A snapshot of the bulk wine market

Friday, 12. May 2017 - 11:45

Picture from Wiki Commons

 

In recent years, the Italian bulk market has changed significantly in terms of purchase timing, negotiation, and final destination markets. It’s no longer simply moving from the south to the north, where the main Italian bulk merchants and bottlers are situated, or to the traditional European markets. Today, markets are more connected and what happens in this single ‘unknown market’ (as I like to call it), determines the movement of the whole chain, to the final price of the bottle on the supermarket shelf.

Container transport has become the method of choice for shipping wine around the globe, and not only in Italy. In some countries, more than 50% of production is shipped in bulk. Much of this wine is sent to Germany, the UK and other European counties where big bottling plants are located. Some European bottlers are so efficient, that it costs less for a South American country to bottle the wine in Germany or the UK and then send the wine back, than to bottle it in the country of origin.

In my opinion, there are now two well-defined and distinct Italian bulk wine markets at the moment. The first is the commodity market for entry-level red, white and rosé bulk wine, where Italian producers fight it out against the other big wine producers such as Spain, South Africa, Argentina, Chile and the eastern European countries. In the commodity market, the decision to close a contract of thousands of litres of wine plays out in a few cents.

The second market belongs to the  IGT/IGP, DOC/DOP and DOCG wines, where each wine has its own value and where its success is mainly to be found in the export markets (although there is a small positive trend emerging in the domestic market, which grew 1.2% last year, after several years of decrease).

International report

In 2016, Italy produced about 50m hl of wine. Spain reported a smaller crop of about 39 m hl, which is more or less the same as the previous two years, while France produced around 43.5m hl, according to the OIV.  

According to figures available now, the world produced about 267m hl of wine in 2016, a decrease of approximately 3% over 2015. World consumption is about 242 m hl and if we consider the approximately 20m hl of material needed for juices, concentrates, distillation and the food sector, we can assert without any doubt that the world is almost in balance.

Many reports predicted that the Italians would lead the market, thanks to a higher production, and by December 2016 the forecast had been borne out, thanks to the acceptable quality of the entry level wine produced. This has allowed Italian bulk producers to recoup market share, particularly in traditional countries such as Germany and France but also in some eastern countries as Czech and Slovak Republics, Hungary and others. Spanish prices have become more competitive since the end of January and February 2017. Spanish generic white wines and some varietals such as Cabernet Sauvignon are particularly competitive.

The southern hemisphere harvests have almost finished and the picture is mixed: Australia, New Zealand and South Africa seem to have normal crops, while Argentina and Chile have smaller crops for the second successive year.

Up until the middle of April, European markets were very calm and the main bottlers and merchants were sourcing their wine month by month. They did not see any risk of lack of supply from Italy, especially for generic red wine, although generic whites and sparkling bases were already in slightly short supply. At the end of April, bad weather hit many European countries, with temperatures going below zero in Austria, France, Germany, Italy, Eastern countries and some areas of north Spain. There were frost in these countries and also in some areas of Italy, such as Veneto, the Prosecco DOC and DOCG area, south Piedmont, Modena, Franciacorta and some parts of central Italy.

We will need to wait for a precise picture of the losses caused by the frost, but at first sight the feeling is that the 2017 crop will not be large. For this reason, the market in currently very active in Italy, as many companies are scared at the possibility of price increases. They are moving to cover their needs at least until the end of 2017, or until the end of their selling contracts.  

The Italian situation

From January to December 2016, Italy exported about 20.6 m hl of wine with an uptrend of about 4.4%, of which about 5,473 m hl was bulk wine with a median price of €0.70 per Litre, according to ISTAT.

In general, the exchanges are working well and the bulk wine that’s been purchased is loading quite fast, leaving sellers gratified. Overall, the bulk producers achieved good sales to December 2016, with good availability of wine, while the period of the first two months of 2017 was steady both for bulk and bottled wine.

Overall, Italian wine exports are being driven by sparkling wines in general, and Prosecco in particular.Besides the Prosecco phenomenon, other wines are following their normal sales trends.

After vintage 2017 there will be two important variations: Pinot Grigio IGT/IGP delle Venezie/Veneto, and Nero d’Avola and Grillo IGT/IGP Terre Siciliane will become DOC only. Some major buyers are already demanding alternatives such as Pinot Grigio from Sicily or other regions, in order to continue selling Pinot Grigio blends like the Garganega-Pinot Grigio IGT/IGP, which won’t be allowed any longer under the new DOC Delle Venezie.

Looking ahead

Italy has had the biggest production in the world for two harvest in a row and this has caused people to believe that it’s easy to source wine at a very cheap price. The competition between private bottling companies and big production cooperatives that have also started bottling, along with the competition from the major foreign bottling companies, has caused bottling over capacity. This has pushed final bottle prices and profits to the limit, with players closing contracts with very small margins. If the market remains stable with good global production, there will be another year of equilibrium and stable prices; however, if the damage caused by the frost badly affects European production, the price of many varietals, starting with the white ones, is likely to increase. If so, the companies that have not covered their needs will face tough times.

Luigino Lazzaretto, bulk Italian wine broker, and president of Intermediazioni Lazzaretto S.r.l. Luigino, has more than 50 years of experience.