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
2012: Global Wine Assessment
Bill Wittur Noteworthy Wines
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.
2012: Global Wine Assessment
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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%.
2012: Global Wine Assessment
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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.
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
% S
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e o
f M
arke
t
World Trade in Wine
Top 5
CEEC
S America
USA
South Africa
Maghreb
Oceania
Moldavia
2012: Global Wine Assessment
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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.
2012: Global Wine Assessment
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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.
2012: Global Wine Assessment
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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.
2012: Global Wine Assessment
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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, p. 3. 53
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.
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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
Op cit., Bettini, p. 40. 59
Op cit., Bettini, p. 18. 60
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.
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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.
2012: Global Wine Assessment
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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.
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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.
2012: Global Wine Assessment
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Bill Wittur Noteworthy Wines
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2012: Global Wine Assessment
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2012: Global Wine Assessment
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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%
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AMERICAN ALCOHOL PREFERENCES:
http://finance.yahoo.com/news/why-american-drinkers-turning-against-175102749.html
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DOWNSTREAM PRICE IMPACT
From http://www.thedrinksbusiness.com/2013/01/supply-shortages-demand-structural-change/2/
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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.
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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.
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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)
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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.