- Logistic costs have increased drastically. Consequently, when shipping red wine from Australia the freight can be more expensive than the wine itself.
- Production remains stable, so drastic changes in 2022 for bulk wine production seems unlikely.
- Consumption is harder to gauge. Buyers are hesitant and waiting for things to settle.
Logistic Costs Spiralling
“We all know that we will have to talk about the logistics issue as well as the shortage and rising cost of dry goods before talking about future wine deals,” stated Ciatti Europe broker Nicolas Pacouil to Ciatti’s Global Report this month. “It looks like the situation will stay like this for the next couple of years: we are not going to be back to normal so quickly.”
Ciatti Chile broker Marco Adam, who attended ProWein added: “I expect much discussion about how world affairs are currently impacting the global wine industry – the Russia-Ukraine conflict, spiralling logistics costs and delays, dry-good shortages, inflation etc. – as well as speculation as to when these issues will pass: everyone will want to give their own theory!”
The unpredictable increase of logistical costs was a hot topic at ProWein, for example: Shipping red wine from Australia means paying more for the freight (roughly €0.42 /l cost) than the wine itself, around €0.40 /l.
Yes, we sell, but we don´t ship!
Some wineries, which aren´t even able to ship their stock for months, asked a Californian winery if they were still selling wine. The answer: Yes, we sell, but we don´t ship!
Slower Market for Red Wines
The OIV’s latest ‘State of the World Vine & Wine Sector’, published in April, gave a preliminary global wine production figure for 2021 of 260 mill. hl, in line with 2020 and slightly down from the ten-year average, with good harvests from the Southern Hemisphere offsetting the impact of spring frost in Europe. Global consumption, meanwhile, was estimated at 236 mill. hl. In short, global production has remained adequate to cover consumption. This fact, plus the general consumption shift in some markets towards white wines – as well as the fall in Chinese demand since 2018 – explains the generally slower market for red wines as opposed to whites. Argentina, France, Australia, and Spain all have large volumes of uncontracted bulk reds, at stable or softening prices.
Outlook 1: Production and Consumption in 2022
What about production this year? Chile, South Africa and New Zealand are tentatively reporting average-sized harvests for 2022. Argentina seemingly had a smaller-than-average crop but is forecast to have over 600 mill. l of carryover stock by June due to falling sales. Australia’s crop size will have been partly constrained by some red grapes being left on the vine, in response to the drop in exports to China following China’s imposition of extra import tariffs in 2020. A wet spring in Spain has allayed drought fears and brought confidence of a good-sized crop; the April frost that hit France’s Southwest is expected to have a limited impact on the overall crop potential; conditions have been good in Italy. In short, drastic changes to bulk wine availability patterns looks unlikely.
Inflationary pressure leads to unclear sales patterns.
This year’s consumption, however, is harder to gauge. The ‘cost of living crisis’ has pushed COVID-19 from the headlines in many markets and we are in an intermediate stage where an unleashing of pent-up consumer demand after two years of lockdowns is colliding with a rising awareness of inflationary pressure, leading to unclear sales patterns. Consequently, there is some buyer hesitation while they wait for the settled, long-term trends of our post-pandemic world to crystallise.
Outlook 2: Quo vadis ProWein?
At this year’s ProWein, many of the new world sellers were amazed by the different climate they faced: Germany was green, the Altstadt was crowded, it was nearly the complete opposite scenario to March when winter still defines the weather. Does this mean we should stay with the new date? Opinions clearly differ here:
- Some sellers voted quite clearly to move ProWein 2023 to May, some even preferred July! This is quickly explained: During March, the southern hemisphere is busy harvesting, so it’s always a big sacrifice to leave the winery in the middle of the harvest. Some suppliers who never attended the fair before were motivated this time, since harvest had been completed during the weeks before.
Another positive aspect: Southern hemisphere suppliers were able to show 2022 white wines, some even asked to move to July because they could present also fresh 2022 red wines.
- But although buyers enjoyed tasting fresh 2022 southern hemisphere white wines as well, most wouldn’t agree to move the fair to May, since in a normal year, tenders are already closed and signed by then. So, May would be too late, especially in a short year when wines need to be secured early.
Ciatti can draw on its decades of experience to help you navigate the market, whatever it brings. Don’t hesitate to get in touch.