Tag: wine production

European wine producers have seen one of the worst grape harvests for decades. With exceptionally wet weather in the northern European growing areas and exceptionally hot and dry weather in the southern ones, yields are well down in most countries.

In France, the world’s largest wine producer, wine production is forecast to be 19% down on the previous year. In Italy and Spain, Europe’s second and third largest producers, production is forecast to be 3% and 6% down respectively. Production in the EU as a whole, which produces some 57% of world output, is expected to be 9% down and at a historically low level. What is more, the past five years in the EU have all seen modest harvests.

And the poor harvests are not confined to Europe. Argentina’s production is some 24% down on 2011, with New Zealand’s 17% down. And despite a few countries expecting an increase, including the USA and Chile, overall world production is expected to be 6% down on 2011 and more than 7% down on the average for 2008–11.

So is this good news or bad? At first sight it would seem to be bad, especially for the countries with large falls in output. It would also seem to be bad news for the consumer, with prices set to rise.

But for some it’s good news. If prices rise, then producers experiencing an increase in output will have a double gain. And a fall in output is only part of the story. For some producers, the smaller yield has been accompanied by an increase in quality. And then there’s the question of stocks. For several years, global production of wine has exceeded consumption. Indeed the gap widened after the financial crisis and recession of 2007–9 as consumption of wine fell. This year’s poor global harvest should help to slow down the increase in stocks or may even lead to a reduction in stocks, depending on the extent to which demand recovers.

Articles
World Wine Output to Fall to 37-Year Low, Depleting Stocks BloombergBusinessweek, Rudy Ruitenberg (30/10/12)
World wine drought after weather ruins harvests The Telegraph, John-Paul Ford Rojas (31/10/12)
Wine Experts: Drought, Cold Bring Worst Harvest in 50 Years Skye (30/10/12)
Wine experts: worst grape harvest in half century Washington Examiner (17/10/12)
Small 2012 harvest sparks supply fears thedrinksbusiness.com, Gabriel Savage (30/10/12)
Wine shortage to follow poor 2012 grape harvest BBC News (31/10/12)
Hot summer cools business prospects for Madrid vintners BBC News, Jaime Gonzales (24/9/12)
World awash in wine, so Europe’s poor grape harvest won’t hit Edmonton goblets just yet Edmonton Journal, Dan Barnes (17/10/12)

Data
Wine in figures Wines from Spain
2012 global economic vitiviniculture data Wines from Spain (Note that the countries in Table 1 have been entered in the wrong order.)

Questions

  1. Illustrate the effect of the global wine harvest on a demand and supply diagram.
  2. Will a fall in grape production of x per cent lead to a rise in the price of wine of more or less than x percent? How is the price elasticity of demand relevant to your answer?
  3. What elements are there in the supply chain from planting vines to consuming wine?
  4. How does the holding of stocks affect (a) the profitability of wine production; (b) the price volatility of wine?
  5. The Greek grape harvest is predicted to be higher in 2012 than in 2011. How will this affect the prices of Greek wines in (a) Greece; (b) outside Greece?
  6. How is the fallacy of composition relevant in assessing the benefits to owners of vineyards of a good grape harvest?