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Spain's winemaking industry shouldn't fool itself

Ricardo Migueláñez. Agricultural Engineer. @rmiguelanez

Statistics for foreign trade in goods in 2014 will be released soon, and almost certainly Spain will rank first in the world for wine exports in terms of volume, with sales projections of around 23 million hectoliters (26-27 million or more including other wine products such as grape juice, vinegar, vinous alcohols), not only a record high but also outstripping Italy and France.

A record grape harvest in 2013 (yielding almost 53.6 Mhl), and moderate production in 2014 (an estimated 41.6 Mhl) combined with considerable supply has done an especially good job of fulfilling unmet demand by our clients and main rivals in the global market, such as France and Italy, both of which reported quite moderate, and even low, production in the last two years.

Indubitably, this situation has led Spain to rank first in global wine exports in terms of volume, a position previously held by Italy and France. This is a real achievement, but it shouldn't be given too much thought, nor should the sector fool itself. Greater sales were possible as a result of very low bulk wine prices, which accounted for more than half of all wine sales outside Spain, the goal being to compete on price with wines from producers in the Southern Hemisphere (Argentina, Chile, Australia, New Zealand and South Africa).

The average price of our wines in foreign markets is around €1.1/liter, i.e. 20% lower year-on-year, compared with almost €2.5/liter on average from the other leading suppliers.

Meanwhile, in Spain, demand for wine continues to deteriorate and to die a slow death, and the industry can't, doesn't know how, and doesn't have the necessary tools to curb the steady decline, year after year. Domestic consumption amounts to barely 9 million hectoliters. Although we're still among the top 20 countries with the greatest per capital consumption (21.3 liters per person per year), according to the latest data from the International Vine and Wine Office (which should be viewed cautiously), Spain is 16th in a ranking led by Vatican City (73.8 liters per person), followed some distance by Luxembourg (49.8 l/pc), and France (46.4 l/pc), and even surpassed by non-producers such as Denmark and the UK.

As we understand it, this sector's market is slightly imbalanced at the moment since, broadly speaking, more than two-thirds of our wine heads abroad and barely one-third is needed to meet domestic demand. This wouldn't be such bad news, except that more than half of the total wine exported is in bulk and sold at very low prices (barely €0.40/liter on average), which in large part covers unmet demand by clients that, like Italy and France, are also our direct rivals in the same global market.

Sliding consumption

According to a recent report by International Wine and Spirit Research (IWSR), presented at the latest edition of Vinexpo in Bordeaux, traditional producers will continue with production in 2014-2018, while domestic consumption declines, including in Spain, to 78.6 million boxes (12 bottles/box), i.e. 4.2% less, with Spain ranking 9th in the world in terms of total wine consumption, after declining by 12.3% in 2009-2013, a long distance from the 378 million boxes in the US, the leading consumer worldwide, even ahead of France (288.2 million).

The goal, therefore, would be to revive domestic consumption, without neglecting the foreign market, with an increasing focus on sales of quality wine, mainly bottled (at the source if possible or, as is increasingly in fashion, at the destination, but with controls throughout the  process), and applying prices and adding value in line with our other main competitors.

The recently created Interprofessional Organization of Vine and Wine (OIVE) will have plenty to say, and plenty more to do, if this is the approach that is finally taken. Following its creation in July 2014, and its endorsement by the government and in the Official State Gazette early this year, the organization has identified the following challenges: boosting consumption, especially domestically; fostering R&D and innovation; designing sales strategies; promoting sector contracts; regulating supply and the characteristics provided to the market; and substantially improving the statistics and information available about the winemaking industry.

The last task is, at the moment, the most urgent for the OIVE. In fact, that’s the main issue it will address at the meeting with the Minister of Agriculture, Isabel García Tejerina, on February 24th. Optimal sector information—which is currently lacking—is essential, along with a centralized, computerized system with information on wine production and sales, similar to the one used by the Agency for Food Information and Control for the table olive and olive oil sectors, so as to address these challenges and fulfill the objectives proposed by the organization.

If the sector is unable to generate the funds it needs on its own, through the extension of the rule to all winemaking professionals, it will be nearly impossible to implement measures to revive domestic consumption of wine and to improve the promotion and the quality of our wines outside Spain, when research and applied innovation plans are not rolled out.  As a result, a mechanism must be identified immediately to raise funds by all sector players with a view to executing the actions proposed by OIVE so as to benefit the entire industry.  

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30/10/2017