Northern Hemisphere Wine Situation and Outlook
The European Union (EU) remains the major producer and consumer of wine in the world. The 3 largest wine producing countries (France, Italy, and Spain) are all members of the EU.
Production levels during 1997 for France (55.5 million hl), Italy (50 million hl), and Spain (34.4 million hl) are estimated at 139.4 million hl, down 8 percent because of lower production in France and Italy.
Reduced wine production in the major EU wine producing countries during the past few years has made some of the issues of the Common Agricultural Policy (CAP) Reform for wine less topical. The CAP Reform for wine was not approved by the EU Commission. Lower expenditures on the distillation programs also have eased the pressure for reform. However, it has been announced that a new and re-oriented proposal will be released next spring. Industry sources indicate the new proposal may maintain certain support measures, such as storage aid, vineyard restructuring and upgrading programs as well as domestic market development enhancement. Also, it is expected that uprooting programs, particularly in Spain, will be relaxed. It is also anticipated that the current vineyard planting ban will be maintained. With respect to chaptalization, the practice of adding sugar during fermentation to increase alcohol content, a comprise is expected to be reached between the Northern and Southern European countries.
In December 1997, the EU Agricultural Ministers extended the U.S./EU Wine Accord until the end of 1998. The terms of U.S.-EU wine trade are governed by the 1983 Wine Accord, which expired in 1993. Under the 1983 Accord, the United States obtained temporary derogations from EU restrictions on certain enological (wine-making) practices and from certain cumbersome certification procedures.
World's Largest Wine Producer
France maintained its title as the world's largest wine producer in 1997. The 1997 wine output is estimated at 55.5 million hectoliters, down 7 percent from the previous year because of lack of rain. Also in certain regions in France, mainly the Southwest, some vines were affected by diseases which resulted in severe damage and a decrease in production. The decline will affect mainly table wine instead of "quality" (VQPRD) wine. The 3 largest French wine producing regions (Languedoc-Roussillon, Charentes/Aquitaine, and Provence/Alps/Cote d'Azur) represented 72 percent of total French production.
France also leads the world in per capita consumption of wine. French wine consumption is estimated at 60 liters, down more than 50 percent since 1970. In response to increasing competition in Europe and in view of changing consumer preferences in France and foreign countries, ONIVINS and SOPEXA have launched advertising campaigns targeting both domestic and export markets. On the domestic side, campaigns focus on regional wines; however, the focus is on "quality" (VQPRD) wines for international markets.
In 1996, the total value of French wine exports increased 9 percent from the previous year to $4.8 billion. French wine exports in 1996 totaled 13.6 million hl, up 13 percent from the previous year. French exports represent more than 30 percent of total French production, or one bottle out of every three bottles. Other EU member states remain the largest export markets for French wine. Other growing markets for French wine include Hong Kong, Taiwan, and Malaysia. French exports to the United Kingdom ($84 million), Germany ($84 million), and the United States ($64 million) increased by 10 percent.
Total French imports in 1996 decreased 14 percent in volume to 5.2 million hl and increased 4 percent in value to $509 million. Most of the French imports consist of bulk table wine, representing 68 percent of total wine imports. France's major suppliers were Italy, Portugal and Spain, with each supplying respectively 3.3 million hl, 0.5 million hl, and 0.8 million hl.
Lowest Production Level in 40 Years
Italian wine production in 1997 is estimated at 50 million hl, down 15 percent from the previous year. Production is estimated at the lowest level in the last 40 years. Unfavorable weather (frosts) last April, dramatically cut yields in many leading producing regions. However, the 1997 vintage is expected to be remembered as one of the best, in terms of quality for the whole century. Weather conditions sharply cut yields but also supported excellent crop development. As a result the average quality of the production is considered "excellent." For example, in Piedmont, the 1997 vintage is claimed to be the best in the last 50 years, especially for the most prestigious red wines, like Barolo, Barbaresco and Barbera.
Italian exports in 1996 declined to 13.4 million hl, down 22 percent from 1995, mainly due to the lower import demand from other EU countries. The drop in exports mainly affected shipments of bulk table wines as well as the less expensive "spumanti" wines. The main destinations for Italian wine were Germany (38 percent), France (23 percent), and the United States (8 percent) in volume terms. Italian exports to France consist mainly of bulk table wines (96 percent of total) while 80 percent of total shipments to the United States are bottled wine. Significant volumes of Italian wine were also exported to Switzerland, Canada, and Japan. The Ministry of Foreign Trade allocated approximately $0.7 million to be channeled through the ICE (Italian Trade Commission) for foreign promotion, such as wine tastings, trade shows, etc.
The dramatic drop in Italian wine exports was a consequence of: (1) the low 1995 domestic crop, which reduced stocks; (2) the record high domestic prices that affected export demand; (3) the appreciation of the Italian lira on the currency market, making exports more expensive; and (4) the reduction of import demand from other EU countries (primarily Spain, France, and Germany) where in previous years, reduced domestic crops increased bulk, relatively cheap wine imports from Italy.
Italian wine exports are expected to have recovered slightly in 1997. During the period January through June 1997 Italian shipments rose by 3 percent in volume and 2 percent in value for the same period in 1996. Germany continues to be the main export market for Italian wines. Shipments to the United States have also increased, partly a result of the stronger dollar which makes Italian wines less expensive. However, exports to France declined 20 percent for the period January through June 1997. Exports to the United Kingdom remained stable.
Italy is the second largest wine producer; it imports less than 4 percent of total consumption. Imports totaled 0.5 million hl in 1996. Imports increased 34 percent in volume terms due to larger imports of relatively cheap French and Spanish wines because of the record high domestic wine prices. Imports are forecast at about the same level for 1997.
Spain Remains Third Largest Wine Producer
Spain's vineyard acreage is the largest in the world, accounting for 17 percent of global vineyard area. EU uprooting programs have contributed to lower Spanish vineyard area,
which has fallen from about 1.5 million hectares a decade ago to about 1.1 million in 1996/97. Nevertheless, total Spanish wine production ranks only third behind France and Italy. Spanish production is lower mainly due to limited rainfall, poor soils in certain areas, and the restrictive measures on vineyard irrigation.
Spain's 1997 wine vintage is currently estimated at 34.4 million hl, up 1.5 million hl from a year earlier. In terms of volume, this year's wine crop is an average vintage and is made up of about 10.8 million hl of quality wines, 17.6 million hl of table wine and 6 million hl of other types and must. Substantial increases in some of the largest producing areas such as Castilla-La Mancha and Estremadura have more than offset decreases in other wine producing areas. Unfavorable weather conditions such as frost in central Spain and hail in eastern Spain reduced wine yields in areas such as Ribera del Duero, Valencia, and Galicia.
Spanish wine exports in 1996 are estimated at 7.2 million hl. Wine exports did not recover from pre-drought export levels. The rest of the EU continues to be the dominant foreign destination for all types of Spanish wines, followed by the United States and Canada for quality wines, and certain African markets for table wines.
In 1997 and 1998, Spanish wine exports are forecast to increase because of reduced supplies of other EU wine producing countries coupled with more normal domestic crops.
In 1996, total Spanish wine imports fell dramatically in terms of volume from 259 million liters to 119 million liters. In terms of value, imports declined from $148 million to $80 million, especially for table wines. Due to more normal grape crops in the last two years, Spanish wine imports are forecast to decline substantially in 1997 and remain stagnant or increase moderately in 1998.
Record Level Production and Exports
U.S. wine production in 1997 is estimated at a record 25 million hl, up 32 percent above the previous year's output. The wine grape crush is estimated at a record 3.6 million tons in 1997, up 32 percent from 1996. California accounted for approximately 3.5 million tons, 96 percent of total U.S. grape crush.
As wine production reached record levels in 1997, U.S. wine exports also boomed. U.S. wine exports (including cider, fermented beverages, and must) reached a record $415 million in 1997, up 30 percent from the previous year. Grape wine represented most of the $415 million of wine exports, except $27 million, consisting of fermented beverages and cider. U.S. wine shipments reached 2.2 million hectoliters (hl) in 1997, up 26 percent over the same period of the preceding year. More varieties of higher quality U.S. wine, robust foreign demand, and market promotion efforts all boost U.S. wine exports.
The three top markets for U.S. wines are Canada, the United Kingdom (U.K.) and Japan, which together accounted for about 54 percent of the value of 1997 exports. The most impressive value gains of 1997 were in Taiwan (up 303 percent); Hong Kong (up 125 percent); and France (up 89 percent). The export base for U.S. wine is also expanding, with significant new markets developing in both Europe (Germany, Switzerland, the Netherlands, Sweden, Ireland, and France) and Asia (Hong Kong, Singapore, South Korea, and China). The graph highlights the top 10 U.S. wine export markets in 1997.
The aforementioned growth markets are targeted under the Market Access Program (MAP) which provides funds, administered by the Foreign Agricultural Service, to help U.S. producers, exporters, and trade organizations finance promotional activities to increase consumer awareness of U.S. wines. MAP activities conducted by the U.S. wine industry include participation in trade shows and wine fairs, tastings, in-store promotions and displays, restaurant menu promotions, trade seminars, trade and media tours, public relations work and media events, advertising, and production of educational materials. For example, representatives of the U.S. wine industry plan to use MAP funds to participate in the first Wine & Spirits Asia show in Hong Kong, June 16-18, 1998. This Wine and Spirits Asia show is being organized by the sponsors of the VinExpo show in Bordeaux, France. Many U.S. wineries interested in China and other Asian markets are looking forward to this show as an opportunity to expand their market knowledge and presence there.
U.S. Wine Exports to Japan Rebound
Japan remains the third largest U.S. wine export market. U.S. wine exports to Japan recovered in 1997 after a slight decrease in 1996 because of Japan's economic downtown. Exports to Japan totaled $39 million in 1997, up 26 percent from 1996. However, the United States is beginning to lose its 9 percent market share to new competitors such as Chile and South Africa, countries which are leveraging Japan's recent economic downturn with reasonably priced wines. The challenge for U.S. wine exporters is to effectively promote the comparative advantage of high-quality, reasonably priced U.S. wines.
Japan imported 1.7 million hl of wine in 1997, up 27 percent from the previous year. However, factors which affect wine imports are changing. For example, wine pricing in Japan has undergone a revolution over the past 2 years. Before the recessions, wines were positioned by retailers as premium products with relatively high prices and high margins. However, this strategy has changed. Retailers and department stores are pursuing a strategy of pricing wines in the $5 to $15 range, with emphasis on the lower end of the price range. This strategy has opened up wine consumption to a younger clientele and has been the basis of a modest recovery in the domestic market for wine. Another trend over the last 3 years has been the general decrease in the container size of wine products selling in the Japanese market. The standard 750 millimeter (ml) bottled previously accounted for over 60 percent of domestic production; however, smaller-sized bottles, such as 200 ml, have gained considerable market share. While imports are still primarily 750 ml bottles, imported half-sized bottles are on the rise and selling well through restaurant channels.
New Markets Continue to Grow
The export base for U.S. wine and wine products continues to expand. Taiwan emerged as the fifth largest market for U.S. wine exports in 1997. Taiwan reported the greatest gain during 1997 in both value and volume terms of the top 20 export markets. Value of U.S. wine exports to Taiwan increased 303 percent in 1997, up from $5.1 million to $20.5 million. In terms of volume, exports were up 228 percent to 115,000 hl.
Germany remained the fourth largest export market for U.S. wine. Exports to Germany in 1997 reached $25 million, surpassing the 1996 level.
New markets are developing in both Europe (France, Switzerland, the Netherlands, Ireland and Belgium) and Asia (Hong Kong, Singapore, South Korea, and China). Exports to France jumped 89 percent to a record $6.3 million in 1997. France moved from 15th to 13th largest export market.
U.S. Wine Imports Continue to Grow
The United States remains a net wine importer. Wine imports in 1997 reached $1.7 billion, up 20 percent from 1996. In volume terms, wine imports rose 26 percent to 4.5 million hl. France, Italy, and Chile are the 3 largest wine suppliers to the United States, accounting for 78 percent of wine imports. Imports from France, Italy, and Chile total $1.3 billion. In volume terms, the three largest suppliers account for 3.5 million hl of imports.
For further information on supply, distribution and trade, contact Yvette Wedderburn Bomersheim at 202-720-9903. For information on U.S. marketing opportunities, contact Gina Castelnovo at 202-720-0898.