Introduction

This is the first in a two part series on the wine industry. It will cover the economics of the industry: production, costs, demand and price. The second part will focus on international marketing strategies for the coming years.

Vineyards

 Wine production starts with vineyards for grape growing. Countries with the greatest vineyard areas are shown in the following table. It is notable that China is fourth in vineyard area and ahead of the United States. It is also notable that there is now more vineyard area outside of the European Community (EU) than within it.

Table 1 – Vineyard Areas of Leading Wine Producers (in mil. hectares)

Country	2008
Spain	1,165
France	852
Italy	840
China	500
USA	411
Portugal	250
Argentina	225
Romania	201
Chile	198
Australia	173
South Africa	132
Greece	116
Germany	102
Brazil	100
Bulgaria	95
Russia	75
Hungary	72
Austria	51
New Zealand	35
Switzerland	15
EU – 27	3,818
All Other	4,043
Total	7,861

Source:  http://www.oiv.int/

The changes that have occurred in vineyard areas over the last 15 years are quite striking. As can be seen in Table 2, vineyard areas in Europe have declined while growing rapidly elsewhere. Vineyard growth in New Zealand and China are particularly noticeable.

Table 2 – Vineyard Areas in Europe and Elsewhere

Area	1996-00 Average	2008	1996/00 – 2008% Change
Europe	4,128	3,818	-7.5%
China	218	500	129.5%
USA	377	411	9.1%
Argentina	208	225	8.1%
Chile	147	198	34.7%
Australia	107	173	62.4%
South Africa	112	132	18.1%
Brazil	59	100	69.1%
Russia	76	75	-1.0%
New Zealand	11	35	232.4%
Switzerland	15	15	0.1%
Non-Europe	2,882	4,043	40.3%
Total	7,009	7,861	12.2%

Sources: http://www.oiv.int/ and http://www.export.gov/tradedata/index.asp

Producers

Data on the leading wine producers are presented in Table 3. The data echo the vineyard data. And even though wine production in the leading European countries has fallen, Italy, France, and Spain remain the largest producers. The overall share of the European countries listed is falling gradually, from 69.5% in 2004 to 65.6% in 2008.

As can be seen by the final column, there is significant variation in wine production per hectare. Some of this variation is explained by the fact that not all grape production goes into wine. But the variation is the result of differences in production efficiencies, climate, and soil.

Table 3 – Wine Production by Country and per Hectare

	Wine Production					Production	Wine Production
	Milhectliters					2004-08	per hectare
Country	2004	2005	2006	2007	2008	% Change	2008
Italy	49,935	50,566	52,036	46,600	46,900	-6.1%	56
France	57,386	52,105	52,127	45,800	42,950	-25.2%	50
Spain	42,988	37,808	38,137	34,331	34,850	-18.9%	30
USA	20,110	22,890	19,440	20,100	20,550	2.2%	50
Argentina	15,460	15,220	15,400	15,050	14,680	-5.0%	65
China	11,108	11,536	11,963	12,390	13,005	17.1%	26
Australia	14,680	14,300	14,260	9,610	11,700	-20.3%	68
Germany	10,007	9,153	8,916	10,161	10,400	3.9%	102
South Africa	9,280	8,410	9,410	9,840	9,890	6.6%	75
Chile	6,300	7,890	8,450	8,280	7,860	24.8%	40
Romania	6,166	2,602	5,014	5,289	6,300	2.2%	31
Portugal	7,481	7,266	7,543	6,049	5,400	-27.8%	22
Greece	4,248	4,027	3,938	3,511	3,750	-11.7%	32
Brazil	3,930	3,200	2,370	3,500	3,500	-10.9%	35
Hungary	4,340	3,103	3,271	3,168	3,400	-21.7%	47
Austria	2,735	2,264	2,256	2,628	2,400	-12.2%	47
Bulgaria	1,949	1,708	1,757	1,796	1,800	-7.6%	19
New Zealand	1,190	1,020	1,330	1,480	1,700	42.9%	49

Sources: http://www.oiv.int/ and http://www.export.gov/tradedata/index.asp

Exporters

The leading wine exporters are shown in Table 4. Most wine is produced for domestic consumption. Of the leading wine producing countries, only Chile, Australia, and Portugal export more than 50% of production. However, for all of these countries, the export sector is large enough to be of great importance to their economies.

Table 4 – Wine Exports  of Leading Producers

		Exports
Country	2008	% Prod.
Italy	20.1	43.0%
France	14.1	32.8%
Spain	14.0	40.3%
Australia	6.4	55.1%
Chile	5.3	68.0%
USA	4.5	21.9%
Argentina	4.2	28.6%
South Africa	3.7	37.4%
Germany	3.6	35.1%
Portugal	2.8	51.2%
New Zealand	0.1	43.2%

Source: http://www.oiv.int/

Costs – Can Europe and the US Compete?

It takes 4-5 years to get grapes to a full harvest status. That means money must be tied up for that amount of time with little income. There are large, primarily unused land areas in Argentina, Australia, and parts of Africa that are suitable for wine growing. Can the Western countries compete? Right now, land suitable for wine in the US and Europe starts at $50,000 per hectare, with established vineyards costing up to $750,000 per hectare. In Argentina, land suitable for wine is available at $10,000 per hectare, with established vineyards costing as little as $35,000 (see USDA GAIN Report Number AR9007).

The straight economic answer is that the West should not be able to compete on price or quality. But branding and marketing go a long way (more on this in Part Two of this report).

Consumption

 Consider first per capita consumption. The top 20 wine consuming nations per capita are presented in Table 5 below. While they include six of the largest wine producers, it is notable that New Zealand (20.53 per capita), Chile (17.31 per capita), US  (9.43 per capita), and South Africa (8.90 per capita) are not in the top 20.

Table 5 – Leading Per Capita Wine Consuming Nations, 2008

	.75 Liter
Country	Bottle
Croatia	55.84
France	44.56
Georgia	44.09
Italy	42.56
Slovenia	38.30
Switzerland	36.91
Portugal	35.28
Austria	32.00
Argentina	30.10
Germany	29.37
Denmark	29.20
Hungary	27.70
Belgium-Luxembourg	26.60
Slovak Republic	25.33
Uruguay	24.64
Netherlands	23.64
Greece	23.57
Spain	23.53
Belarus	23.41
Australia	22.57

Source: http://www.iwsr.co.uk/

Table 6 presents information on the largest national markets for wine. It is notable that China, with average per capita consumption of only 2.35 bottles per year, consumes more wine than any other country.

Table 6 – Leading Countries, Total Wine Consumption, 2008

	in million
Country	hectoliters
China	40.84
US	37.21
France	36.17
Italy	33.26
Germany	32.30
United Kingdom	17.02
Argentina	15.55
Spain	13.62
Russian Federation	12.87
Japan	11.72

Source: http://www.iwsr.co.uk/

It is likely that over the next two decades, per capita and total wine consumption in Europe will fall as their populations age.

Prices

The global recession has affected wine prices. But as Table 7 indicates, the effects have been far greater for the “high end” wines. Note the movement the Fine Wine 100 index in comparison to the more basic Australia 20 index.

Table 7 – Selected Wine Indexes

Wine Index	Jan 05	April 08	June 09
Fine Wine 100	100	219	170
Fine Wine 250	100	202	155
California 100	100	138	108
Rhone 50	100	155	123
Burgundy 50	100	228	177
Italy 25	100	128	114
Australia 20	100	114	102

Source: WinePrices.com

Conclusion

This piece has provided basic information on the global wine industry. The second piece on this subject will discuss alternative marketing strategies for the coming years. And yes, wine is a growth industry.