2018: that was the year that was
By Richard Siddle
Apologies for starting the end of the year reviews when the majority of the wine industry is still head down trying to eek as much revenue, profit and sales out of the remaining days of 2018.
But before we head into one of the busiest weeks of the year it’s also good to stop, take a breath and look back on another tumultuous year in the world of wine.
The most obvious conclusion you can make about 2018 is that it was a whole lot better than 2017 when producers, buyers, importers and retailers were all having to grapple with what was the lowest global production of wine since the early 1960’s.
It saw the balance of power shift dramatically in favour of the major producers and brokers who had access to volumes of wine that buyers were so keen to get their hands on. It opened the doors to new routes of supply, particularly from Eastern Europe and the Balkan States, and saw a very different mix of wines on retailers’ shelves the world over.
By contrast, 2018 has been a year when the wine industry has returned to its factory settings. From January, through to the peak harvest months in Europe, it has been a continuous good news story from most of the major wine producing countries around the world.
Starting in South America and Chile and Argentina at the beginning of the year and then over to Australia, New Zealand and South Africa, the news was all about average or above average crops with good quality wine right across the board. Yes, there were blips along the way and some regions did not do as well as the country overall, but the message to the rest of the world was that the southern hemisphere was back on track which undoubtedly helped calm the market down.
That momentum has now continued up to the northern hemisphere and with strong, or at worst average harvests in all the main Old World European countries desperate to make up for the weak 2017 harvest.
All this good news has seen a return to normal trading conditions, where the buyers hold all the cards and can take their pick from where they source their wine, which was very evident at last month’s World Bulk Wine Exhibition in Amsterdam.
“Awash with wine”
Only 12 months before buyers had been desperately running around the exhibition floor screaming “there’s no wine!.” This year the mood was very different. “Availability is back!” was very much the takeaway line from this year’s show, perfectly encapsulated by Jonathan Skinner, head of procurement at major UK bottling and wine development company, Broadland Wineries: “The number one thing is that availability is back in play, so that will change the dynamics of the market, back in favour of the buyer. Prices are softening (so) it’s a huge swing, from struggling to find anything, to the market being awash with wine.”
All of which might not be good for producers in terms of the prices they can get for their grapes, but at least they have wine to sell and get the cash flow running through the supply chain again.
The issue of pricing is always at the heart of how the global bulk wine industry operates, with one country’s harvest - and availability - having a knock-on effect on the prices in competing countries.
It’s clear looking at the pricing trends in most of the major bulk producing countries that prices are being squeezed downwards with most varieties 10%, or even 15%, lower from where they were 12 months ago. That is likely to continue into the first quarter of next year as the wine sector awaits the results of the next southern hemisphere harvests and the whole supply/demand cycle starts again.
Trading deals - and wars
It’s no longer just pricing that dictates where buyers look to go for their wines, but increasingly decisions are being based on where it is the easiest to do business. We are now living in a world dominated by trade agreements and tariffs where the political machinations between major powers around the world is having a direct impact on which countries are best placed to trade in wine.
For example, the fallout from President Trump’s protective trade policies, and particularly its trade war with China has virtually put a stop to the US’s ability to export wines there.
By contrast China’s free trade deals with Chile and Australia has transformed the export strategies of those respective countries which, in turn, is impacting on the amount of wine available to sell to its previously strong trading partners.
Trade deals are set to continue to dominate the political and international wine landscape in 2019.
None more so than Brexit and the UK’s continuously agonising exit from the European Union. Quite what terms that is going to be on looks like going right down to the wire, which will leave the global wine trade in limbo, not knowing what tariffs and conditions could be placed on wine being exported to the UK after March 29, 2019. Particularly in the EU itself which currently accounts for 54% of all wine imported by the UK.
Whatever happens it will directly impact on the UK’s position and significance in the global wine market, particularly as it is such an important bottling hub for bulk wine - 600m bottles are packaged there a year - both for the UK, and for re-distribution in other countries, mostly in Europe.
As the UK looks to now strike a free trade deal of its own with the EU, other major nations are ahead of them in the queue, like Japan which we can expect to become an increasingly important wine partner now it has finally got its free trade deal with the EU.
Then there is the Pacific rim trade deal - the Trans-Pacific Partnership - which will really take effect in 2019 now that Australia has become the sixth country to ratify it alongside 10 other counties allowing for free trade between Australia, Chile, Brunei, Canada, Japan, Malaysia, Mexico, Singapore, New Zealand, Peru, Singapore and Vietnam.
Going private
Other key growth areas in 2018 we can expect to see more of into the new year is the growth and importance in private label and exclusive wine labels. The US, for example, has finally woken up to how important private label can be in taking more control of your own supply chain and setting your own prices. This can only become more widespread as the hard discounters, which thrive and survive on their own exclusive brands, become a more significant part of the US retail scene.
Between them VINEX calculates the global market for brokered bulk wine and private label brands is 10.3bn litres, worth US$21.7bn, split 4.1bn litres for bulk and 6.2bn litres for private label.
Lighter and brighter
2018 was also the year when the world fell in love with lighter, fresher, brighter wines, and turned their back even more on the heavy, oak laden, high alcohol, fruit bombs of the past. A collective desire to cut down on drinking and alcohol levels, coupled with changing tastes has opened the way for a whole new array of grape varieties. Which is particularly good news for Mediterranean varieties and the lighter red and white grape varieties in Spain and Italy that are now also finding homes all over the New World too.
It means we could see the big power varieties that have driven the wine agenda for the last 10 years have some good, healthy competition, both in styles of wine, price of grapes and availability.
Which has to be good news for producers and buyers alike the world over.