California: surplus or glut?

Wines & Vines, August, 2001

With the harvest of 2001 about ready to get underway in the Northern Hemisphere, there is growing evidence that we are on the brink of a global wine surplus, if not already well into a situation which some are calling a "wine glut."

Don't shoot the messenger, but after checking with sources in Europe and California, and looking at the 2001 harvest reports from Australia and Chile, the news isn't good.

One California source who spoke only on condition of being nameless said if this year's harvest is another record-breaker in California, we can expect vineyards to be pulled and some wineries not to crush.

Let's do the numbers. According to research by Vinexpo, the world wine industry will face a surplus of over 100 million hectoliters (1 hectoliter equals 26.4 U.S. gallons) a year by 2005. Here's how they get to that estimate: 272 million hectoliters were produced in 1999, up 18.3% from 1994. With new plantings that total will reach 282 million hectoliters by 2005, which seems fairly conservative.

Compare those numbers to consumption levels that saw 188.42 million hectoliters drunk in 1999, up 8% on 1994 but already far below production. Assuming a 5% increase by 2005 (and there seems no reason to be so optimistic, given current consumption figures) the surplus will reach 100 million hectoliters.

These dire numbers were reported back in February by justdrinks.com, the London drinks site, but no one seems to be paying any attention.

True, some of the excess will go for distillation or into the concentrate market, but it won't be enough.

The major increases in production between 1994 and 1999 have come from Australia, up 49.1%, North America, up 40.5% and South Africa, also up 40.5%. The only countries to have witnessed a decrease in production were Argentina (-12.6%) and Italy (-1.54%). In both cases, lower production was due to a move away from low-priced bulk wines to premium wines. Even so, the decreases were small compared to increases elsewhere.

Even in Western Europe, where efforts to reduce yields have been going forward for almost two decades, there was a 17.3% increase in production, despite a drop in total land planted to vines. The increase is doubtless the result of better viticultural techniques and better clonal selection.

Over the next five years, the Vinexpo report forecast a 33.9% increase in production in South Africa and 33.2% in Chile.

Are you worried yet?

The European Union (E.U.) is. In the past few months, the E.U. ordered a "crisis distillation" of Italian and German wines, probably the first of many.

Australia's 2025 Plan

In 1996, the Australian Wine Federation launched its Strategy 2025, with the stated intention of planting 40,000 hectares (1 hectare equals 2.47 acres) of vines by 2025. The 2025 goal was reached last year, 25 years ahead of schedule. Does that mean Australia is going to quit planting? Not bloody likely, mate.

While Australia is shooting for an annual increase in exports of 8%, global consumption is growing by only 2%, according to a study published in Australia written by Dr. Sandro Mangosi, a wine industry economist.

Mangosi noted that Australian wine producers had targeted the United States and Germany for an annual growth rate of 23%, a figure that he called "rather optimistic."

In line with Mangosi's comments, Australia had expected to move ahead of France and become the top off-sale import in the United Kingdom by the end of the year. In fact, for the first four months of 2001, France fought off the Australian challenge, actually gaining market share to 23.1% while Australia dropped back from 21.5% at the end of 2000 to 19.2%. In a statement reported by Reuters news service that must cause some alarm in Australia, Allan Cheesman, the wine director for England's giant Sainsbury supermarket chain, said "Australian wine was starting to bore Britons."

According to Mangosi, the Australian Wine and Brandy Corporation has estimated that wine production will increase from 765 million liters in 2000 to about 1.2 billion liters in 2010, a staggering rate of growth.

Mangosi concluded that despite Australia's excellent export record thus far, further penetration of export markets was likely to become much more difficult as Chile and South Africa were both increasing production aimed chiefly at the global market.

Note that the Australian Wine and Brandy Corporation put official estimates of the 2001 grape crush at 1.301 million tons, up 14% on the 2000 harvest.

China is a wild card. If Beijing were to target the western export market and divert more grapes than it currently does from its 150,000 hectares of vineyards to wine production, it could have a vast impact on the global wine surplus.

There is also the real possibility that the surplus will swell even more than expected. Advances in viticulture, including more productive clones and rootstocks, means that every new acre planted will produce more grapes than a new acre planted 20 years ago. In view of that, it's worth noting that the California Department of Food and Agriculture estimates that the state's 1999 winegrape acreage is 554,000 reported and unreported acres, with 424,000 bearing and 130,000 nonbearing. This estimate is based on a statistical sample, and 1999 is the last year available. If I'm doing my numbers right, it means that roughly one-third of California winegrape acreage is not yet in production.