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There's no point in whining 

Last year had been expected to be a difficult one because of the 'millennium hangover', yet the latest estimates of world exports released by the Office international de la vigne et du vin (OIV) suggest that volumes have edged up by half a percent on1999, to just over 6.5 billion litres. Italy and France may have shed more than 100 million litres each, not to mention a few tears, but all New World wine countries increased exports - except for Argentina, which is exporting more quality wines than ordinary ones (losing 4% in volume but gained more than 6% in value). Making a dent in Italy and France's combined share of 50% of international wine exchanges (including the EU's internal trade) can only enliven the international wine trade. And this is exactly what has happened in the past five years: volumes increased by over 20% between the first and the second half of the 1990s, while consumption edged back slightly and production is on the rise again.

Can a similar increase in trade be repeated in the next five years? Nearly one in three bottles drunk around the world is now imported. Increasing international trade may be the logical outcome of the fall in demand in traditional producing countries and the rise in consumption elsewhere. But this was already true a decade ago and cannot account for the 3.9% annual volume growth between 1996 and 2000. A major liberalisation has swept through world trade since the mid-1990s, which did not spare agriculture or wine. Should similar good economic conditions prevail worldwide, another successful trade round will still be needed to maintain such vigorous growth.

Given the current climate, will France and the other leading wine producers let the Union bind them with even more commitments at the WTO, which seem to mainly benefit New World exporters? These have more or less doubled their share of traded volumes between 1991-1995 and 1996-2000, from 8 to 15%, mainly at the cost of EU players (Italy, France, Spain, Germany and Portugal together lost 5 percentage points, from 75 to 70% according to OIV). Moldova is struggling, as are Central and East-European states - in spite of preferential agreements with the EU. A dim light flickers from North-Africa, which is also geared towards the EU. On the other side of the Atlantic, George W. Bush is poised to annex the rest of the American continent in a free trade association. And the Aussies are gently preparing to swap allegiance from the UK to the USA , while still courting Asia. It would be surprising if the EU were to allow a further deterioration of its net wine trade surplus (down a third on the previous marketing year, to 444 million in 2000/01) and did nothing to boost its dwindling share of global trade in such an aggressive market.

Yet, surely, the current spate of international mergers and acquisitions will ease trade tensions, especially in the case of EU-based global players acquiring major New World exporters. Perhaps, but the world wine industry remains highly fragmented, and wine trade is a politically-charged issue. Some City analysts have forecast that the production of Australia, the USA, Chile and South Africa will increase at rates ranging from a fifth to a third by 2005. Most of these new wines are unlikely to be consumed domestically, or exported to new markets, but will be shipped to existing ones - for the moment at least. This is likely to increase trade further over the next five years, but the international market will by then have become a even more hostile place.

It does not necessarily take a downturn in world demand for a market to become unfriendly - aggressive expansion by one or two players is usually enough to build overcapacity and send prices tumbling. Attempting to halt this by trying to lure the New World into capping output, as some would like to do, not only runs against existing commitments to more than 100 nations at the WTO, but also blatantly ignores the free-enterprise spirit of the New World. Such a policy would probably be just as ineffective and wasteful as previous attempts. But French demonstrators have twice successfully waged 'wine wars' against Italy and forced the EU to stem the tide; they have been flexing their muscles again recently, as if every step towards more free trade has to be negotiated on French streets first. When it comes to wine, rest assured that France will hold centre stage for some while yet.

© pierre spahni - first published in Harpers Wine and Spirit Weekly on May 25th, 2001.


Pierre Spahni - Economic Research & Consultancy for Wine - Tel  +41 22 800 1607 Fax 800 1608