Can European Wine Producers Adapt to Changing World Market?
Currently the three leading European wine producers—Italy, France and Spain—account for two-thirds of wine exports, in terms of value and volume. But wine consumption is on the decline in Europe and on the rise in the United States and China.
Will Europe, faced with rising competition from the new world, be able to retain its leading position?
A recent report from Coface, the global credit insurer, noted that the world’s wine production is still dominated by the European big three, who together account for 48 percent of the total volume.
Each of these three countries has its own production model. These coexisting models are based on complementary product positions, clearly identifiable through their export structures.
French market positioning is based on the creation of value. Its quality ratio (the relationship between export value and volume) is two times higher than that of Italy and five times higher than Spain.
Italy’s increase in its quality ratio is similar to that of France (240 percent for Italy compared to 250 percent for France between 2001 and 2014).
Even though Spain became the world’s leading wine exporter by volume in 2014, it has the most vulnerable of the three models in terms of competition from the new world. This is due to the low and mid-level positioning of its product lines.
France’s position as the world’s leading consumer of wine (with 43.8 liters of wine per year per person in 2013), is beginning to level off. European wine consumption is also declining, down by 1.7 million liters between 2003 and 2013.
Coface forecasts that by 2027, the highest demand for wine will come from Asia. The popularity of wine in China is expected to accelerate, due to a growing middle class population that is expected to increase threefold by 2022. Wine imports are expected to rise sharply to meet demand. Over the past six years alone, imports have totaled some $1.8 billion and 238,000 additional tons of wine.
It is evident from the Coface report that European producers are vulnerable to these trends. Production in Europe, with the exception of Spain, is on the decline. The free-trade agreements between China, Australia, Chile and New Zealand give advantages to their wine exporters. This means that traditional exporters face increased competition at the low and mid-levels. The lower exchange rates in Chile and in South Africa are strengthening their price competitiveness.