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U.S. WINE INDUSTRY IS DROWNING ITS SORROWS OVER TRANSATLANTIC TRADE SPAT

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U.S. WINE INDUSTRY IS DROWNING ITS SORROWS OVER TRANSATLANTIC TRADE SPAT

Tipsy trade policy

The United States imported $6.5 billion worth of wine in 2018, equal to 17 percent of total wine imports worldwide. We like our Rioja from Spain, Bordeaux from France, and Italian Vernaccia as much as our California counterparts.

Instead of toasting, American wine importers — and the many businesses that rely on imported wine, from distributors to wine shop owners to restaurateurs — are protesting. Why? Because the administration was seriously considering raising tariffs to 100 percent on a range of imported Euro

pean products, including French, German and Spanish wine.

Imported European wines are already more expensive due to a 25 percent the U.S. Trade Representative (USTR) imposed in October 2019. The wine industry is concerned that raising the tariff to 100 percent will cost thousands of jobs as the higher prices on European wines knock out a large chunk of the industry’s wholesale and consumer sales.

A drunken trade brawl

European wine is but a pawn in a decades old trade dispute. In October, the World Trade Organization (WTO) found that Airbus, a European aerospace corporation and Boeing’s big rival, had illegally received over $22 billion in state-sanctioned subsidies. The WTO authorized the United States to apply retaliatory tariffs on as much as $7.5 billion worth of European exports each year until the subsidies are removed.

Under U.S. law, the USTR must review and possibly revise (maybe increase) or “rotate” the list of products subject to tariffs after 120 days, known as “carousel retaliation,” to ensure the tariffs are causing enough pain to induce a negotiated resolution.

Even if wine were spared a tariff increase in the aircraft case, a new front has opened in this trade brawl. In July last year, France announced its Digital Services Tax, a tax of three percent on revenues generated in France by a digital company, independent of where that company was established. The tax appears targeted at American companies like Google and Facebook and was denounced by President Trump. When it became clear France had no intention of backing down, the U.S. administration threatened tariffs of up to 100 percent on popular European imports — including wine.

Value of US wine imports

Friends don’t let friends retaliate

The U.S. wine industry is getting whiplash from the prospects of cross-retaliation in this trade war. The Europeans are also awaiting a WTO verdict on their case against Boeing subsidies that could authorize tariffs on U.S. imports. One-third of total U.S. wine exports, some $469 million worth, come from California shipping wine to the European Union, making it a prime target for retaliatory tariffs. The European Union could also decide to counter with tariffs in protest of the U.S. response to France’s digital tax.

Wine tariffs will not age well

An attack on wine strikes at the hearts of many. French and Italian wines alone account for one-third of the $70-billion U.S. wine market. The very biggest wine distributors may be able to afford to absorb the cost to remain competitive, but smaller importers and distributors will have a much harder time. The higher costs are passed along to distributors, drivers, specialty retailers, supermarkets and hotels, hitting everyone from the specialist Italian wine store to the French bistro that makes its margin on alcohol sales to the forklift operator in the warehouse. Wine sales also generate local and state tax revenue, particularly in states like Mississippi and Pennsylvania where the Liquor Control Board is the main wine buyer and seller.

In January, House Small Business Committee Chair Nydia M. Velazquez (D-NY) and eight Committee Democrats sent a letter to U.S. Trade Representative Robert Lighthizer voicing their fears about the tariffs’ impact on small businesses in the United States. They project that even the original 25 percent tariff could cost as many as 12,000 American jobs. A 100 percent tariff could risk 78,000 American jobs.

The 106 bipartisan members of the Congressional Wine Caucus also got together in January to send their own letter to Lighthizer, urging him to leave wine out of the sanctions, emphasizing the potentially crippling effects on America’s $220 billion wine economy.

Risk to wine chain of 100% tariff

Reason to celebrate?

Last week, the USTR made a sobering decision not to raise tariffs on imported European wines as part of the carousel review.

The entire industry is breathing a small sigh of relief, even producers in California. They would be unlikely to benefit significantly from the loss of competition from European wines. Due to laws on provenance, it is literally impossible to produce Chablis or Champagne anywhere else but France, for example. And compared to numerous competitors across the world, American producers have higher labor costs and limited supplies that could not fill the giant hole in the U.S. market left by European wines. Instead it seems likely that lower-cost South African and South American wine would be the beneficiaries as the more economical switch. Tariffs are a lose-lose for the U.S. industry.

In Vino Veritas

The tariffs are not an end unto themselves. They are meant to raise the stakes and bring the parties to the negotiating table. European trade officials appear to be contemplating measures to mitigate the trade row. Officials in Washington state appear to be reviewing its tax incentives to Boeing. The United States is seeking an international resolution to the question of digital taxes and French economy minister Bruno LeMaire seems more interested to resolve the digital tax dispute with President Trump.

Meanwhile, the U.S. wine industry cannot raise a glass. They must continue to live with the consequences of the 25 percent tariff, which they say could cost as much as $1.6 billion in lost wages throughout the distribution chain.

As for American wine lovers, another terrible reality sets in. After the 25 percent tariff went into effect in November, U.S. wine imports from Europe fell by half over previous months. Over the same period, China’s imports of French wine rose 26 percent. If European winemakers can shift their export focus, they might avoid the U.S. tariff pain and grow their market share in emerging economies while U.S. wine drinkers are left to abstain or drown their sorrow over higher prices.

Let’s all hope the issue is resolved and tariffs removed long before Beaujolais Nouveau Day in November.

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Alice Calder

Alice Calder received her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

This article originally appeared on TradeVistas.org. Republished with permission.

Global Wine Market 2019 – Spain Retains Leadership in Exports Amid Buoyant Market Growth

IndexBox has just published a new report: ‘World – Wine – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global wine market revenue amounted to $130.3B in 2018, going down by -3.3% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). The market value increased at an average annual rate of +1.4% from 2007 to 2018; the trend pattern remained consistent, with somewhat noticeable fluctuations being recorded throughout the analyzed period. The pace of growth appeared the most rapid in 2010, when the market value increased by 11% y-o-y. Global wine consumption peaked at $134.7B in 2017, and then declined slightly in the following year.

Production 2007-2018

Global wine production totaled 32B litres in 2018, surging by 2.3% against the previous year. The total output volume increased at an average annual rate of +1.4% over the period from 2007 to 2018; the trend pattern remained consistent, with only minor fluctuations being observed in certain years.

Exports 2007-2018

In 2018, the global exports of wine totaled 11B litres, going down by -4.5% against the previous year. The total export volume increased at an average annual rate of +2.1% from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations in certain years. In value terms, wine exports amounted to $35.5B (IndexBox estimates) in 2018.

Exports by Country

In 2018, Italy (2B litres), France (1.9B litres) and Spain (1.7B litres) represented the main exporters of wine in the world, achieving 52% of total export. Australia (815M litres) held a 7.7% share (based on tonnes) of total exports, which put it in second place, followed by Chile (6.2%). South Africa (442M litres), Germany (383M litres), the U.S. (351M litres), New Zealand (319M litres), Portugal (303M litres), Argentina (271M litres) and China (244M litres) occupied a relatively small share of total exports.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by China, while the other global leaders experienced more modest paces of growth.

In value terms, the largest wine markets worldwide were France ($11B), Italy ($7.3B) and Spain ($3.2B), with a combined 61% share of global exports. Australia, Chile, the U.S., New Zealand, Germany, Portugal, Argentina, South Africa and China lagged somewhat behind, together comprising a further 30%.

Export Prices by Country

In 2018, the average wine export price amounted to $3,332 per thousand litres, rising by 7.8% against the previous year. Overall, the wine export price continues to indicate a relatively flat trend pattern. There were significant differences in the average export prices amongst the major exporting countries. In 2018, the country with the highest export price was France ($5,740 per thousand litres), while China ($1,464 per thousand litres) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of export prices was attained by the U.S., while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

In 2018, approx. 9.4B litres of wine were imported worldwide; going down by -20.1% against the previous year. The total import volume increased at an average annual rate of +1.2% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded in certain years. In value terms, wine imports amounted to $33.7B (IndexBox estimates) in 2018.

Imports by Country

The countries with the highest levels of wine imports in 2018 were the UK (1.3B litres), the U.S. (1.2B litres), Germany (1B litres) and China (681M litres), together amounting to 44% of total import. Canada (409M litres), the Netherlands (382M litres), Belgium (327M litres), China, Hong Kong SAR (300M litres), Japan (290M litres), Russia (278M litres), France (244M litres) and Sweden (209M litres) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by China, Hong Kong SAR, while the other global leaders experienced more modest paces of growth.

In value terms, the largest wine importing markets worldwide were the U.S. ($5.4B), the UK ($4B) and Germany ($2.7B), together accounting for 36% of global imports. These countries were followed by China, Canada, Japan, China, Hong Kong SAR, the Netherlands, Belgium, France, Russia and Sweden, which together accounted for a further 36%.

Import Prices by Country

In 2018, the average wine import price amounted to $3,589 per thousand litres, rising by 18% against the previous year. Over the period under review, the wine import price continues to indicate a relatively flat trend pattern. There were significant differences in the average import prices amongst the major importing countries. In 2018, the country with the highest import price was Japan ($5,777 per thousand litres), while Russia ($2,497 per thousand litres) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of import prices was attained by France, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

Report: Imports, Exports, & Production of Wine & Brandy Spirit in U.S. Market

IndexBox has just published a new report, the U.S. Wine, Brandy, And Brandy Spirits Market. Analysis And Forecast to 2025. Here is a summary of the report’s key findings.

The revenue of the wine and brandy spirit market in the U.S. amounted to $29.2B in 2018, increasing by 12% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). Overall, the total market indicated a strong increase from 2013 to 2018: its value increased at an average annual rate of +3.7% over the last five year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the wine and brandy spirit consumption increased by +61.1% against 2013 indices.

The most prominent rate of growth was recorded in 2015, when the market value increased by 13% y-o-y. Wine and brandy spirit consumption peaked in 2018, and is expected to retain its growth in the near future.

Production of Wine, Brandy, And Brandy Spirits in the USA

In value terms, wine and brandy spirit production stood at $25.1B in 2018. In general, the total output indicated a strong increase from 2013 to 2018: its value increased at an average annual rate of +4.5% over the last five years. 

Exports from the USA

In 2018, the amount of wine, brandy, and brandy spirits exported from the U.S. amounted to 10K tonnes, growing by 11% against the previous year. Overall, the total exports indicated a strong increase from 2013 to 2018, rising with a CAGR of +6.5% over the last five years. In value terms, wine and brandy spirit exports totaled $23M (IndexBox estimates) in 2018.

Exports by Country

South Korea (1.8K tonnes), China (1.2K tonnes) and the UK (1K tonnes) were the main destinations of wine and brandy spirit exports from the U.S., with a combined 40% share of total exports. These countries were followed by Denmark, Panama, Spain, Japan, Sweden, Germany, China, Hong Kong SAR, Chile and France, which together accounted for a further 35%.

From 2013 to 2018, the most notable rate of growth in terms of exports, amongst the main countries of destination, was attained by Denmark (+139.8% per year), while the other leaders experienced more modest paces of growth.

In value terms, the largest markets for wine and brandy spirit exported from the U.S. were South Korea ($5.1M), China ($4M) and the UK ($2M), with a combined 48% share of total exports. 

Export Prices by Country

In 2018, the average wine and brandy spirit export price amounted to $2.3 per kg, surging by 17% against the previous year. Over the period from 2013 to 2018, it increased at an average annual rate of +6.1%.

Export prices varied noticeably by the country of origin; the country with the highest export price was Germany ($4.6 per kg), while the average price for exports to Panama ($979 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of export prices was recorded for supplies to France (+18.9% per year), while the export prices for the other major destinations experienced more modest paces of growth.

Imports into the USA

In 2018, approx. 1.8M tonnes of wine, brandy, and brandy spirits were imported into the U.S.; rising by 1.7% against the previous year. In value terms, wine and brandy spirit imports amounted to $7.6B (IndexBox estimates) in 2018.

Imports by Country

Italy (644K tonnes), France (455K tonnes) and Spain (149K tonnes) were the main suppliers of wine and brandy spirit imports to the U.S., with a combined 70% share of total imports.

From 2013 to 2018, the most notable rate of growth in terms of imports, amongst the main suppliers, was attained by France (+8.0% per year), while the other leaders experienced more modest paces of growth.

In value terms, the largest wine and brandy spirit suppliers to the U.S. were France ($3.6B), Italy ($2B) and Spain ($393M), with a combined 79% share of total imports.

Import Prices by Country

The average wine and brandy spirit import price stood at $4.2 per kg in 2018, picking up by 4.5% against the previous year. Over the period from 2013 to 2018, it increased at an average annual rate of +4.5%.

Import prices varied noticeably by the country of origin; the country with the highest import price was France ($7.8 per kg), while the price for Australia ($2.1 per kg) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of import prices was attained by Argentina (+7.1% per year), while the import prices for the other major suppliers increased at more moderate paces.

Companies Mentioned in the Report

E. & J. Gallo Winery, Sutter Home Winery, Constellation Brands, Treasury Wine Estates Americas Company, Elan Chateau Resorts, Wente Bros, Domaine Chandon, F. Korbel & Bros., Constellation Brands U.S. Operations, Royal Wine Corporation, Jackson Family Wines, Rombauer Vineyards, Fetzer Vineyards, The Wine Group, Diageo North America, The Robert Mondavi Corporation, Foley Family Wines, Golden State Vintners NAPA, Laird & Company, Laird & Company, International Wine & Spirits, Jackson Family Wines, Delicato Vineyards, United States Distilled Products Co., Canandaigua Wine Company

Source: IndexBox AI Platform