Download The role of subsidies in agricultural trade reform

Wine industry opportunities and
challenges
for the next two decades
Kym Anderson
University of Adelaide
AARES/AAWE workshop on The World’s Wine Markets by 2030: Terroir, Climate
Change, R&D and Globalization, Adelaide, South Australia, 7-9 February 2010
Thanks are due to GWRDC (Project Number UA08/04) and the University of Adelaide’s Wine2030 project for financial support.
The views expressed are the author’s alone and not necessarily those of the funders.
Challenges for New and Old
Australia & other New World: fall in export demand
due to recessions each side of North Atlantic
Europe: chronic oversupply of non-premium fruit
and increased export competition from New World
Additional challenges for Australia include:
Exchange rate appreciation (mining boom)
Surge in supplies and stock (1990s planting boom)
Supermarket concentration at home and abroad
Fashion swing against Oz wine abroad & at home
Major reforms to water & (maybe) wine tax policies
Hence $800m of winery and vineyard assets for sale
Surges in Australian vineyard area since 1850
180 000
hectares
60 000
40 000
Up 110 000 hectares
(3 fold increase)
80 000
Up 15 000 hectares (25% increase)
100 000
Up 21 000 hectares (doubled)
120 000
Up 18 400 hectares
(4 fold increase)
140 000
Up 6 200 hectares
(8 fold increase)
160 000
20 000
Source: Osmond and Anderson, Trends and Cycles in the Australian Wine Industry
1849-50
1871-72
1893-94
1915-16
1937-38
1959-60
1981-82
2003-04
Wine
booms
in Aust:
No. of
boom
(flat)
years
Vine
area
growth
(%pa)
Wine
prodn
growth
(%pa)
Wine Share of
export
prodn
growth exported
(%)
(%pa)
1854-71
17(10)
16
18
14
2
1881-96
15(19)
10
8
23
10
1915-25
10(20)
7
13
5
9
1968-75
7(12)
3
6
-1
3
1987-04
17(??)
18
11
22
32
(now>60%)
Domestic and export sales of Aust wine,
1947-2007
Aust was slight net importer in mid1980s, now major export focus
Symptoms of challenges in Australia
Profits of wineries halved last year, or worse
Winegrape prices in irrigated areas fell 30% last year,
and are down a further 30% this current vintage
One-third of exports were sold in bulk in 2009,
compared with 15% in 1996-2003
Only partly because of bottling re-location decisions
Import share of domestic wine sales rose from 3% in
2001 to >14% and still rising (NZ Sav. Blanc)
Aust av. export price peaked in 2001
Oz exports: slowing in all but lowest price point
Where to from here?
•
•
Climate change is not the only thing producers will have
to respond to in coming decades
Demand-side developments include:
•
•
•
•
•
•
income growth in emerging economies (after current recession)
westernization of diets in emerging economies
population ageing
health and environmental concerns of consumers, and
associated changes in wine consumer taxation/regulation
Other supply-side developments are:
• concentration and multinationalization of winery ownership
• likewise in retailing, with global supermarket revolution
• emergence of new players (eg, in Asia as local demand grows)
•
Can some countries respond more nimbly than other?
National competitive positions over the next two
decades will be affected by:
Demand factors:
Taste and preference changes (role of marketing strategies)
Concentration of distribution/retailing firms
Supply factors:
Changes in technology and terroir (e.g. due to climate change)
Globalization, trade, tax/regulation policies:
WHO’s global strategy aimed at reducing harmful drinking
Unilateral moves to reduce harmful drinking (UK, France, …)
• Alcohol excise tax changes here and abroad
Strategies adopted by key players
Demand factors
The past two decades
UK etc. supermarkets: sought accessible
value-for-money wines in large volumes
Halving of per capita consm in traditional
supplier countries though
French ‘paradox’, red wine and health
• But liver concerns remain
The next two decades …
Demand factors: the next two decades
Climate change altering optimal location of
different varieties, and some departures
Asian expansion to match own demand
growth?
Supply factors
The past two decades in, e.g., Australia
Large firms, cross-regional blending provided wine
consistency, but absence of place
Absence of regulations allowed eg irrigation, use
of oak chips
Long tradition of science-based R&D, incl. in
packaging (bag-in-box)
The next two decades …
Supply factors: the next two decades
Climate change altering optimal location
of different varieties, and abandonment
of some hot regions
Departure of some listed large firms
Opportunity for smaller long-term wineries,
or newcomers via FDI (China in Aust?)
Asian expansion to match own demand
growth? Also to export (E. Europe too)?
Globalization, trade, and
tax/regulation policies
The past two decades
Lowered trade and FDI costs accelerated multinational
mergers/acquisitions, flying vignerons, int’l technology
transfer
Firm concentration slower with wineries than supermarkets,
so transfer of price-negotiating power
Differential consumption and import taxes hold back trade,
as do distribution laws in the US
The next two decades …
Globalization, trade, and tax/
regulation policies: next 2 decades
Large firms are increasingly footlose in sourcing
commercial premium juice
Will lead to more equalization across countries/regions of
grape & vineyard prices
Reduces their willingness to pay national/regional R&D levies?
Switch to volumetric tax in Aust will shift Aust prodn
(and imports) toward fine wines
Hong Kong will become more a hub of Asian imports
China and India investing abroad
Will speed int’l tech transfer to them
Strategic options include:
Expanded R&D investment (how funded?)
Including the use of new biotechnology (GM?)
More collaboration internationally (2-way spillovers)
Needed even more with climate change
Need to adapt to increased buyer interest in sustainable practices
Expanded generic promotion (how funded? what focus?)
Move from ‘Brand Australia’ to ‘Regional Heroes’, etc.
Old World also getting into it (eg Bordeaux)
Savvy re-positioning by firms
e.g. moving more toward fine wines in cooler parts of Australia
as other Sthn Hemisphere locations out-compete Oz irrigators?
Adapting to new marketing tools, eg social networking
Old World adopting more of marketing strategies of New World?
G&W research publications/wine prodn (world = 1.0)
1992-96
1997-01 2002-06
Argentina
0.2
0.2
0.2
Australia
2.8
1.6
1.5
Chile
0.3
0.4
0.5
France
0.7
0.7
0.6
Germany
1.3
1.5
1.4
Italy
0.5
0.6
0.7
Portugal
1.0
1.6
1.8
South Africa
0.4
0.3
0.5
Spain
1.4
1.2
1.2
United States
3.9
2.7
2.2