional regions like the Napa Valley in California. Although California still produces 90 percent of all U.S. wine, Light says wine is produced in all 50 states now, and advances in viticulture are making it easier to grow grapes in climates other than the traditional Mediterranean type.
Wine making infrastructure is also expanding and improving. For instance, Light says California is seeing a proliferation of “custom crush” operations that will take a grape grower’s fruit and make wine. That alleviates the need to own expensive production facilities. These days, Light says, there are a lot of different ways to operate if you want to produce wines.
So if wine makers are getting smarter, does that mean a wine shortage will be averted? Not necessarily. Morgan Stanley’s forecast does support the view that we could experience tight wine supplies during future holidays. Meanwhile, the 2013 season seems safe. As Chandler says, “We're in a long-term short but a short-term long.”
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