Wine trading, production, and consumption have in the past decade undergone significant development. The growth in the international wine trade is an indication of the ever-improving consumer demand across the globe. During the 2007-2008 global financial crises, the wine market around the world declined by an estimated 3.7% and this was attributed to a reduction in the product demand (Rinaldi 6). In both Europe and the U.S. supply of wine reduced during this period. With the economic recovery in 2009, international wine trade started improving. A boost in the global wine market was caused by the 2.86% rise in the consumer demand in Asian countries for wine (Marks 250). The gap between the supply and demand of wine in the global market has since 2013 expanded. Emerging markets in South America and Africa led to a 3% increase in the consumer demand for wine in 2014 (Veseth). Major producers of the product in the Northern Hemisphere and Australia were forced to increase the supply of wine in the global market by an estimated 4.23% (Rinaldi 6) In most parts of 2015 and 2016, cases of unpredictable climatic patterns had a negative impact on vine fruits harvests and by extension, this led to a reduction in the supply of wine in the global market by 2.l5% (Rinaldi 6). During the same period, however, the demand for wine continued increase in both the northern and southern hemisphere. In 2017, production of wine reduced by 3% across the Northern Hemisphere and this was caused by the unpredictable and severe climatic conditions that led to low harvests. The poor harvest that was recorded in most of the Winelands in 2017 was in contrast with the growth in the consumer demand around the world, and this explains the widening supply and demand gap (Rinaldi 6). Most financial analysts argue that wine production in terms of volume by major producers such as the U.S., France, and Italy has in the past decade been on the decline despite the growth in the consumer demand. Consequently, this has played a major role in contributing to widening supply and demand in the global wine market.
The 2017 vintage
Since the onset of phylloxera, 2017 was the most disaster-strewn year for the wine industry. Farmers in the northern hemisphere reported low harvests and this led to a significant reduction in the volume of productions. The international wine trade in 2016 was very promising and this was attributed to the growing demand of the product. However, in 2017, things started worsening in April with the unfavorable weather conditions that affected the vines in farms (Wood). The 2017 vintage proved to be the worst year for the wine producers. There are various factors that led to the reduction in the vine fruits harvests in the Northern Hemisphere and the new world.
The year 2017 started with wildfires in countries such as Portugal, Chile and South Africa that are known for their vineyards. In Portugal, for instance, large parcels of vineyard land were affected and this damaged crops that were to be harvested in mid-2017. Some of Chile’s oldest vineyards were also damaged by wildfires in February and March 2017. Farmers in the country complained about the massive losses that the destructions in the vineyards had brought to their doorsteps. In early October, Northern California, popularly known for its vineyards was hit by wildfires that wiped out some of the major vineyards in the region. Parts of South Africa Winelands were also affected by wildfires and this had a negative impact on the wine production in the country (Wood). The wildfires returned to Portugal and Northern Spain in mid-October and this further led to destructions in some of the finest vineyards in both nations. The wildfires in Portugal, Chile, South Africa and Parts of Northern California contributed to poor harvests of vineyard fruits in the year ending 2017. Consequently, this partially played a role in the reduction of global wine production.
The April frost of 2017 had a negative effect on the volume of vineyard fruits that were harvested in the Northern Hemisphere. In the past two decades, issues of climate change have been witnessed around the world and they are majorly caused by human activities. In 2017, frosts hit the larger parts of the Northern Hemisphere and Winelands were among those farms that were worst impacted by the frosts. Farmers in Europe complained about the poor quality of their vineyards. The subzero chills negatively impacted the budding grapevines from the Rhine and Rhone to the southern regions of Roja. In France, estimated 30% to 50% of the vines were impacted by the frost and this led to massive losses among the farmers that had invested in vineyards. The damage that was brought about by the frosts in the vineyards was the worst since 1991. Some farmers in St-Julien and St-Émilion claimed that they lost 70 to 100% of their vineyards and this led to one of the poorest harvests in the Northern hemisphere. The frost conditions in various parts of Europe in April 2017 had a negative impact on the growth of vines and this led to poor harvests in the region. Farmers complained that they had invested heavily in the vineyards only for the frosts to cause them damage and financial losses. Around 70% of grapes from areas such as Cerons, Portets, and parts of Cadillac suffered from hail and this implied that early harvesting became a major issue. Right Bank saw around 75% of the frost and this led to a reduction in the grapes’ harvest.
Climatic conditions in 2017 were very uncertain and this made it hard for the vineyard farmers to predict on the most appropriate time to grow the vines. In August, for instance, most of the wine-growing regions experienced drier hot summers that were characterized by high temperatures and low rainfall. Drought conditions in some of the Winelands proved it hard for the vines to grow. According to farmers in Argentina, Chile, and Northern California, extremely high temperatures during the summers affected the growth of the vines. Some of the farmers claimed that they suffered estimated 65% in terms of losses due to the drought conditions. Wine stands at the apex of agriculture and this imply that any losses occurring may have a negative impact on the economy of a given country. High temperatures and low rainfalls affect vine buds and this is one of the reasons that led to poor harvests in 2017. In some of the vineyards in Italy, estimated 45% of grapes were damaged due to irregular rainfall that was experienced in the region. Subsequently, farmers were faced with the challenge of low volumes of harvests. Some of the farmers that went for early harvests managed to get only 40% of their projected production. Drought conditions that are usually characterized by irregular rainfalls and extremely high temperatures have a negative effect on the growth of vines. Farmers in those regions tend to low volumes of harvests.
The supply crunch
Extreme weather conditions in 2017 led to an acute drop in the global wine production. Severe spring frosts and hot weather conditions had devastating effects on most of the vineyards in the Northern Hemisphere. The International Organization of Vine and Wine (OIV), during the annual conference for international trade, confirmed that wine production in Italy, France, and Spain dropped to 250 million hectolitres in 2017 and this was the lowest level that had been recorded since 1967. Compared to the previous year, the drop in production represented an 8.6% decline and this was attributed to unfavorable climatic conditions across the EU such as heat waves that hit Italy and France and frost (Jefford). Production in Europe fell by 14.6% and is a major wine producer; the impacts reverberated across the globe (Jefford). However, countries such as the U.S., Brazil, Argentina and South Africa witnessed a slight increase in their wine production. The wine production was at a historic low since the 1960s and its various implications. Expansion in the gap between supply and demand is a worrying trend in the wine sector.
The plummeting of the global wine production to an almost six-decade low came along with different implications. Firstly, at the end of 2017, there was a significant shortage in the supply of various wine brands in the retail stores (Jefford). A reduction in the supply of wine spewed into 2018 and this had a negative effect on the revenues generated by the producers and manufacturers. Most wine companies are depended on wine sales for their financial performance. However, in the event of a decline in the sales of the wines, then they are likely to face losses. With the reduction in the global wine production, especially in the Northern Hemisphere, there was a reduction in the supply of wines to retailers and wholesalers. Subsequently, this had negative impacts on the revenue generated by the manufacturers, retailers, and wholesalers. The supply crunch due to the decline in the global wine production also affected the sustainability of firms such as Sonnet Wine Cellars and Runquist Wines. The companies are, however, currently making immense progress in terms of their financial performance. In the next year, should global production of wine improve, there will be an increase in the supply of wine around the world. Financial analysts argue that more start-up wine manufacturers may decide to get into the market.
The reduction in the global production of wine in 2017 led to the widening of the gap between supply and demand and this is devastating for any industry. An increase in the demand of the product, while supply is on the decline, contributes to a reduction in consumer loyalty to a given brand. In the past year, some wine companies have experienced shrinking in their market segments and this has in return led to a reduction in their revenue generation. Some of the suppliers of wine started focusing on other beverages and this further led to the scarcity in wine availability. At the beginning of 2018, the gap between demand and supply in the global wine market was significantly wide and this trend was worrying to most investors and shareholders. Customers were forced to divert their attention to substitute products such as beer and whiskeys, thus further negatively affecting the performance of the wine sector (Jefford). Customers will always prefer purchasing products from those organizations that can meet their tastes and preferences and those that have the commodities at their disposal. With the acute drop in the global wine production in 2017, customer loyalty to wine brands also reduced.
The acute drop in the global production of wine also led to an influx in the counterfeit wine products in the market. According to the International Organization of Vine and Wine (OIV), reported cases of counterfeit wine rose by 2.34% as at the end of 2017 and by mid-2018 (Jefford). The issue was major causes by the supply crunch that had been pushed by the decline in wine production in 2017 (Randox Food Diagnostic). Some distributors and companies decided to start profiting by depending on the sale of counterfeit products. On several occasions, consumers are never keen on whether they are purchasing genuine or counterfeit products. The circulation of counterfeit wine products in the market thus increased in late 2017 and the start of 2018. Currently, wine manufacturers are optimistic that the supply of wine is expected to increase as at the end of 2018, supply is expected to increase. However, until then, the firms need to continue implementing strategies that will continue meeting the ever-growing consumer demand. An increase in the counterfeit wine products in the global market may have a negative effect on the market shares of those companies that focus on the quality of their products over greed.
Another implication of the acute drop in global wine production is the rise in the prices of wine products. Fearing for a decline in their revenue generation, most of the manufacturers in the Northern Hemisphere opted to increase the prices of the various wine products. In such cases, consumers are the ones that are worst hit by the decisions made by manufacturers and distributors (Anson). Extreme climatic conditions led to poor harvests of grapes leading to a reduction in the supply of wine. A reduction in the various types of wine brands on the global market implied that the only option that the manufactures had on the table was to increase the prices of wine. With the enhancement in the global wine production in 2018, it is expected that product supply will increase to meet the ever-increasing consumer demands. The International Organization of Vine and Wine is optimistic that the prices of various wine brands will reduce as at the end of 2018.
Evolution of the global wine industry
The history of the wine industry dates back to the BC era and it can be traced from the Greek. The period 1000BC is attributed to the invention of wine and the production process in regions such as France, Italy and Spain. By 1500 BC, wine processing had spread to America and South Africa. All along, however, Europe was known for its fine wine that met the needs of various consumers in the market (Hirst). The wine was majorly used by the people for entertainment and was usually homemade. After the debacle of the Romans, wine in 1600 BC, wine production was severely affected forcing some of the producers of the beverage to shut down their operations. In the 17th century, there was a global rise in the trade of wine and this was caused by the emergence of colonies. Fine wine from Europe was supplied to colonies and was only meant for the colonizers (Marks 251). The colonization period witnessed a significant increase in the large-scale production of fine wine. Moreover, remarkable innovation was witnessed through an improvement in the storage of wine. The sector started storing the commodity in airtight glass bottles instead of the oval barrels that were commonly used.
Till the 19th century, wine production across the globe had immensely increased and this was attributed to factors such as innovation and the growing consumer demand. By then, there was a narrow gap between the supply and demand of wine to customers, most of who came from Europe. In the mid-19th century, Europe, a major producer of wine was worst hit by phylloxera epidemic (infection of the vineyard). The wine industry was negatively affected starting from when the epidemic hit to the late 1800s. Other than the epidemic, some of the European nations started anti-alcohol campaigns in the 1890s and this further crippled the wine sector. The gap between demand and supply of wine widened during the period of the phylloxera epidemic (Insel 47). Most farmers in Europe were forced to clear their vineyards thus suffering from massive losses.
Industrial revolution came at a time when the wine sector was struggling due to various external and internal factors. The U.S. ban on alcohol consumption in the 1920s had a negative effect on the wine industry. Supply of wine from both the U.S. and Europe reduced significantly and this led to the crippling of the European economy. However, when the alcohol consumption ban was lifted in 1933, global production of wine improved. After World War II, the wine industry underwent a transition that led to an improvement in the global production of wine. In the 60s, for instance, Europe was a major producer of wine. However, countries such as Australia and New Zealand, some of the South American nations and Northern America joined the bandwagon. Production of wine around the world increased in the 70s and 80s and so did the consumer demand (Insel 46). The period from 1970 to 1990 witnessed a narrow gap between the supply and demand of wine across the globe (Insel 47).
In the 1990s, consumers emphasized high-quality wine and this forced various individual firms in the sector to change their production processes. Integration of new technologies meant that the volume of production for various wine manufacturers improved significantly. In the mid-1990s, wine consumption in various parts of Europe dropped by an estimated 7% and this was caused by factors such as the Russian and Asian financial crisis and social changes (Insel 46). Global supply of the product slumped during the period thus resulting in the widening of the gap between demand and supply. Government regulations such as high taxation on alcoholic drinks had a negative effect on the performance of the wine sector.
The period from 2000 to 2007 witnessed a remarkable enhancement in the wine industry. Production volumes of wine manufacturers around the world increased during this period and this was caused by advancements in the levels of technology, an improvement in the marketing strategies relied by the individual companies and the growth in the customer demand. The gap between the supply and demand was narrow, and this was an indication that the wine sector was performing well. However, during the global financial crisis of 2007 to 2009, there was stagnation in the global production and sale of wine (Insel 47). Since then, the wine sector has tried to improve its production by relying on high-quality vines, proper management of the vineyards and integration of advanced technology. The acute drop in the production of wine around the world in 2017 had a negative effect on the performance of the wine industry. Currently, the gap between supply and demand in the wine sector has widened and this has forced individual companies and investors back to the drawing book. In the future, it is expected that the wine industry will continue being a major contributor to economic growth not only in the northern hemisphere but also around the world.
Conclusion
Global production of wine has in the past decade been on the decline and this is attributed to the ever declining product supply. The 2017 vintage year was the worst for the wine sector and this was evidenced by poor harvests due to unfavorable weather conditions. In the future, companies in the sector will have to implement innovative strategies that will be essential in the reduction of the ever-widening gap between supply and demand of the wine product.
Work Cited
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Jefford, Andrew. "2017 Vintage: One Of The Most Disaster-Strewn Years On Record? - Decanter." Decanter. N.p., 2018. Web. 14 Oct. 2018.
Marks, Denton. "Competitiveness And The Market For Central And Eastern European Wines: A Cultural Good In The Global Wine Market." Journal of Wine Research 22.3 (2011): 245-263. Web.
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Veseth, Mike. "Supply And Demand « The Wine Economist." Wineeconomist.com. N.p., 2018. Web. 14 Oct. 2018.
Wood, Zoe. "Global Wine Production Predicted To Slump To 50-Year Low." the Guardian. N.p., 2018. Web. 14 Oct. 2018.
