European Wine Production
Up until the 1970s, international wine trade was very limited, and most wine was consumed domestically. In the subsequent decades, however, the wine industry grew increasingly global, with consumers in many markets valuing exotic, imported wines.
Historically, France has been the world’s wine leader in both production and per capita consumption, with neighboring Italy not far behind. Since the 1980s, however, production and consumption patterns in these two markets have shifted. The proportion of French people who do not drink at all has doubled since 1980, and those indulging in a glass on a “nearly daily” basis has fallen by more than half. There have been a number of reasons for the drop. Consumers are more concerned about potential health risks posed by alcohol consumption; more French people are driving, and therefore subject to the country’s now stricter drunk-driving laws; and the nature of work and employment has shifted in such a way that drinking during the day is less professionally acceptable. Overall, consumption in France and Italy have dropped by about 40 and 30 percent since the 1980s, respectively. But people in France and Italy still love wine, and they drink a lot of it.Their consumption rates are among the highest in the world. But if current trends continue, their historical role as the world’s top consumers of wine is likely to diminish. In their place, emerging markets, as well as the United States, are more likely to define the future of global wine demand.
Wine production in these two countries has also been falling. This decrease in production has been in direct response to the decrease in domestic demand. For several years, the European wine sector was in a near-constant state of surplus. There was a staggering amount of excess supply, forcing the European Union (EU) to introduce legislation banning the planting of any new vineyards in 1976. The new law also introduced the practice of “crisis distillation” as a solution for excess supply. In crisis distillation, the EU subsidizes the cost of turning surplus wine into industrial alcohol so that it would not go to waste. The legislation was meant to last only two years to offer some relief to the wine glut, but was extended for decades.
In 2008, the EU passed Council Regulation No. 479/2008, which upheld similar ideals. The EU would be offering support to help producers make wine better suited for export, and it would also incentivize the dismantling of operational vineyards. The law upholds the 1970s ban on new plantings until 2015, with individual member states having the option to stretch this until 2018. Although the legislation offers substantial monetary support to the wine industry’s participants, it ultimately aims to decrease EU spending on subsidizing wine.
Some are worried that lifting the planting ban may result in another production glut, while others are optimistic that the renewed emphasis on producing high-quality, exportable wine will help ensure a market for what is produced. Optimists are also pinning their hopes on a substantial increase in demand, particularly from Asian markets.
Wine Production Around the World
In the US, most wine consumed is produced domestically. But production in the country’s top-producing state, California, is facing more and more pressure as the state’s worst drought drags on. The water shortage is likely to drive up wine prices, and if the drought does not end soon, it will become difficult for some producers to remain in the market. Unfortunately, the situation is similar on the West Coast of South America. Chile has been struggling with drought conditions since 2007, which has forced vineyards like the award-winning Winery De Martino to halt production of some of its lower-value wines and focus its efforts on preserving the highest-value products. But according to Winery De Martino, if the drought continues for much longer, it will become impossible for producers in the region to continue wine production.
South Africa is also experiencing drought, but luckily on a lesser scale than either California or Chile. The country is now producing more than it ever has in the past, landing in the top ten of global wine producers. Production is split roughly evenly between red and white varieties, but the country is particularly well known for its pinotage grapes, which are a cross between pinot noir and cinsaut cultivars. However, demand in South Africa is another story. Overall consumption is significantly less than it was 20 years ago. The drop in demand may be partly due to the fact that South African wine consumers are price-conscious, and newer entrants into the country’s beverage market have successfully marketed cheaper alcoholic alternatives such as beer. Production is certainly outstripping domestic demand, but the future of South African wine rides on international demand, especially from China. South African wine sales to China increased by 63 percent last year, and Chinese investors have shown growing interest in the South African wine sector.
As consumption in countries like Italy and France declines, demand is on the rise in other markets. Per capita consumption in Ireland, for example, grew substantially between 2000-2009, as did consumption in Singapore, South Korea, Turkey, and China.
In 2013 China became the world’s top consumer of red wine. The country has a distinct preference for red wine, with many attributing this choice to the color’s cultural significance. As a result, other varieties are underrepresented in the Chinese market. Demand is currently outstripping supply, with demand for imported wines particularly strong. Chinese consumption grew by an impressive 136 percent from 2008-2015. Demand is likely to continue increasing in the coming years, and will require a substantial increase in imports.
Demand is also increasing in many African countries. According to the Wines of South Africa (WOSA) organization, several countries have grown increasingly important to South African marketers, namely Nigeria, Angola, Zambia, Uganda, and Kenya. WOSA’s exports to Nigeria, its largest African market, have been growing by 10-15 percent year-on-year. This year, the country is expected to import $370 million worth of wine. As the middle classes in these countries grow, the appreciation for wine, especially high-quality and branded wine, also increases. Growth has been more modest in the Kenyan market, where consumption increased by five percent in 2013.
While South Africa boasts a significant share of these emerging African wine markets, it may soon be facing competition from new producers.
Emerging African Producers
For decades Yatta Vineyards, owned by the Kenyan government, has been producing several varieties of relatively low-quality wine. As demand for wine in emerging markets is partially driven by the view that the drink is a fashionable luxury, consumption of Yatta products has been limited, with prospects for export practically non-existent. But in 1994, Kenya’s first quality, commercial vineyard began to take shape. It would take several years and viticultural expertise to get the operation on its feet, but Leleshwa Wines is now a significantly sized operation. Its high-altitude vineyards produce four distinct wine varieties that are relatively popular domestically. Leleshwa is currently producing about 60,000 bottles annually of each variety, which includes Sauvignon Blanc, Merlot Shiraz, Merlot, and Rosé. Most tend to agree that the quality of Leleshwa wines is good, but not great. Viticultural practices will likely need to be refined and improved before Leleshwa achieves international profitability.
Just north of Kenya are similarly high-altitude, high-potential vineyards. Ethiopia began producing wine in 1943 through its state-owned Awash Wines. Awash produces several varieties of relatively low-quality wine, all of which are consumed domestically. But in 2013, as a part of a wider effort to privatize state-owned firms, Awash was sold to Blue Nile Investments PLC. The new owners are hoping to transform Awash Wines by importing foreign grape varieties and bringing in South African viticulture experts to improve the quality of wine produced.
A few hours south of the Awash vineyards is the newest entrant into the Ethiopian wine market: Castel Winery. Castel is already a major player in the Ethiopian beer industry, having entered the market in the late 1990s. In 2007, Castel announced its intentions to begin producing wine in Ethiopia, and brought over vines of several French grape varieties from Bordeaux. By 2014, Castel bottled its first batch of wines—more than 1 million bottles in total. Castel’s products have been well received by Ethiopian consumers, and exports have already begun to countries with sizeable Ethiopian populations, as well as to China. Exports remain small, but producers are hoping that they will be profitable by 2016. The managers of the Castel vineyards are highly optimistic about Ethiopia’s viticultural potential, given its good terrains, sandy soil, and conducive climate.
When discussing alcoholic beverages in Africa, most people focus on beer. Almost every African country has its own, often several, successful beer companies. The market is well-established and its demand dependable. The wine market, however, is a bit more complex. African consumers are increasingly showing an appreciation for wine, but the growth of this market will likely be much slower than that of the beer market.
One major factor behind historically low levels of wine consumption in Africa has been price. In places like Nigeria and Kenya, much of the consumed wine is imported, facing duties that make the product even more expensive. But as Africa’s ability to produce quality wine grows, the structure of the industry is likely to look more like that of the beer market, in which inexpensive, locally-produced products compete with the more expensive, imported ones.
The key to success for African vineyards will be ensuring that the produced wine is of a high enough quality and its taste reflects and meets the demand of the local population.
New entrants into the viticulture industry have shown a growing interest in Africa due to the region’s relatively cheap land and labor costs, which translate into a low overall cost of production. However, the higher prices of electricity mean that bottling operations can be expensive—a reality which has helped shift South African exports towards bulk, rather than bottled product.
Global demand for wine is growing substantially and Africa has the potential to carve itself a piece of the prize. But in order for its countries to do so, they must make sure they are producing the right products for their target markets.