Who hasn’t had a romantic meal or a special celebration, enjoyed great times with the perfect company and when not with a bottle of fine wine? But how much do we really know about this traditional industry? In this post we will briefly explain the situation of the wine industry on a global level. Then we will focus our attention to ‘Old world producers’, France, Italy and Spain, giving a brief analysis of these important players in such a traditional industry.
The Global Production of Wine
In order to gain a general grasp of the worlds wine production, it’s important to take into account the extension in which vineyards are present on a global level which, according to the OIV (International Organisation of Wine and Wine), extended across 7,554 hectares in 2014. 45% of these vineyards are found in the EU where the ‘old producers’ are dominant players. Spain occupies first place for both the European and Global leader, followed by France (3rd) and Italy (4th), with 1,026, 792 and 630 thousands of hectares respectively. However, in terms of vineyards China is the second world leader with 799 thousand hectares placing it just in front of France. In any case, until now China only uses 15% of this for wine production whereas Spain, France and Italy use over 85%.
According to data from the OIV, the global production of wine (excluding juices and alcohol-free wines) in 2014 was 270 million of hectolitres (Mhl), and the estimated total for 2015 has a 2% increase with a grand total of 275.7 Mhl. In accordance to the data from 2014, the European Union produces more than 50% of the Worlds total wine, of which 48% is concentrated in France (46.7Mhl – 17.3%), Italy (44.6 Mhl_16.6%) and Spain (38.2 Mhl_14.1%), following this order in the worlds rankings. However, we must take into account the wine which are considered as ‘New World’ wines, which are becoming increasingly popular. New producers such as the United States, Argentina, Chile, South Africa etc are beginning to shine however they still remain very far from the Europeans. In graph 1, we will present the volume of wine production in 2014.
Graph 1: 2014, Production of Wine (millions of hectolitres , Mhl) – the 10 main wine producers.
The Spanish wine sector has a great importance economically, socially and environmentally, influencing the country’s image in the sector. Thanks to the different climates of the Peninsula, the terrains in which the grapes are cultivated have their own unique characteristic, allowing the wines to have their distinctive textures, smells, tastes and values.
The production process uses a combination of modern and traditional techniques, such as the harvesting of grapes manually, the use of oak barrels, and the use of wine cellars for storing and ageing of the wine to obtain the different wines: Red, white, rose, sparkling and cava.
In terms of offer, Spain is the country which covers the greatest distance of vineyards both the EU and globally, producing 38.2 Mhl in 2014. This quantity represented 14.1% of the total worlds production and an estimated 2,511 million euros in 2014, bringing 0.24% to the Spanish GDP.
The wines in the EU are regulated by the denomination of protected origin (DOP) and the indication of protected origin (IGP), which give geographic identification and characteristics of origin, type of grape and elaboration. In Spain, the greatest value of wine on an international level are those from the following DOP regions: (Rioja, Valdepenas, Ribera del Duero La Mancha and Navarra.
In terms of business structure, Spain has around 4,000 wine cellars of which the majority are small scale and of Spanish capital forming cooperatives. These small enterprises alongside the larger businesses are sometimes wine producers as well. The main players in the wine sector with more than 100 million euros in capital are: Freixenet J Garcia Carrión, Cordoniú, Arco Wine Invest Group, Domecq Bodegas group, Miguel Torres S.A group, Felix Solís Avantis and the Faustino Group.
In terms of demand, the internal consumption of Spanish wines over recent years is much lower than that of previous years. It used to be that Spaniards consumed more wine than beer, but since the year 2000 this has changed, and it is now beer that has the highest consumption amongst alcoholic beverages. However, the wine consumption in 2014 was 10 million hectolitres, 0.2 Mhl higher than in 2013. It appears that DOP wines also dominate the internal demand given that consumers are opting for wines of higher quality.
In terms of exports, the majority of demand for Spanish wines come from Germany, The United Kingdom and France, who together contribute for 37.02% of total sales. If we focus on the demand outside of Europe the majority of sales (16.02% of the total) come from the USA, China and Japan making them very attractive markets for Spanish producers.
It’s important to mention that over the last few years, there has been an increase the demand for wine sold in bulk, where production is faster and the price is lower. This information could explain why Spain is the main producer of wine in terms of volume, but not in terms of value, with price of wine per litre in exterior markets at 1.16 euros.
Graph 2: 2014 – Spain, Volume (millions of hectolitres (Mhl) and revenue (billions of Euros). Main destinations for exports.
France continues to succeed as the world’s main wine producer, producing 46.2 million hectolitres in 2014 thanks to its many wine producing regions including Bordeaux, Champagne, Burgundy, and le Loire Valley, some of the most successful and well known for their high quality crops. The wine sector has an important influence on the country’s GDP.
In terms of offer, one of the principal wine producing regions in France is Bordeaux. Situated in the Southwest of France, Bordeaux was added to the UNESCO world heritage list in 2007 and is home to over 115,000 hectares of vineyards. The annual production of this region alone is around 6.5million hectolitres of wine and over 860 million bottles, 89% of which are red wines, and just 11% are white. Some of the most popular grape varieties include Merlot and Cabernet Sauvignon and Sauvignon Blanc.
One of the main and most successful wine producing companies in Bordeaux is ‘Tutiac’. Founded in 1974, Tutiac now controls over 550 vineyards in Bordeaux and holds the title of the leading wine producer in France. The wine is produced and stored in specific barrel cellars situated on site, of which the barrels are specifically designed to match the taste of the wine. The company also houses its own private bottling company which means that it does not rely on any third parties throughout the entire production process.
The fact that over 67% of its wines are from high quality DOP regions is one of the reasons why French wine is so popular amongst exterior markets.
In terms of demand, in 2014 France obtained more than 4.03 billion euros for the exportation of wine to its 5 main markets: The United Kingdom, The United states, Germany, Belgium and Japan (approximately 52% of the 7.6 billion euros on a global level). This figure is significantly higher than Italy and Spain, ranking France first in the world in terms of the value made from wine exports in accordance with the data from OIV and Trademap.org. It should also be noted that these 7.6 million euros account for only 30% of the total volume produced, given that this is the percentage of wine exported. In the last decade, France has seen a significant decrease in the volumes of exports of all categories (Red, white and rose) apart from that of Champagne. However, there has been an unprecedented growth in the demand for French sparkling wines and an increase of 31% in the volume exported, from 1.1 million hectolitres to 1.5 million hectolitres. Graph 3 shows the main destinations for the exportation of French wine.
Graph 3: 2014 – FRANCE volume (Millions of Hectolitres Mhl) and revenue (billions of Euros). Main destinations for exports.
Furthermore, there has been a significant decrease in the volume of wine consumed internally which accounts for 70% of the total produced. The average volume of wine consumed per person per year in 2014 was 44.6 litres compared with the average volume of wine consumed per person per year in 1960 which was 100 litres. This decrease could be as a result of the increase in health awareness since the 80’s, where people became more conscious of the effects of excessive alcohol consumption and state regulations. Another important figure to consider is that people under 35 years old drink 3 times less wine than the national average, whereas those between 50 and 64 consume double.This investigation also shows that French people tend to drink beer or soft drinks throughout the week and only drink wine at the weekend.
Italy is also a traditional, established market and similar to its main competitors France and Spain, its wines are appreciated for their quality and value. Italy’s main export destinations are the USA, Germany, the United Kingdom, Switzerland, Canada, Russia and Japan.
In accordance to the data provided by OIV, in terms of offer in 2014, Italy was positioned as the second largest producer in the world generating 44.7 million hectolitres. Recently, new projections from the OIV will put Italy in first place in 2015, in front of France. Italy’s contribution to the worlds wine production is on average 17.5%. In terms of the surface area of vineyards, Italy occupied 3rd place in 2014 with 690 thousand hectares, where Sicily, Apulia and Véneto are the regions covering the most hectares of vineyards.
In terms of quality, Italy is the country which is most highly recognised for the quality of origin of its wines and has 523 registered denominations, where 405 of them are DOP wines and 118 are IGP wines. They are produced using 18 different types of grapes which changed across the regions, with ‘la nebbiolo’ and ‘sangiovese’ are the most outstanding.
The tendencies for this sector is the concentration of fusions of acquisitions with the aim to use economies of scale, reducing the fragmentation of the sector and increasing the margins of the industry. In Italy, the 10 principal producers represent 17% of the volume of sales. According to a studio by ‘Mediobanca’ the most influential wine producing groups are: Cantine Riunite & GIV with a capital of 534 million euros, Caviro (Italian Organisation for the Coorporate agriculture, wine and fruticulture), generating 372 million euros in 2013 and the division of the wines of the Campari group with 228 million euros for the same year.
In terms of demand, in 2014 the total exported volume from the total 44.7Mhl produced was 20.54 million hectolitres. This means that approximately 46% of Italy’s total production was exported to international markets. The revenues gained in 2014 for the exportation of wine (according to data from the OIV not including juices or alcohol-free beverages) was 5.1 billion euros.
The main markets who import Italian wine are the USA (22.01% and 1.12 billion euros), Germany (19.08% and 0.97 billion euros), the UK (12.86% and 0.66 billion euros). It is predicted that Italy receives 53.95% of its revenue just by exporting to these 3 counties. In terms of volume, although these 3 countries remain the main demand given that they contribute for 58% of the total volume exported in 2014, it appears that order has changed where Germany is the main importer with 5.96 Mhl, followed by UK with 3.02 Mhl, and the USA with 2.98 Mhl. It can therefore be deduced that it is the USA pay the most for Italian wines compared to the other 2 European countries.
Graph No.4: 2014 – Italy Volume (Millions of hectolitres, Mhl) and revenue (billions of Euros). Main exporters.
According to the data from Istituto Nazionale Italiano di Statistica (ISTAT) wine consumption in Italy continues to decrease and the consumption per capita in 2013 was 35.4 litres. Similarly, the OIV estimated an overall consumption of 27.1 million hectolitres, positioning it as the 3rd consumer of wine in the world. Similarly, the Istituto di servizi per il mercato agricolo alimentare ISMEA Indicates that since 1975 the consumption of wine per capita has decreased by 70%. On the other hand, the same study indicated that in terms of preference of alcoholic beverages, 51.69% of the population drink wine, but they tend to consume it more traditionally at mealtimes. It also reflected that women consumed wine less frequently.
OIV (International Organisation of Wine and Wine)
Trademap.org – ITC.