The wine making sector is looking suspiciously at the sky, wondering how the grape harvest in Spain will shake out next fall for the 2019/20 campaign, which will start on 1 August. Two consecutive harvests with large volumes of wine and must could be quite dramatic for many wine makers in Spain and lead to drastic price declines at origin and higher-than-wanted stocks.
The situation is even more worrying if our main customers outside Spain (France, Germany, Italy and Portugal), which import a considerable amount of bulk wine, again have acceptable harvests and if other non-EU suppliers (like Chile, Argentina, South Africa, Australia and New Zealand) conclude their harvest with notable quantities they will have to export.
We are 8 months into the 2018/19 campaign and the market situation, though not good, is better than expected in these circumstances. It's true that grape and wine prices declined considerably compared with the previous campaign, although the situation was quite similar in terms of quality and production zones. This is to be expected considering that, in the previous wine making campaign in Spain, the total was 35.5 million hectoliters, while the EU's total barely reached 150 million. This led prices to rebound, especially in the second half of the campaign.
The first consequence of the decline in EU and Spanish production in 2017/18 was at the end of that campaign, when wine and must stock declined almost 10% and by slightly more than 17 million hectoliters, of which 9.7% and 3.3 million were from Spain.
The EU kicked off the current 2018/19 campaign with smaller wine and must volumes than in previous years, with 154.64 million, 10% less than one year before, and Spain started with 30.6 million, i.e. not the lowest (slightly more than 29 million in 2012 and 2013), though it was one of the lowest levels in the last 10 years.
In addition to the EU's situation, there were also issues like weak harvests in certain countries in the southern hemisphere, mainly Chile, South Africa and Australia, affected by poor weather conditions in production zones. As a result, the global wine offer in the 2018/19 campaign kicked off with much lower levels than in previous years.
Global wine production in 2017/18 totaled 250 million hectoliters, according to the International Organization of Wine and Vine, i.e. 8.6% less than the previous campaign and one of the lowest volumes in history, only beating out 1957, when the total was barely 173.8 million.
This "cushion" of a smaller wine and must supply in the markets, coming from the previous campaign, has alleviated the current situation and kept alarms from going off, keeping the light on yellow as opposed to red.
The true test
How long can this situation last? It's hard to know, but there's every indication that it's going to depend a lot on the state of the next harvest in Spain and on the main producer countries in the EU, which also recovered more "normal" production levels in the current campaign, especially France, with more than 49.5 million hectoliters, and Germany, with 10.7 million, while Italy registered slightly less, with around 49.5 million.
The truth is that if France and Italy produce the amounts they reported to Brussels, in 2018/19, Spain will be the leading wine and must producer in the EU, since the Ministry of Agriculture's latest estimate was almost 49.94 million hectoliters, 40.8% more than the weak production figures in the previous harvest, the result of a grape harvest for wine making amounting to 6.32 tons, 32.1% higher than in 2017/18, when it was 4.77 million.
The true test will come at the end of summer, when the first estimates for the grape harvest in 2019/20 will be revealed and we know how sales of wine and must stand at the end of July and how much stock is left in wineries and warehouses, and if they will leave enough room there to house the rest of the harvest.
The sector is crossing its fingers, thinking about the future. Since the start of the year, some farming organizations, mainly in Castile-La Mancha, the region with the greatest wine production (24.6 million hectoliters, 55.8% of the national total) and non-concentrated must (4.3 million, 88.3% of the national total) and in Extremadura (more than 3.6 million hectoliters of wine, 8.2% of the total and almost 142,500 hectoliters of non-concentrated must) are requesting self-regulating measures in terms of market supply, as allowed under EU regulation.
These measures, which are very easy to request but very difficult to implement, must already be in the process of being designed in the event that they have to be applied at the end of the current campaign or at the beginning of the next one. One thing the sector must be clear about from the beginning is that the government isn't going to come and fix the problem. The producers and winery owners must adopt and finance these measures. How? Well, it's pretty obvious: in accordance with the EU regulation from the Common Organization of the Agricultural Markets (OCMA) and, with a consensus, through the "extension of the rule" of the producer and processing sector as a whole, as approved by Spain's Interprofessional Wine Organization (OIVE).
In a country as heterogeneous as Spain, wine and must production is not that homogeneous. That's the problem: while certain areas linked to Designations of Origin, like Rioja, have limited their production output for years, others, like Castile-La Mancha or Extremadura, started thinking about it too late, and restructuring and improvements in wine making crops have increased productivity per volume, regardless of demand by the market at any given time.
Limit on yields
In this context, not even in the name of solidarity would it be fair to request the same self-regulating efforts of some and not others, to those that have tried to avoid or slow the appearance of hard-to-sell surpluses, compared to those who have contributed to their creation by not putting a limit on production.
In early February, Cooperativas Agro-Alimentarias Castilla-La Mancha said it was necessary to implement a market measure that can be automatically activated this year and which will "correct the undesirable price oscillations and prevent disturbances and imbalances in the market."
A measure that is "easy to understand and apply," adding that "it be applied in Spain with a view to ensuring a balance in the regular supply to the market and softening undesirable price oscillations which, in certain moments, occur in the wine market." A measure that is based on "objective data, which lets each winery self-regulate and which seeks to ensure, above all else, the production of quality products that create value," according to Juan Fuente, the sector spokesperson.
Farming organizations from that region, such as the Union of Small Farmers (UPA), said, through their spokesperson, Alejandro García-Gasco, "We haven't learned much from the serious problems of overproduction that we had in 2013, because nothing has been done to ensure it doesn't happen again." In that campaign, production exceeded 53 million hectoliters and they were able to apply, quite easily, the obligatory distillation of around 4 million hectoliters.
No public aid
It was the first time that the Ministry of Agriculture imposed, to a certain point, the responsibility of the producer and processing sector to manage excess supply, without public aid, in an attempt to activate and apply article 167 of the Single CMO (Regulation 1308/2013) on "Marketing rules to improve or stabilize the operation of the common market in wines."
This article says that, "In order to improve and stabilize the operation of the common market in wines, including the grapes, musts and wines from which they derive, producer Member States may lay down marketing rules to regulate supply, particularly by way of decisions taken by recognized interbranch organizations. Such rules shall be proportionate to the objective pursued and shall not: relate to any transaction after the first marketing of the produce concerned; allow for price fixing, including where prices are set for guidance or recommendation; render unavailable an excessive proportion of the vintage that would otherwise be available; provide scope for refusing to issue the national and Union certificates required for the circulation and marketing of wines where such marketing is in accordance with those rules."
The approved regulation, which in the end wasn't applied due to lots of doubts and issues implementing it on the part of the wineries, established a marketing rule to definitively remove from the market at most 4 million hectoliters of certain types of wines made in those regions whose wine production accounted for a large portion of Spain's as a whole and in the 2013/14 campaign was more than 50% of the average of the last four campaigns, with average productive yields of over 80 hectoliters per hectare.
This situation of high yields, which is much worse that the current one, only occurred in Castile-La Mancha which, in its provisional campaign forecast, said it expected 32.55 million hectoliters (25.62 million of wine and 6.93 million of must), together with initial stock of 6.62 million at 1 August 2013. The context of the current campaign seems, for the time being, slightly more favorable than in 2013/14, but things could change in the coming months. With that in mind, it's not a bad idea for the sector to try to prevent that kind of situation before it's too late.