Contents

Chap. 1. Introduction ....................................................................................................................3

Chap. 2. Globalization ..................................................................................................................5
2.1. Definitions of Globalization ..............................................................................................5
2.2. Globalization and wine ......................................................................................................7
2.3. General effects of Globalization on wine industry sector .................................................8
Chap. 3. Wine Industry ..............................................................................................................11
3.1. Brief on Wine industry sector trend ...............................................................................11
3.2. Old World ......................................................................................................................12
3.3. New world ......................................................................................................................12
3.4. Comparison of the structure between the Old and New world........................................13
3.5. Rules and regulations in the New and Old Worlds .........................................................15
3.5.1. New Wine CMO .......................................................................................................17
3.5.2. EU/USA Agreement ................................................................................................19
Chap. 4. Current Trends .............................................................................................................23
4.1. Global wine production ...................................................................................................23
4.1.1. Wine production in Europe .......................................................................................25
4.1.2. Wine production in other countries...........................................................................27
4.2. Global wine consumption ................................................................................................31
4.2.1. Wine consumption in Europe ...................................................................................35
4.2.2. Wine consumption in other countries .......................................................................38
4.3. Global Wine Trade ..........................................................................................................40
4.3.1. Global Wine Exports ................................................................................................43
4.3.2. Global Wine Imports ................................................................................................48
Chap.5. China: an emerging wine market ..................................................................................53
5.1. Wine Production in China ..............................................................................................53
5.2. Chinese wine consumption and consumers profile ........................................................57
5.3. Trade and Imported wine in China .................................................................................61
Chap.6. Conclusions...................................................................................................................65
References ..................................................................................................................................69

Chap. 1. Introduction
The purpose of this thesis is to analyze and explain the impact of globalization on the
global wine industry sector. The study illustrates the different aspects that characterize
this market and it focuses on the development of the wine sector all over the world,
describing how it has evolved over the years thanks to the intervention of new emerging
markets that are gaining more space in the production, sale and consumption of the
product itself.
Over the past ten years, wine has increasingly become an international good. New
competitors such as Australia, United States, Chile, Argentina, South Africa, New
Zealand have emerged. Their products are characterized by easier recognition and
understanding for the consumer than those of European countries, traditional producers,
because they are less complex in look and taste. Marketing strategies also are based on
lower prices; in actual fact, in these countries wines are made by companies which
profit from economies of scale in research, production and marketing. The brand and
the indication of the variety constitute a fundamental point of reference indicating the
origin, which is usually to be identified in large areas. In contrast, in the Old World
brand marketing policies are conducted only by a few companies, supported by the
territorial origin; companies are generally small or medium sized and they are
characterized by high production costs and more complex products .
The main purpose of this research is to analyze recent developments that have taken
place on the international wine market, as a result of the transformation of world trade
due to changes in society, in politics and in business following the increasing openness
and interdependence of economic systems.
The goal is to investigate the evolution of the role played by European countries
traditionally producers, namely France, Italy and Spain, against the aggressive growth
that has characterized the New World countries and secondly the factors underlying the
growing competitiveness of new exporters and the ascent of new emerging markets like
China and Russia that may also help to solve the oversupply problems. The analysis of
Chinese emerging market is based not only on data, statistics and numbers but also on
the descriptions and evaluations of cultural aspects on both local behaviors in business
and in the approach to wine.
3

The achievement of the research objective required the availability of information and
data that can clearly represent the global trade flow of wine from the perspectives of
both exporting and importing countries.
The thesis is structured in 6 sections, i.e. the introduction, where the purpose and the
goals of the work are exposed, the second section develops a brief analysis of
globalization and its connection with the wine industry, the third part analyzes the
division of the wine industry sector between New World and Old World with
particular reference to the different aspects that characterized the industry and the role
of the countries. In the fourth section the current trends in the industry sector will be
exposed; in particular we will focus on the data about production, consumption, import
and export in the most relevant countries. The fifth section explains the impact of
Chinese emerging markets, through the analysis of trends, opportunities, cultural
aspects and business rules that have increased the importance of this country in the
sector. The last section is the conclusion in which the key points and the findings of my
analysis are summarized, together with my personal viewpoint on the possible
ambiguous effects that globalization can cause to the ancient and prestigious image of
wine.

Chap. 2. Globalization
2.1. Definitions of Globalization
Nowadays the word globalization is very diffused, and it is possible to find it in
magazines and newspapers, but it is not easy to define the theme of globalization
uniquely, so these are some definitions by important experts.
. Globalization is the growth, or more precisely the accelerated growth, of
economic activity across national and regional political boundaries. It finds
expression in the increased movement of tangible and intangible goods and
services, including ownership rights, via trade and investment, and often of
people, via migration. It can be and often is facilitated by a lowering of
government impediments to that movement, and/or by technological progress,
notably in transportation and communications. The actions of individual
economic actors, firms, banks, people, drive it, usually in the pursuit of profit,
often spurred by the pressures of competition. Globalization is thus a centrifugal
process, a process of economic outreach, and a microeconomic phenomenon.
(Charles Oman, 1996).
.Globalization refers to processes whereby social relations acquire relatively
distance less and borderless qualities, so that human lives are increasingly
played out in the world as a single place. (Jan Aart Scholte, 1999).
.understood as the phenomenon by which markets and production in different
countries are becoming increasingly interdependent due to the dynamics of
trade in goods and services and the flows of capital and technology (R.
Brinkman and J. Brinkman, 2002).
.Globalization is a conceptualization of the international political economy
which suggests and believes essentially that all economic activity, whether local,
regional or national, must be conducted within a perspective and attitude that
constantly is global and worldwide in its scope.(Robert Spich, 1995).
.process in which the production and financial structures of countries are
becoming interlinked by an increasing number of cross-border transactions to
create an international division of labour in which national wealth creation
comes, increasingly, to depend on economic agents in other countries, and the

ultimate stage of economic integration where such dependence has reached its
spatial limit.( Paul Bairoch and Richard Kozul-Wright,1996).

All these definitions focus on the different aspects of globalization, however if we

summarize these statements we can define the process of

globalization as set of

worldwide phenomena of high intensity and rapidity, involving economic, social,

cultural and ideological domains.
These phenomena are characterized by two principal elements: the elimination of
tangible and intangible barriers to the movement of people, goods, information,
knowledge and ideas and the standardization of economic conditions, life styles, and
ideological views, in accordance with the Western model. Globalization is
predominantly expressed in economic terms; in actual fact, this process increases the
trade flow between states and regional economies and it is known as the liberalization
of trade which means breaking down commercial barriers in order to ease the flow of
goods and services, labour and people, capital and technology . Globalization could be
considered a phenomenon with a long history. The economist Andre Gunder Frank
argues that a type of globalization has been in existence since the increase in trade
between Sumer and the Indus Valley Civilization, five millenniums ago. However, in
the Hellenistic Age there was a premature form of globalized economics and culture,
when commercialized urban centers, from India to Spain, were developed around the
association of the Greek culture and cities as Athens, Antioch and Alexandria . In any
case the term Globalization is quite recent and it was used the first time by economists
in the 1980s to describe the economic aspects and relations between countries and
multinational companies. In fact, it is possible to explain that modern globalization is
the effect of planning by leading politicians after the second World War in order to
eliminate economic boundaries that impeded the increase of prosperity and
interdependence . This process is also characterized by the foundation of international
organizations, such as the International Monetary Fund , World Bank and World Trade
Organization (GATT as a forerunner) to manage the process of globalization.
An important factor of globalization is the development of new technology and new
systems of communication, for instance, the internet that nowadays permits to keep in
touch with anyone connected around the globe and, also to acquire information and

news about what is happening in distant countries quickly and in real time. In fact,
globalization is not a process that only affects financial aspects based on liberty of
exchange of goods and capital and worldwide financial markets, but it also affects
cultural, political and social aspects that influence the diffusion of a homogenous
culture called world culture, the increase of relationships between countries and the
development of non-governmental organizations.

2.2. Globalization and wine

The wine industry is attracting more and more attention in the world economy, but all
this interest could appear unusual because the wine sector accounts for only 0.4% of the
total household consumption, and vines cover only 0.5% of the cultivated area
worldwide, of which

only 1/3 is used for wine (Anderson Kim, 2004).

In addition, considering the data on the world production and consumption of wine,
which shows a slight decline over the past two decades at global level, wine does not
seem to be a particular business with growth prospects. However, for millions of
investors and consumers , the wine industry offers a greatly demanded product. In fact,
the business of wine is an extraordinary case of globalization studied by numerous
experts in the world, and it affects all economic sectors from primary to secondary and
tertiary. It is sufficient, for example, to analyze how the total average cost of a bottle of
wine is divided between the different sectors: 10% to farmers of vines, 30% to wineries,
37% to transporters, wholesalers and dealers, and 23% to national taxes (Anderson
Kim, 2004).
Globalization is not a new phenomenon in the wine market but over the years it has
become increasingly significant. An indicator of the increasing degree of globalization
of the wine sector is provided by the share of total output exported, which increased
from 15% to 25% during the 1990s (Organisation Internationale de la Vigne et du Vin,
2008).
Concerning the wine industry sector , the anti-globalization public opinion fears that an
economic reality characterized by hundreds of years of the farming industry, with its
distinctive element, and with the wide variety of wines that differ from year to year
depending on climatic conditions or the testing of farmers, can soon be difficult to

distinguish from any other high-tech industry, characterized by a reduced number of

large companies that offer standardized products for all markets.

2.3. General effects of Globalization on wine industry sector

According to The Origin and the Ancient History of Wine

(McGovern Patrick,

2005), it can be seen how wine, which probably dates back to about 6,000 years ago in
the area that extends between the Black Sea and the Caspian Sea, has become a global
product. Nowadays

one of the effects of globalization on the wine sector is

undoubtedly the increase in the level of concentration in the sector; in fact, mergers and
acquisitions within this industry are very diffused , because companies think that this is
a method to increasingly strengthen competition. Another important effect of
globalization on the wine sector is that wine companies, in order to withstand the
increasing competition, are increasingly becoming multinational in terms of production,
distribution, forming alliances with foreign companies to achieve economies of scale,
especially towards the distributors and chain distribution. The changes in the wine
sector towards greater concentration are more applied in the countries of the "New
world "rather than in the ones of the" Old world ". Perhaps the explanation for this
difference between the countries of "Old" and "New worlds might be explained by the
fact that in European countries there is a very strong presence of small and medium
sized enterprises. Another aspect of globalization of the wine industry is the
international transfer of technology, in fact this flow of wine-making technology has
been accelerated not only by the development of multinationals, but also by the work of
industry technicians and the wine producers who export their own winemaking
techniques across the world through travel and work as consultants in the industry.
This allows the ideas and techniques of a country to develop in another country
determining a continuous feedback of technology and knowledge between one area of
the world and another, distinguishing in particular the "Old world" and the "New
world. It is important to specify that the term "Old world" refers to wine production
that has a long history and culture in this area, such as Italy, France, Spain and Portugal.
On the other hand, the concept of the New world" is related to those nations that in
recent years are beginning to appear and quickly acquire positions on the international
market, thanks to innovative promotional strategies. These countries are Australia, New
8

Zealand, California, Chile, Argentina and South Africa. Having a good climate, they
have developed new viticulture based on innovative production techniques and
technologies. This condition is likely to undermine the viticulture of the old wine
territories that have to face the problem of renewal of the vineyards (higher average age)
and the inadequate production, both in terms of competitiveness in quality (production
in many regions insensitive to the tastes of the market) and in terms of commercial
competitiveness.
In addition, an important aspect of globalization in the wine market is the role of
emerging markets, in particular in countries that in the past were not characterized by a
considerable production and consumption of wine. This new role in the global scenery
shows and demonstrates the influence and the relevance of wine as a globalized product
representing

not only a beverage but a symbol of the western culture which is

increasingly appreciated. Numerous analyses on the culture and perception of wine in

China, that are treated in the section 5, demonstrating that this beverage is a symbol of
emancipation and health.

10

Chap. 3. Wine Industry

3.1. Brief on Wine industry sector trend
Over the past thirty years the competitive environment of the wine market has been
characterized by major changes which have affected the potential of the traditional
producer countries, the vocation for the production of countries defined as the New
World of wine (primarily Australia, the United States , Argentina, Chile, New Zealand
and South Africa), the consumer choice, the growth of the power of
distribution,

the

evolution

of

key

players

and

the

system

of

modern
trade.

It is estimated that the turnover of the wine sector reaches a value of 150 billion $, if
valued at the level of consumption, and 60 billion $ if valued at the production.
(Rabobank,2003)
In particular, the world production of wine has dropped significantly and it has
decreased from 340 million hectoliters (1980) to the existing 265 (2009) (Organization
Internationale de la Vigne et du Vin,2009). The result has been an inevitable process
driven by strong demand-supply imbalance that occurred during the 1980s. According
to recent and reliable estimates by OIV (Organization Internationale de la Vigne et du
Vin) the world wine production was around 260 million hectoliters in 2010. The
production is concentrated in few countries. In 2005 the ten leading wine companies
offered 88% of the worlds wine. (Vinexpo,2007)

Table N 1: The Top 10 Wine Companies Worldwide in 2004 by estimated volumes

.Constellation Brands (USA)
.E&J Gallo (USA)
.Fosters Group (Australia)
.The Wine Group (USA)
.Pernod- Ricard (France)

.Castel Freres (France)

.Concha y Toro (Chile)
.UCCOAR (France)
.Henkel & Soehnlein (Germany)
.Southcorp (Australia)

Source: Adbrands.net from IWSR / ICAP studies

Since 1980 there has been

a drop in production of nearly 10% in Europe and

particularly in Eastern Europe, as a result of the shift of planted area to new

geographical areas. However, the European Union, after a slight increase occurred in
the 1990s, reports significant loss between the end of the last century and the beginning
11

of the current one (Vinexpo,2007). The three traditional producer countries, namely
Italy, France and Spain, accounted for half of the global wine supply. In contrast, the
countries of the New World and the emerging markets like China report a significant
increase in the production of wine and in the future an increase of their importance on
the market is expected. In particular, the role of South Africa, Chile and Australia will
strengthen in 2011, while the United States will be characterized by a reduction in the
quantity of produced wine.

3.2. Old World

Old world in the wine industry refers to those countries where the production of wine
has been traditional for centuries and it comes from a farming tradition. The countries
that are part of the Old World are those of the Mediterranean European areas, namely
France, Italy, Spain and Portugal. In actual fact, the largest vineyard came from this
area characterized by a mild climate that allowed to produce wines the qualities of
which were the best in the world. These countries, until about thirty years ago, had the
control over almost all wine production, and they were characterized by a structure and
manufacturing companies with special characteristics. In these countries wine
companies have small and medium dimension and they are often characterized by
family businesses and limited production. The basic idea of these producing countries
was the production of a quality wine. In the old world, as it has been defined before,
there are a myriad of wineries, which do not have the structure of large corporations, so
they have not developed specific marketing strategies, that, on the

contrary,

characterize the New World firms.

3.3. New world

The expression New world indicates those countries that in the last thirty years have
assumed an important role in the global wine market . These countries are Australia,
New Zealand, the USA, Argentina, South Africa and Chile. These countries have a very
recent history of wine production but they are characterized by structures which are
completely different from those of the Old world. In fact, the firms of the new world can
be regarded as real multinationals. They are characterized by a scale production, using
12

techniques to maximize production, such as advanced irrigation system or addition of

various natural components into the wine. In the new world there is no myriad of small
firms, but large corporations that have developed marketing strategies and control the
bulk of production in the region. This is a precise strategy in order to shake the market
and increase the world market share in the production and exportation of wine.

3.4. Comparison of the structure between the Old and New world
The purpose of this section is to compare and analyze the dissimilarity of the two
considered blocks.
A classic example of the difference between the Old and New World of wine is
related to the different policies of strategic marketing. While in the Old World
countries this trend does not occur, due to the excessive fragmentation of enterprises
and the lack of cooperation, in the New World the policies of strategic marketing play
a key role in the development of this sector. An important reason is that the Old
World countries have a long wine-growing and wine-producing tradition, while the
New World countries are recently becoming known on international markets through
very aggressive marketing and communication policies. These strategies are obvious for
the countries which enter the market already quite saturated and they want to push
ones way with young and little known products. Famous are the cases of the Barossa
Valley in Australia and the Napa Valley in California.
In the case of Australia, the promotion of wine and wine marketing are part of a wider
government project which includes the promotion of the whole "Umbrella Brand"
Australia which started with the Olympics in Sydney and then developed into projects
to promote tourism and local beauties. It seems relevant to note that before the advent of
the New World producers, the traditional world of wine had seen the long dominance
of France and Italy, characterized by a large number of quality wines, average
dimension companies and highly fragmented wineries, that give rise to production of
limited quantities compared to the case of the multinationals of the New World.
These aspects in the past years boosted the belief among producers that for the wine it
was sufficient "doing it well" and then it would be sold by itself.
In recent years the number of Consortiums and wineries have grown, but the countries
of Old world, unlike Australia and other New World countries, did not feel the need
13

to create centralized marketing strategies, which might be coordinated and sponsored

by the government, in order to create profitable synergies and networks between
companies to reach a critical mass. This approach could perhaps be valid in a different,
less competitive and dynamic economic environment, but today it forces these
countries, too often, in conditions of backwardness compared to competitors.
The most clear example of strategic marketing to take into account is that of Australia,
which has two important universities, the first one, the Adelaide University, specialized
in marketing of wine and food and the second one, the University of South Australia,
that studies consumer preferences and habits consumption, observing the influence of
sensory characteristics on the propensity to buy and the possibility to capture new
customers in emerging markets.
Through the representative body of the main producers in the wine sector, the
Winemakers' Federation of Australia (WFA) has written official documents (Decade
Marketing and Strategy 2025) where is it possible to find detailed accounts and reports
on marketing strategies, sales worldwide target until 2025 and marketing efforts
planned with the participation of Australian government.
There are also other two authorities involved in promoting

wine business: the

Australian Wine and Brandy Corporation (AWBC), founded in 1918, aims to provide
strategic support to the sector, taking care of the business, through the production of
documents with analytical data and statistics on sales, promotion and market planning
and The Australian Wine Research Centre (AWRI), founded in 1955, aims to do
research on the wine sector and to create opportunities for the development of the
sector.
This seems to make it clear that denomination wines are the main strategy of the
European wine based on the concept that landscape, climate, history and different
people produce different and incomparable wines, while in opposition, the so-called
New World wine growing is characterized by a supply of wines produced by a handful
of universal vines, with recognizable and standardized tastes. This phenomenon, known
as varietalism (Anderson Kim,2004), which until now has been the most tangible sign
of the globalization of the world wine market is slowly changing. As a matter of fact it
is not as rare as used to be that American, Australian, New Zealand or South African
companies produce excellent and high-quality wines, aided by an international quality-

14

oriented taste and consumers that have more knowledge and critical skills. In the Top
100, published in the specialized magazine Wine Spectator, in the last three years the
New World wines have represented more than 20% of the total.
Another technical difference is that the new world firms possess high technology and
systems for mechanized harvesting of grapes and wine production, while in the old
world these elements do not exist or used in a limited way, and companies are forced to
face high costs which results in a competitive disadvantage in terms of price. In
addition,

the excessive fragmentation of enterprises causes the dispersion of

transformation and marketing process. Moreover, the constant emergence of small

producers who often cannot reach the minimum threshold of visibility in the market is
frequent.
Anyway a particular strength of the Old world is the possibility to assist the
production with a food and wine tourism based on the relationship between wine,
culture and history, such as, for example, in Italy and France. In actual fact, sometimes
the production of wine occurs in ancient and particular farms in beautiful surroundings
with a lot of natural attractiveness and this aspect can help average small firms to
increase their earnings, although these strategies are not coordinated nationally through
relevant development programs.

3.5. Rules and regulations in the New and Old Worlds

Key aspects about technical and cultural differences between the two worlds are those
concerning oenological practices and different regulations that influence production and
wine trade. In actual fact, the European Union , the USA and other producing countries
have established their own systems of rules regarding the wine sector. Therefore, there
is not a system of unique standards for wine production and what is lawful in one
country may be unlawful or harmful in another one.
The OIV (International Organization of Vine and Wine) has been fighting for years for
a clear harmonization of legislation but the results have become partially concrete only
after the Trade-Related aspects of Intellectual Property Rights (TRIPS) Agreement in
1994 and after the conclusion of several wine trade agreements between producing

15

countries (particularly the UE/USA agreement). Despite that, the OIV has a scientific
committee that developed , and continues to update, regulations and information about
oenological practices to facilitate mutual recognition and guarantee uniformity.
The situation developed in recent years has been clearly exposed by Gianni Zonin
(Winenews,2006), one of the largest Italian producers, who before the conclusion of
international agreements and EU wine reform, had outlined an overview on the
difficulties, disadvantages and uncertainties of the New World.
Gianni Zonin focused on the importance of renewal of the outdated "European
vineyards, considering that :
"Wineries cannot do on their own, the European Union should become active
with funds to rebuild our company facilities. We cannot bear the challenge alone
in our small national market, it is important to structure and develop a reaction
in terms of " European system ", preserving the diversity and the necessary
features but also giving rise to a common action of all producers.
Indeed , if we look at Europe we will find too small wineries, too old vineyards
,contraction of the planted area, an increasingly selective market , an excess of
regulation, inadequate protection of designations,

an increasingly fierce

competition that individual companies have to face alone on global market and
the inefficiency of the "country system" due to the excessive fragmentation that
cannot permit wine to penetrate the emerging markets (Zonin, 2006).
This scenario is completely different from those of extra-European countries that are
producing large quantities of wine and above all are planting tens of thousands of
hectares each year , outlining a new wine geography. The most deep-rooted countries
of the New World wine, such as USA, Australia and Argentina, are producing volumes
which are becoming directly competitive with Italy, France and Spain, which clearly
signals that hierarchies are changing.
In Australia, but also in the U.S. and South America, some cellar practices strictly
prohibited in the EU were allowed and nowadays there are no planting restrictions of
new vineyards and no limits to the quantity of wine produced, consequently the price of
vineyard is only regulated by the market.

16

In Europe, instead, the quota system has not allowed the same flexibility to wineries.
According to Zonin "While Europe more and more was binding productions, our
competitors attacked us with standardized wines, easier recognizable by consumers,
with a great flexibility in meet demand, and with a price dumping aided by lower
operating costs of their companies (Zonin,2006). The result is that today the New
World countries have a sizeable share of global wine sales and high and constant
growth. Finally, important changes concerning the worldwide harmonization of wine
legislation has recently occurred with the EU / USA agreements and the reform of the
European Union about the CMO (Common Market Organization) wine.

3.5.1. New Wine CMO

Adopted by the Council of Ministers in April 2008, Regulation (EC) 479/2008 and
entering into force completely on 1st August, it thoroughly reorganizes the way the EU
wine market is managed.
The introduced changes bring balance to the wine market and they will lead to the
gradual elimination of wasteful and expensive market measures. This will permit to
allocate funds and budget to more appropriate and

profitable projects in order to

boost the competitiveness of European wines.

The reform favours a rapid

reorganization of the sector, since it includes a three-year voluntary grubbing-up

scheme, aiming to provide firstly an alternative for producers who are unable to cope
with competition and secondly to eliminate surplus and uncompetitive wine from the
market. In addition, subsidies for crisis distillation will be abolished and the
corresponding amounts, divided among nations, will be allocated for measures
concerning the promotion of wines in other markets, innovation, restructuring and
modernization of vineyards and wineries. The reform ensures environmental protection
in wine regions and the preservation of traditional and well-established quality policies;
in addition, it simplifies the labeling rules according to the interests of producers and
consumers. From 1st January 2016, the very restrictive system of EU planting rights
will also be abolished.

17

The main points of the revised wine CMO may be summarized as follows:
National financial envelopes: redirected distillation subsidies will provide a funding
budget for each country so they can adapt measures promotion outside the EU,
innovation, restructuring and modernization of the production chain, support for green
harvesting, crisis management, etc. to their particular situation, and also choose how
to allocate funding to individual vineyards.
Rural Development and environmental protection in wine-producing areas: more help
for young wine producers, improved marketing, professional training, compensation for
lost revenue due to maintaining landscape / early retirement, etc.
Planting rights: end to the restrictive planting regime at EU level from 1 January 2016
(although some national restrictions may remain until 2018).
Phasing-out of distillation schemes: gradual withdrawal of distillation subsidies:
- emergency distillation: funding falling from max. 20% to max. 5% of the national
funding budget over four years to 2012
- distillation into alcohol for use in spirits: funding phased out over four years.
Payments in the transition period will be replaced by a single flat-rate payment per
producer.
Introduction of Single Farm Payment: Decoupled Single Farm Payment to be
distributed to wine grape growers at the Member States' discretion and to all growers
who grub up their vines.
Grubbing-up: rapidly reduced wine production - mainly through a voluntary
withdrawal scheme taking 175 000 ha out of production via decreasing subsidies over
three years, to reduce production of uncompetitive wines, cut surpluses and compensate
producers by offering them an alternative.
The EU or individual countries may limit the amount of withdrawals in certain cases, to
maintain a minimum regional or national wine-producing area, protect the environment
or maintain cultivation in mountainous or hilly areas.

18

Wine-making practices: responsibility for approving new winemaking practices (or

changing existing ones) transferred to the Commission practices approved by the
International Vine and Wine Office (IWO) will be assessed and added to the EU list of
approved practices, if appropriate.
Simpler labeling rules: in the interests of producers and consumers quality will be
based on protected geographical indications / designations of origin. Well-established
traditional national quality-labelling schemes will be kept, and simplified labelling
rules will allow EU wines to be labeled for grape variety and vintage.

Capitalization: lower limits for added sugar and must with exceptions for particularly
unfavorable climatic conditions.
Aid for the use of must: after 4 years, these subsidies will be converted into flat-rate
subsidies to wine growers. (European Commission,2008)

3.5.2. EU/USA Agreement

The wine commercial UE/USA agreement increases the protection of European
guarantee of origin and partially eliminates the legal doubtfulness that has influenced
foreign trade for years. It is advantageous to all producers of the two blocks; in fact the
parties have clearly expressed their will to exchange views on wine matters affecting
international trade and on cooperation in the wine industry.
The Agreement , which does not affect the rights and obligations of the parties arising
from their accession to the World Trade Organization, focuses on several crucial issues
of wine trade between the EU and the United States of America such as cellar practices,
protection of appellations of origin, labeling and bureaucratic certifications.
It will enter into force on 10 March 2006 but the Agreement is considered as a first step
towards the definition of a broad cooperation (Appiano, 2009).
It is important to specify that in this agreement "indications of quality" means
appellations of origin and geographical indications.

19

An important factor in the debate between the EU and the U.S. is based on the fact that
in the U.S.A there are winemaking techniques not permitted in Europe and a less
specific regulation. In actual fact, winemaking techniques often involve the use of
additives, which may sometimes leave residues in the finished drink (for example sulfur
dioxide used as a preservative). Moreover, since the quality of a wine stems mainly
from the set of treatments administered during its processing, losing connection with the
characteristics of the grapes, involves the risk of misleading consumers about the actual
quality of the product.
Legislation pursues a double purpose: to protect both health and economic interest of
the consumer. According to this point of view, the UE/USA settlement concerning
wine practices states

that only the 'good wine-making practices " should be

admissible so that false impressions about the wine nature and characteristics are
avoided.
The UE/USA agreement is based on the mutual recognition of internal rules concerning
wine practices in order to remove obstacles to the importation and exportation, even if
there exists the possibility of stopping these trade flows for public health reasons.
In order to consider the innovative changes introduced by the EU / USA Agreement
with regard to the protection of indications of quality, it is essential to examine the
discipline applicable about the appellation of origin and the different interpretations and
evaluation before the conclusion of the Agreement.
In the European countries, appellation of origin means the geographical name of a
viticultural area, used to describe a well-known and quality product, whose
characteristics are related to natural environment and human factors.
The concept enhances the connections between territory, product and human activities.
Instead,

the U.S. has always rejected the recognition of product / territory,

considering reputation and perception more important.

According this antithetical approach, what really matters is not the geographical name,
but the perception that consumers have. Consequently, if consumers do not match a
name with a geographical territory or a type of product, the protection is irrelevant
because it does not influence the buyer's choice.
This concept is justified on a cultural level, in fact in the U.S. traditions, working
methods and culture of the territory of origin were transferred and imported by

20

immigrants, who have used names indicating the geographic locations of their origin for
decades. From a U.S. perspective, this situation would lead to the "generalization" of
geographic information losing their original meaning; for example, the words
"Champagne" and "Chianti" do not indicate only a wine from French and Italian, but
also a particular type of product, regardless of their place of origin.
The patchy use by the U.S. of the designations of origin has also led to the signing of
the TRIPS Agreement during the Uruguay Round in 1994, wherein issues relating to
Intellectual property rights, including designations of origin, have been discussed. These
agreements bind all WTO member countries and therefore also the United States. With
reference to the protection of geographical indications, TRIPs are influenced much more
by the European approach than that of other countries, although in the definition of
geographical indication,1 compared to the traditional European definition, any reference
about the human factors and civilization of the place of origin has been omitted even
though the inter-relationship between product and territory is mentioned. Nowadays
TRIPS agreements are in force, but the multilateral system of notification and
registration of geographical indications has not entered into force yet, so the application
of the treaty, in specific cases, is left to the legislation of each country.
As regards the EU/USA agreement, it does not regulate completely the considered
matter, but it has produced important turning points such as the involvement of the
United States in clarifying the meaning of certain terms that in Europe represent
important geographical indications, while in the United States they were previously
submitted to the discipline of "semi-generic names".
In fact, thanks to the concept of "semi-generic" names (including prestigious
denominations like Chianti and Marsala for Italy), the U.S. justified the production and
marketing in its territory of wines labeled with names that, from a European
perspective, are certainly geographical indications.
In the U.S. this practice is permitted, on condition that the semi-generic name is
accompanied by another denomination of origin, corresponding to the real place of
production, justifying this situation with the fact that, through this combination, the
1

Uruguay Round Agreement, Part II Standards concerning the availability, scope and use of
Intellectual Property Rights Sections 3, article 2.1. Geographical indications are, for the purposes of this
Agreement, indications which identify a good as originating in the territory of a Member, or a region or
locality in that territory, where a given quality, reputation or other characteristic of the good is essentially
attributable to its geographical origin,

21

American consumer is not misled. For this reason, buying the Californian Chianti, the
consumer knows that it is a type of Chianti wine, not produced in Italy but on the
coasts of the Pacific Ocean.
In particular, the United States have committed themselves to changing the status and
limiting the use of 17 European wine denominations (Burgundy, Chablis, Champagne,
Chianti, Claret, Haut Sauterne, Hock, Madeira, Malaga, Marsala, Moselle, Port,
Retsina, Rhine, Sauterne, Sherry and Tokay) currently considered as semi-generics in
the United States (Appiano, 2009).
In addition, the United States accept the basic principles of EU labeling rules and they
will seek to resolve possible bilateral issues concerning wine trade through informal
bilateral consultations, in exchange for recognition by UE of certain oenological
practices implemented in the United States.
The United States and the EU have pledged themselves to put on the market only wines
labeled in accordance with the agreements to avoid barriers to international trade.
The EU has also concluded several treaties with other partners in the wine sector as
Chile, Australia, South Africa. These agreements are very similar to those with the
United States, although in these cases there is not a mutual recognition of laws, but
simply each country authorizes the importation and marketing of wines in its territory in
accordance with wine practices identified in a specific document.

22

Chap. 4. Current Trends

4.1. Global wine production
As can be seen in table (N 2) by the OIV, the world production of wine has changed
appreciably in the last 20 years, due to the changes and developments in new countries
as analyzed in the previous sections. In fact, surveys clearly show that a constant
progress of New World has occurred. Actually, Europe has seen a reduction of
production from 78.0% of world output in 1990 to 66.8% in 2008 (OIV, 2010).
Table N2, World Wine Production, Source: OIV(2009).

However, this decrease has been compensated by the increase of production in other
continents. In actual fact, production in the American continent has risen from 16% to
17,9%, in Oceania from 1.6% to 5.1%, in Africa from 3% to 4.1% and finally in Asia
from 1.5% to 5,1% (OIV,2010). The world wine production has decreased significantly
from 340 million hectoliters in 1980 to 268 million hectoliters in 2009 (Wine
Institute,2010), caused by the supply-demand imbalance of the '80s. In the same way,
23

current data show that 2010 world wine production fell by 11.2 million hl compared
with the already modest production of 2009 and reached 260 million hl ( OIV,2010).
This trend is a consequence of the constant reduction of vineyards area. In fact in 2010,
the global area under vines is down by approximately 70,000 hectares, mainly as a
result of the decrease in vineyards in the European Union , as well as the reduction of
the area under vines in the Southern Hemisphere (except South America) and in the
United States. It is important to point out that in Asia the vineyards area has increased
from 15,7% in 1986 to 21,3 % in 2009 (OIV Table N3), thanks to the recent consistent
growth (15,1%) of world vineyard acreage in China from 2006 to 2009 (Wine Institute,
2010).
Table N3, Source: OIV (2009)

Surface area of vineyards worldwide

13,0%

5,2% 2,7%

9000
8800
8600
8400
8200
8000
7800
7600
7400
7200
7000

19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Pu 20
Fo b 07
re l. 2
ca 00
st 8
20
09

05

00

01
-

95

96
-

91
-

86
-

57,9%

7660

90

1000 ha

21,3%

average
Years

4
O.I.V. 2010

24

Despite the constant loss of relevance of Old World during the last 20 years, the
European Union is still the world leader in wine production, with almost half of the
worlds total vine-growing area and 60 percent of wine production by volume.

4.1.1. Wine production in Europe

Within the EU, France, Italy and Spain represents about 80 percent of total production.
Other important EU producers are Germany, Portugal, Romania, Greece, and Hungary.
The reduction of wine production in EU is a direct consequences of governmental
policies; in fact, the vineyards in the EU major wine producing countries has continued
to decline (175,000 hectares have been taken out of production) due to the shrinking
margins and the implementation of the new Common Market Organizations grubbingup scheme. The grubbing-up scheme implicates voluntary withdrawal of vine and
subsidies over three years in order to reduce production of uncompetitive wines, cut
surpluses, and compensate producers, offering them alternatives.
EU wine production in 2010 totaled 157.2 million hectoliters, down 3.7% from the
previous year. Citing data from the European Union, Coldiretti said the last harvest
(2010) produced 49.6 million hectoliters of wine in Italy compared to 46.2 million
hectoliters in France. Despite this negative trend (production has been declining for the
last ten years), France is one of the worlds largest wine producers with 17 percent of
the world market share. Frances 2010/2011 production is expected to show a 1.3
percent drop ( USDA,2011), partially due to the gradual reduction of French land under
vines connected to the grubbing-up scheme. Based on estimates from the Ministry of
Agriculture, France had 786,804 hectares of vineyards for wine production in 2009. The
59 percent of French vineyards were devoted to VQPRD2 wines due to the continuing
program of reducing the planted area of lower quality production. The trend in wine
production has been characterized since 2000 by a progressive reduction due to various
factors, such as government policy , the severe floods of 2001 that caused extensive
damages and the poor harvest of 2003 caused by a hot and dry climate. In France, the

The acronym VQPRD stands for: Vino di Qualit Prodotto in Regione Determinata (Quality Wine
Produced in Determined Region).

25

reduction of wine production from to 2006 to 2009 has amounted to 11,36% (

WineInstitute, 2010) .
According to OIV, Italy is the major producer of wine with 17,7 % of market share
(OIV,2009) and in 2010 it has produced 3% more than 2009 (ISTAT, 2011) even if
from 2006 to 2009 there was a slightly negative trend. The production of wine in Italy
has constantly decreased from 1998 to 2003, and then it started to grow since 2004.
The vineyards area in Italy is around 760,000 hectares, with 770,000 companies, and
vineyards are constantly reducing as a result of EU policies. Sicily is the largest wine
region in terms of total area since it covers approximately 112,000 hectares, (17% of all
Italian vineyards ) and with Puglia (85,000 hectares) amounts to nearly a third of the
Italian vineyards. The other important regions are Veneto (74, 000 hectares), Emilia
Romagna, Tuscany and Piedmont that concentrate more than 2/3 of the vineyard of the
country. About one-third of Italys wine production is represented by Controlled
Appellation wines (DOC3 and DOCG4), most of which are produced in northern and
central regions. This last figure indicates the ability of producers to meet the different
quality demands of the consumers and it is important to point out the development of
quality wines, since in 1985 the Controlled Appellation wines were only 10%. The
Italian wine industry has a pulverized and fragmented structure characterized by a
company average size of about one hectare. According to the 2000 Census , 66% of
companies have half hectare , 80% have one hectare maximum and less than 1% have
ten hectares.
Despite the largest area of vineyards in the world (1,1 million hectares), Spain ranks 3rd
in the European and World production behind France and Italy, and this is primarily due
to low yields because some vineyards are cultivated on marginal lands with reduced
water supply. According to OIV, the production is estimated in 2009 at 35,16 million
hl, quite close to the previous years level but still lower than the five- year average.
Spanish vine area has been decreasing due to the uprooting of vineyards in compliance
with the CMO reforms. The production of controlled appellation wine in Spain has been
constant over the past years and Spanish wine production is divided into VCPRD
(Vinos de Calidad en Regiones Producidos Determinadas) and VDM (Vinos de Mesa);

3
4

The acronym Doc stands for: Denominazione di Origine Controllata.

The acronym DOCG stands for: Denominazione di Origine Controllata e Garantita.

26

the first one identifies the range of higher quality in terms of geographical origin and
process techniques.
Other relevant European producers are Germany ,Hungary and Portugal. German
production was 9,18 Mhl (Mhl= million hectoliters ) in 2009 and it is estimated 6,9
MHL in 2010 due to the very cold weather during blossoming time; on the other hand,
Hungarys wine production is estimated at 2.4 Mhl, which is significantly below 2009
production (3.4 Mhl) and the 5-year average (3.6 Mhl) , while wine production in
Portugal is estimated at 7.1 Mhl(2010/2011), 21.3 percent above the 2009/2010 (USDA,
2011).

4.1.2. Wine production in other countries

Analyzing the data on global wine production it is clear that New World is constantly
gaining an important share to the detriment of Old World. In fact Europe has reached
a new minimum: 60% of global wine production. The most important New World
countries in global wine production are : U.S.A. ( 7,7% market share), Argentina
(4,5%), Australia (4,3%), Chile (3,7%), South Africa (3,6%) and China (4,5%)
(OIV,2010), an emerging market that will be analyzed in the next sections. (Table N4)
In the U.S.A, vineyard area is 398 mha (1000 hectares) (OIV, 2010) and wine
production in 2009 was 27,7 MHL (Wine Institute,2010). Production has progressively
increased from 21 million hectoliters (average 2000-2002) to 24.6 million hectoliters
(average 2003-2005) and it has been characterized by a lower and constant trend from
2006 until the great 2009 harvest. According to OIV, in 2010 a reduction of 9%. is
estimated. Indeed, 90% of U.S. wine is produced in California and it is concentrated in a
few large companies, authentic multinational giants with large financial capabilities.
The wine production in Australia in 2009 reached 11,59 million hectoliters in an area
of 160,000 hectares; from 2006 to 2009 the trend was negative (-11,62%) and it
reached its climax with the oversupply crisis in 2007: the production during that year
decreased at 9.6 MHL.

27

Table N4: Wine Production 2009 (in 1000 Hl).

Country

2009

Market Share

Italy

47.669

17,7%

France

45.558

17,0%

Spain

35.166

13,1%

U.S.A

20.600

7,7%

Argentina

12.135

4,5%

China

12.000

4,5%

Australia

11.598

4,3%

Chile

9.869

3,7%

South Africa

9.788

3,6%

Germany

9.180

3,4%

World Total

268.733

Source: Organization Intenationale de la Vigne et du Vin.

After the significant increase in production of the 90s, the Australian wine industry is
suffering from an oversupply crisis due to the excess of unsold stock ,over 20% of
production, and many analysts consider exports the most appropriate solution to redress
the balance between production and consumption.
The Australian wine industry has more than 1,400 companies, mainly located in the
south-east; there the regions of South Australia, Victoria and New South Wales produce
96% of Australian wine.
Wine production in Australia is highly concentrated since the top four companies
(Southcorp, BeringerBlass, Constellation Brands and Orlando Wyndham) hold a market
share of over 70%.
The Australian wine system has been an example for many foreign producers and
compared to the Old World, has a series of competitive advantages: reduced cost of
28

land; favourable climatic conditions and good water availability. In addition, high
professionalism of winemakers supported by a valuable network of research institutes;
innovative and advanced technologies, have guaranteed high quality and competitive
wines also thanks to modern Industrial infrastructure and lax legislation. To regulate
and promote the wine system, in 1981 the Australian Wine and Brandy Corporation
was established with the purpose of providing services such as: market research and
development, help new producers, maintaining the integrity and quality of wines and
protecting the identity of producing regions using Label Integration Program.
Table N 5, Forecast: Wine Production.

Source: OIV(2010)

Another important country in global wine production is Argentina, the fifth world
producers. This country holds 4,5% of the market share, with 228,000 ha of vineyard
devoted to wine production, mainly concentrated in the regions of Mendoza and San

29

Juan. The Argentinean wine production has been estimated around 16,3 MHL in 2010,
increasing by 34% compared to 2009, when a considerable reduction at 12,1 MHL
occurred; production of wine in Argentina has grown at an annual compound rate of
2.3% between 2003 and 2008, rising to 14.8 million hectoliters in 2008 (Prosperar,
2009).
The Argentinean wine industry was developed to satisfy domestic demand and it has
been sustained by domestic demand. This reality encouraged high volume but relative
low quality product ('table wines'). The 1980s saw a period of hyperinflation running at
100% a year, so foreign investments were mostly stagnant and producers had to face
with falling domestic demand. Producers ,who read the trends and were smart and
capable enough to adapt, have had the opportunity to shift production towards high
quality, in particular 'fine wines' for the international market. But the transition has not
been straightforward. Winemakers need to attract substantial foreign investment
largely from Europe; they have also to continue to service the domestic market,
because, while exports is growing, domestic demand continues to provide a vital base of
cash-flow. In addition, the presence of Flying winemakers from France, California and
Australia brought modern technical knowhow for viticulture and winemaking
techniques. From 90s Argentine wine industry has strongly increased the weight of
quality wines(now over 90% of the areas) reducing the production compared to that of
1990. Argentine wines have received the highest accolades from the wine industry, the
International Wine Challenge and the worlds biggest wine competition has awarded
Argentina wines ten gold medals.
Among South America countries with a great wine traditional , Chile should also be
mentioned. There, the wine production began with the Spanish colonization. According
to the OIV, Chilean wine production in 2009 was 9.8 MHL (3,7 % of the market share),
with a positive trend since 2004. The position of Chilean vineyards, between the Indian
Ocean and the Cordillera, favours a particular climate and it is a strong point of
production avoiding also some diseases of the vine. In actual fact, Chile is the only
country where there are neither phylloxera nor downy mildew, two dangerous parasites.
The Chilean wines are very popular due to the fact that since 1987 ,with the return to
democracy, there was a revitalization of the Chilean wine industry and new vineyards
were planted to produce quality wines. The Chilean growth has been made possible by

30

the great human and economic effort spent on technology innovation and development
of wine-making products market oriented. Chilean production has experienced a sharp
decline in 2010, following the terrible earthquake of February 27 which caused losses of
about $ 250 million to the sector (Andes Wines, 2010).
Even if Africa is a continent with a poor wine tradition, South Africa is one of the most
important global wine producers. According to SAWIS report, currently South Africa
has 101,016 hectares (2010) under vines for wine production, the 2011 wine harvest is
estimated at 778.8 million liters, 1.0 million liters down from the 2010 figure of 779.8
million liters.
South Africa produces 3.6% of the world's wine and ranks seventh in overall volume
production (2009), showing a positive trend and a constant growth since 2000, when
wine production was around 510 million liters. An important change in the South
African wine industry occurred in the mid-1980s with the shift towards quality wines
and the beginning of a new radical structure of enological industry characterized by
more and smaller producers, instead of the pre-existing Cooperative form , the
Kooperatieve Wijnbouwers Vereniging Van Zuid-Africa Bpkt (KWV) born in 1918 ,
that came to dominate the wine industry until the end of apartheid.
In this section, the production of main global producers (China excluded) has been
analyzed but there are also other relevant countries, namely Russia( 600 million liters
in 2009), Moldova(397 million liters in 2009) , Greece ( 350 million liters in 2009) and
New Zealand ( 205 million liters in 2009 ) characterized by a rapid growth (around
54%) since 2006, with the consequently risk of an oversupply crisis similar to the
Australian one.

4.2. Global wine consumption

After the peak of consumption growth reached between the late '70s and the early '80s,
there has been a steady and rapid decline until the beginning of the nineties, when this
trend stopped. A slow new growth of demand took place with the new millennium. The
fall in wine consumption in Europe has followed the global trends, with a slight decline
in '90s and a period of stagnation from 2007 to 2009 due to the present financial crisis
that has affected the spending power of consumers. Despite the financial crisis, the

31

global wine industry is not suffering so much because , according to Vinexpo, the
consumption in new emerging markets, such as China, Russia and the USA are guiding
the recovery of the sector . In fact, nowadays global consumers still keep buying wine,
they have just reduced the wish and they are satisfied with less expensive and medium
quality wines. In this context, small, quality and traditional Old world producers are
damaged while medium/low quality producers are likely to increase profits.
Considering the period 1961-2009, we see that it has been characterized by the transfer
of wine consumption from Europe to the rest of the world. Indeed today about 34% of
the wine is consumed outside European countries, compared to 19% in 1961. In 2010
global wine consumption increased by 0.4% reaching 238 Mhl, thus breaking the trend
downwards started in 2007 (Vinexpo,2011) .Among the top five wine markets, US,
Germany and China are guiding this slight increase (Table N6).
Table N6, Source: OIV(2010).

32

Table (N7) shows the evolution of consumption in the different continents. In the
period 1986-2009, it is possible to see the loss of European share, while there has been
an expansion in America and Asia covering 21,3% and 7,8%.respectively. These two
markets, thanks to the population and the wealthy and new rich people, offer the
possibility of interesting development. It is important to emphasize the different roles of
North and South America, because the share of the former is increasing, while the
consumption share of the latter is decreasing.

Table N7, Source: OIV(2009)

World consumption of wine

2,9%2,5%
21,3%

65,5%

1 000 000 Hl

7,8%

250
245
240
235
230
225
220
215
210

236,5

average
Years

25
O.I.V. 2010

The consumption decline, which has assumed structural characters in the last two
decades of the twentieth century, because of the changing lifestyles of families and
more generally of European society, should have stopped, because in the EU, wine
consumption in non-producing countries is growing, even if there is a tendency towards
stabilization in the producer ones. In fact, in Northern and Central Europe (United
33

Kingdom, Belgium, Denmark, Norway, Sweden and Holland), but also in Eastern
Europe and Balkan countries (Czech Republic and Poland),
demand, due to the emerging

there is a growth in

expectations of new consumer segments. These

phenomena can be explained mainly through

the change of life style under the

influence of economic, social, cultural and psychological factors. The consumer is not
only increasingly demanding and informed, but he also determines with critical thinking
his own choices ,based on the different occasions of consumption, carefully evaluating
the relationship between material and immaterial quality of wine and its price.
The comparison between demand and world production of wine has been characterized
since the early 80's by a substantial imbalance due to the drop in consumption, which
has gradually reduced in 1990s, especially in Europe, after years characterized by poor
production and European Union programs.
According to OIV , the evolution of the imbalance in the new century has had different
phases: from 2001 to 2003 the surplus of production has shown a gradual reduction,
while the trend since 2003 shows a progressive growth reaching a maximum in the
period 2004-2006, amounting to about 40 million hectoliters. After 2006, there has been
a gradual reduction of the imbalance between supply and demand and forecasts confirm
this trend with the exception of 2009. It is important to consider that OIV, on defining
this balance, considers also the wine consumed for industrial use.
Despite that , the wine market in the coming years will be characterized by a surplus of
production because OIV does not consider a lot of wine stocks in Italy, France and
Australia. The competition between producing countries will require the capacity to
manage production costs, in relation to logistics and marketing. In fact, a supply
characterized by an adequate price / quality ratio is deemed to be necessary. Many case
studies have demonstrated, on the basis of consumer perceptions, that the global
consumer is more and more pragmatic, demanding, rational and characterized by greater
knowledge of wine and through the means of mass communication and the role of
opinion makers, he is able to evaluate the price range of a wine basing on certain quality
characteristics.

34

Table N 8, Market Equilibrium.

Source: OIV (2010)

4.2.1. Wine consumption in Europe

Analyzing the consumption data, Europe overall is still an area with a potential growth.
Northern Europe is the area where the growth rate of consumption is higher than other
parts of Europe, although this is not considered in terms of absolute values due to the
low population size. In Norway and Finland, consumption could increase more than
Sweden (22,5 liters per capita) and Denmark which have a constant rates of
consumption. For example, per capita consumption in Denmark amounted to 32 liters
in 2010. The forward-looking statements relating to consumption trend in Denmark
does not show a significant growth because of the already high consumption and the
reduction of the prices of spirits, due to a decrease in taxation at the end of 2003. In
Finland, per capita consumption is 14 liters and a population of 4,1 million outlines the
possibility of profit margins, like in Norway , where per capita consumption reaches 15
liters.
35

The expected growth for Central, Eastern Europe and the Balkans is the highest among
all the four European areas and it is estimated around 1.5 million hectoliters. The
Russian Federation, both for the population size and the estimated growth rate of
consumption, together with the Czech Republic and Poland, can be considered very
interesting markets because a change is taking place in consumers taste: they are
shifting from vodka and other traditional spirits to wine and beer. This is a direct
consequence of the major numbers of wealthy family that are fascinated by wine world.
According to OIV, Russia was the ninth country in wine consumption in 2009, with
10,012 mhl and this data is going to increase after the stagnation caused by the financial
crisis.
In Northwestern Europe the situation is very heterogeneous. In some countries, such as
France, consumption is decreasing while others, such as the United Kingdom, Germany
and Netherlands, show new consumption opportunities and new types of consumers.
According to OIV, in France the wine consumption was estimated in 2009 around 29,9
million hectoliters. The data ,like in the other Mediterranean countries, show a decline
of 15% compared to 2001. Indeed, wine is consumed more and more occasionally,
even if per capita consumption is still the highest in the world. Consumption in France
has been characterized by a negative trend since 2006, which has been augmented by
the negative influence of Evin law, promulgated by the minister Sarcozy in 2003 to
stop people from driving under the influence of alcohol. French companies in the wine
industry, trying to oppose this rigorous law , are collaborating to avoid this restriction
on wine if consumed moderately. A solution might be to follow the example of Spain,
where wine is considered a typical food and not an alcoholic drink, thus recognizing
that wine is a product rooted in the French gastronomic culture.
In the UK, wine is a dynamic product that according to OIV reached a consumption of
12.68 Mhl in 2009, while in 1985 the wine consumption was just 4,4 million hectoliters.
This evolution of consumption has shown a rapid growth, in particular for bottles
between 5$ and 10$, in the last 20 years and the experts foresee that this trend will
continue since English consumers seem to be more expert, curious and attracted by
wine.
Germany has a similar trend, the consumption is increasing and in 2009 it was around
20.25 Mhl ( 4 global wine consumers). German consumers are shifting from beer to

36

wine; they search easy recognizable wine to use as substitute of beer and they pay
attention to quality/price ratio since they have a high inclination to save money. In
Holland , during the last ten years, wine consumption has increased by 46% to the
detriment of beer and spirits. This trend is favoured by competitive price, availability of
different types of wine and sellers. The consumption is estimated 3,7 Mhl and the 2012
forecast indicates a continuous growth.
Southern Europe is the only area where the growth rate of consumption is negative.
Italy is the third wine consumer in the world, with 10,4% of market share. In Italy,
wine is a traditional product and a part of eating habits of Italians. In addition, the
country has a long-standing tradition of winemaking and a strong consumer preference
for locally produced wine; the high consumption of bulk and non-branded wine,
especially in the South and in the Islands of the country, confirms this trend. Nowadays,
wine knowledge is increasing specially among young people and courses of wine
tasting attract much interest. According to OIV, Italian wine consumption was 24,500
mhl in 2009 and the consumption per capita (45 liters in 2007), after the decline
recorded in 80s and 90s caused by the methanol scandal, has increased since 2000,
showing later a negative trend caused by a series of social and economic factors such as
the financial crisis, a law against drunk-driving ,more awareness in consumption related
to healthy life style and preference for quality wine to be consumed occasionally. Spain,
one of the most important wine markets has seen a rapid drop in wine consumption in
the last 10 years; a reduction of 44% since 1999 due to the fact that new generations
prefer beer, in fact wine is considered an elite and expensive product, mostly consumed
by old people. The Spanish wine consumption, according to 2009 OIV report, is
estimated 11,271 mhl (4,8% market share) and 29,7 per capita (2007), while the
consumption of the other important South-European countries, namely Greece and
Portugal, was 29,7 and 42,5 liters per capita respectively. These data seem to confirm
a South European trend towards the homogenization of drinking patterns. Marketing
factors, financial crisis, public health policies, the evolution of prices and taxation,
European Union agricultural policies, a growing awareness of public opinion about the
toxicity of alcohol and competition between alcoholic and non-alcoholic drinks are all
factors that may partially explain these changes.

37

4.2.2. Wine consumption in other countries

In North and South America, forecasts indicate a growth in consumption of 5.5 million
hectoliters. There, the market share has increased, during the last 10 years, from 19,7%
to 21,3% in 2009. This growth is influenced mainly by Canada and U.S., which is a
huge market, characterized by the highest consumption growth rate. The wine
consumption in U.S is increasingly constantly and according to OIV the wine
consumption in 2009 was 27,250 mhl (2 place) . The U.S market is dynamic and
heterogeneous from State to State. For example, the consumption per capita in New
Hampshire is 20 liters, while in Mississippi 3 liters only. The typical U.S consumer is
attracted by wine taste and culture and he begins to prefer wine to other alcoholic drinks
like beer and spirits. The wine consumption growth concerns every price range and
analysts foresee that U.S will rank first within 2014. In Canada, the annual per capita

Table N9, Top 10 consumer countries (in 1000 hl), Source: OIV(2009).

Country

2009

Market Share

France

29.900

12,6%

U.S.A

27.250

11,5%

Italy

24.500

10,4%

Germany

20.250

8,6%

China

14.025

5,9%

U.K.

12.680

5,4%

Spain

11.271

4,8%

Argentina

10.292

4,4%

Russia

10.012

4,2%

Australia

5.050

2,1%

World Total

236.452

38

consumption increased between 2000 and 2007, growing from 11.3 to 14.6 liters,
implying a total domestic market consumption of approximately 470 million liters in
2007 (Agriculture and Agri-food Canada,2007).
In South America, consumption in Argentina has seen a decline because of the
repercussion of persistent economic problems that have affected this country in the
beginning of new millennium. While domestic consumption has fallen from 1.8 billion
liters in 1990 to 1.02 billion liters in 2009, the percentage of vino fino (quality wines)
consumed versus vino de mesa (table or cheap wines) had increased from 17% in
volume to 46%. So, what the industry has lost in volume, it has more than doubled in
quality and value.
On the contrary, in Brazil and Chile, the positive economic developments are likely to
facilitate the expansion of demand.
The consumption of wine in Australia, despite the high growth rate in the past15 years,
is estimated to be stable. Per capita consumption reached nearly 30 liters and, according
to OIV, in 2009 the demand was 5,050 mhl. The Australian wine consumer culture is
evolving and the diffusion of knowledge on grape varieties and brands is pushing
demand towards high quality wines reducing the consumed quantity. It is important to
emphasize that the new preferences towards RTD (ready to drink) beverages is
negatively affecting alcoholic and wine consumption, in particular among women.
South Africa, the only relevant wine producing country in Africa, consumed 355
million liters of wine in 2007, with a 4.4% increase over the previous year and the
highest increase in consumption for over a decade (SAWIS, 2011). Trends indicate that
the volume of wine consumed in South Africa was largely static between 2003 and
2006, following a 10% drop from 2002 to 2003. The largest growth in consumption by
volume occurred between 1992 and 1997 in the early post-apartheid era .The recent
upward trend in 2007 is a positive sign for the industry, even though it is estimated that
63% of all South Africans have never consumed wine and alcohol consumption
statistics show that most South Africans do not choose wine as their alcoholic beverage
of choice.
Asia's wine consumption is set to grow by 25% in the next five years in stark contrast
with a predicted fall in European wine drinking, according to Vinexpo. Forecasts show
that the Asian wine and spirits market will be worth $6.4 billion by 2011 with wine

39

consumption growing to nearly 1.3 billion liters between 2009 and 2013, at a rate five
times faster than the rest of the world. In the two largest Asian markets, China and
Japan, the demand for wine is expected to grow, but at very different rates. While in the
former, the wealthy population ,enjoying the results of the strong economic
development, will consume wine in a larger number of occasions, in the latter the
economic stagnation will significantly reduce wine demand. (The Chinese market is a
particular emerging markets and will be analyzed in a specific section). In Japan, wine
consumption reached 2,3 Mhl and 2,3 liters per capita (USDA,2011), it occurs more
among women than men. Wine drinkers can be found among women of all ages, but
consumption among men significantly declines for men over the age of 50, who prefer
Japans more traditional alcoholic beverages. Preferences for wine also vary according
to location. : Most of wine consumption occurs in urban areas, with more than 60
percent of premium wines consumed in the Tokyo area. In rural areas, a greater share of
alcoholic beverage consumption is made up of more traditional drinks such as shochu,
sake and beer. In Japan the value of consumption is increasing more than volumes
because people prefer to drink premium wines and they are attracted by health benefits,
brand, label and wine colour. In other parts of Asia, a high growth rate of consumption
is estimated in Taiwan, South Korea, Honk Hong and Singapore.

4.3. Global Wine Trade

Since the beginning of the 80s, the wine international trade has progressively
intensified, as a result of the growth of world economy, the reduction of trade barriers
and the emergence of new producer countries. According to OIV, in 2010 the total wine
trade amounted in volume to 92 million hectoliters, equivalent to almost 30% of world
production and with a 6,7% growth compared to 2009(Alderighi,2011). In 2006, the
value of trade was about U.S. $ 22 billion and the 1996-2006 comparison shows a
higher growth in value (+110%) compared to volume (+50%).In the period 2010-2014
the revenue growth will follow this trend, supported by the consumer preferences for
more expensive and fine wines (more than $ 10 per bottle) with a forecast growth of
15.37% in 2014(Cremonesi, 2011). One out of 4 consumed bottles in the world is
"imported wine." In fact, in 2009, 25.55% of the volume of still wine consumed in the

40

world was imported and within 10 years the consumption of still wines, from
international trade, will increase by 17.22% (Cremonesi, 2011). The first 10 countries
have 90% of exports in terms of volume and value. More specifically, the first four
(France, Italy, Australia and Spain) amounting to 70% in quantity and 76% in value.
France, Italy and Spain have faced the growing competition imposed by the New
World countries .In particular, the value of exports in the decade 1996-2006 in
Australia has increased by five times and Australia has become particularly aggressive
on international markets and it has been able to export almost half of its production.
Also South Africa, Chile, United States and Argentina are emerging on the international
scene with very high growth rates, and they are gaining market shares to the detriment
of Portugal and Germany. Despite that, concerning the propensity to export, the
traditional European producer countries (except Portugal) allocate on international
markets about a third of their production, as a result of the high domestic demand.

TableN10,Source:OIV(2010)

41

All these changes have contributed to increasing the complexity of wine industry, not
only for the presence of new exporters, but also for the new types of enterprises at all
levels of the distribution chain, namely production, wholesale and retail all over the
world. The wine industry has seen the emergence of new actors, such as marketoriented large companies and multinationals of alcoholic beverage that have boosted the
competition to higher levels through the adoption of classic marketing tools adapted to
international trade. The major market-oriented companies were born in the first half of
the '80s, thanks to the efforts of many Australian producers to overcome a crisis caused
by the excessive production of the domestic market. They have focused on the
expansion of imports, based on a shared penetration strategy on international markets
and a modernization of wine marketing. Observing the top 10 companies specialized in
wine sector, it emerges that the prevalence of American and Australian companies have
a turnover exceeding 500 million euro, consequently these companies have financial
and managerial resources for the development in the international market
(Adbrands,2011).
The multinationals of alcoholic beverages were born from concentration process started
in the 80s and they have been interested in wine for two reasons: firstly, they have seen
in this product an appropriate step to qualify their product range, especially if a
prestigious brand, and secondly they have seen the opportunity to integrate their
marketing network with that of the acquired wine companies, allowing them to expand
the market .
The other types of firms are companies financed by external capital to the wine sector
and run by innovative management styles thanks to investment funds that support wine
companies, or operations carried out by financial companies. In addition to these three
types of actors, there are companies that come from joint ventures operations, mergers
and acquisitions both upstream (e.g. purchases of distribution companies by groups of
producers) and downstream (agreements with distributors) to carry out many of the
value

chain

operations

that

characterize

the

life

of

business.

With regard to imports, the top ten countries have shown, in the period 1996-2009, a
high growth in purchases. Compared to 1996, imports have increased 35% by volume
and 90% by value.

42

The top ten countries have reached almost four-fifths of the global imported wine
volume and 75% in value. In particular the United Kingdom, the United States and
Germany are the broadest and most interesting markets, focusing half of the value of
international transactions. Among the emerging countries, Canada, has tripled the value
of imports in the decade 1996-2006, while Japan has doubled the figures.
The current trend shows that wine is one of the most globalized products and for the
first time in the last twenty years ,unfortunately, because of an unprecedented economic
and financial crisis started in 2009, the international wine trade has suffered a setback
which has caused a reduction

of the trading volume of nearly 4%. The reactions of

exporters to this recession have been different. Some countries, such as Australia or
Chile, have decided to "close out " in order to maintain market share. Other countries
(e.g. France) have tried to hold tight, maintaining the average prices, but suffering from
reduced demand from distributors.
The effects of these strategies have led to a recovery in global wine trade in 2010. The
volume of wine has reached the historical record of 92 million hectoliters. This data
demonstrate that the world wine market resists the crisis and according to a
Vinexpo/Iwsr study, despite 2009 has been an atypical year, in 2012 earnings will rise
to 166 billion dollars, +14% in consumption. The above mentioned study reveals that
Italy will be the leading exporter, while China and Russia will be top consumers.

4.3.1. Global Wine Exports

According to OIV, in 2009 the top ten global wine exporters in terms of volume were:
Italy (18,6 Mhl), Spain( 14,3Mhl) ,France (12,53 Mhl), Australia (7,72 Mhl), Chile
(6,93 Mhl), USA (3,99 Mhl), South Africa(3,96 Mhl), Germany (3,65 Mhl) , Argentina
(2,83 Mhl), Portugal (2,309 Mhl). In particular, in this section the role of the most
important export countries in the global wine industry will be analyzed.
ITALY. In the global wine industry Italy ranks first as the largest exporter of wine in
terms of volume and the second in value, behind France. The export of wine by volume
in 2009 was 18,6 million hectoliters which recorded a 16% increase, compared to 1998
(OIV,2009). In 2003, exports have reached, in quantity, the lower level perhaps due to

43

the contraction of production. In contrast, exports have steadily increased in value, 66%
from 1998 to 2006, reaching $ 3.3 billion in 2006 (I numeri del vino, 2011).

Table N 11.

Source: OIV(2010)

Italy has traditionally exported wine to France, Spain and Germany, but in the last 10
years the role of New World has constantly increased, not only in production but also in
trade and consumption, so there are new markets, such as Canada, Japan, USA and UK.
In the latter two markets, it seems interesting to emphasize that Italy has a share in value
which is twice as much volume, indicating the good image that British and US
consumers have about Italian wine. In actual fact, Italy mainly exports VQPRD wines,

44

which are appreciated all over the world, possibly due to the change of consumption
trend in favour of quality wines. This aspect, with the typological and high price
segmentation which characterize Italian wines, has permitted to accommodate market
fluctuations imposed by the financial crisis. This crisis has caused heavy market shares
losses in major importing countries (e.g. U.S and UK). to many exporter countries,
primarily France. On the contrary, in the markets not affected by the financial crisis,
such as China and Brazil, the leadership of France wines continues. This means that the
internationalization models followed by Italy do not fit well with these new consumer
markets. The financial crisis has changed the positions of strength among exporters in
many markets, and in this "revolution" the position of Italy has resulted to be
strengthened. Although suffering, like the other competitors, from an average prices
reduction of its exported wines, Italy has increased its market share by value in the UK
(reaching 15% of imports and outperforming Australia on the second place), United
States (reaching 30% and performing better than France, the former leader), Germany
(consolidating the first place with a share of 36%), Canada (20%), Switzerland (33%)
and Russia (26%)
Quite surprisingly, Italy does not make it big in the Chinese market. Here the share of
Italian wines has steadily declined since 2006. Although Italian exports grow from year
to year, other competitors do better. In this large market the organization is a
competitive key factor and it is not a coincidence that France (1/2 of Chinese market
share) has been on the market with a structured French-Chinese joint ventures in the
spirits sector since 1980.
FRANCE. As regards international trade, France plans about a quarter of wine
production for foreign countries. The evolution of exports showed a declining trend by
15% in the period 1998-2009, reaching 12.5 million hectoliters .On the contrary, in
terms of value, in the same period exports increased, reaching $ 5,547 billion (I numeri
del vino,2011) .In the global wine market, only a small part of French wine brands,
synonyms of prestige are well known, due to the high fragmentation of production that
does not allow the dissemination of knowledge to an international audience. The
financial crisis has significantly reduced the value of exports but the preference for
quality wines in UK and USA in 2010 and 2011 will ensure French producers the
opportunity to realize a higher added value. European countries are the main export
45

markets for French wine . In 2009, the top three markets were Germany, UK and
Holland accounting for more than 50% of French wine. The German market is
characterized by a smaller proportion in terms of value than volume, while the other
countries are characterized by a growth in terms of value. The target markets for the
French wines outside Europe are traditionally Canada, the United States and Japan.
While the United States in 2009 have reduced their share in volume and value compared
to 1998, Canada has seen a decline in quantity only. The VQPRD French wines are sold
in USA and Japan with a price which is constantly higher than the average French price
of export ( almost double) due to the fact that these countries tend to assign a high value
to hand-crafted products.
SPAIN. If we take international trade into account, we see that in 2009 Spain has
exported, according to OIV, 14.4 million hectoliters of wine, about 30% of its
production, and 1.4 billion dollars in terms of value. Over the period 1998-2006,
Spanish exports have grown significantly in volume and value by 33% and 48%
respectively.
In 2006, nearly three-quarters of Spanish wine exports were table wine in bulk. Twothirds of exports by volume were meant for the European continent and France, which
in 1998 was the first importing country of Spanish wine and over the years it has
consolidated its position. The other important export markets for Spain are Germany,
UK and Holland. Spain is the third wine exporter in terms of value and the second in
terms of volume. Over the period 2009-2010, the growth in terms of volume (16%) is
higher than the growth in terms of value(10% ), thanks to the increase of exports of
table and bulk wine .
AUSTRALIA. Concerning international trade policy Australia, over the past twenty
years, has essentially adopted a laissez-faire approach, which led to gradual elimination
of the tariff system and non-tariff barriers. The Australian wine exports have been
characterized, from 1998 to 2006, by a trend of steady growth and Australia has become
the fourth largest exporter after France, Italy and Spain. Considering that domestic
consumption of wine is only 30% of production, Australia is likely to adopt an
aggressive marketing strategy to export wine. Over the period 1998-2006, exports have
increased more in terms of volume than value: in fact, they have quadrupled in the first

46

case and more than tripled in the second one. In 2006, they amounted to 7.2 million
hectoliters for a value just over 2 billion dollars.
The bottled wine exports represent, in terms of value, 90% of sales of Australian wine.
Compared to 1998 when the Australian bottled wine was mainly directed to UK and
USA markets ,which purchased approximately 70% of Australian export, in 2006
Australia established new trade partners, namely Canada, New Zealand, Netherlands,
Ireland and Singapore.
USA. U.S. exports, from 1998 to 2009, grew by 60% in volume, and even more in
value, amounting to 3.98 million hectoliters and 1,14 billion dollars respectively (Wine
Institute, 2011) . In 2006, exports of bottled wine represented 60% of U.S. exports (U.S.
Department of Commerce, 2008). The volume share of bulk wine has grown more than
twice, representing however only 16% of export. In 1998, the main export markets for
U.S. wine were the United Kingdom, Japan, Canada (1/5 of export), Netherlands and
Switzerland, while in 2006 U.S. established new European trading partners, such as
Germany, Denmark and Sweden .In 2006, European countries accounted for more than
50% of U.S. exports by volume and the United Kingdom was the first importing
country both in quantity and value, with a high growth rate. Germany, Denmark and
Sweden are new markets that are attracting the interest of U.S. wine producers, who
should be able to use strategic marketing mix, especially price, to raise awareness of
consumers. It is also interesting to note the export volumes to Canada and Japan. In
1998 they were nearly identical in values while in 2006 in the first country volume
almost doubled while in the second one it contracted significantly.

GERMANY. The German wine exports, amounting to about one third of wine
production, have significantly increased in volume from 1998 to 2006, but even more in
value (38% and 81% respectively), reaching, in 2006, 2.9 million hectoliters, equivalent
to $ 703 million(OIV, 2010). The exports of quality wine by volume, from 1998 to
2006, have been substantially reduced, declining by 23%, in favour of table wines . The
two main export markets for German wine are the United Kingdom and the
Netherlands, which together absorb almost 50% of German exports in volume and
value. It is interesting to note that the United Kingdom, although it is still the first
47

importing country, has consistently decreased purchases during the last 15 years, partly
shifting the German wine trade towards other European destinations such as
Netherlands, Sweden and Russia.

4.3.2. Global Wine Imports

According to OIV in 2009, the top ten global wine importers in terms of volume are :
Germany(11,4 Mhl), UK(11,8 Mhl), USA (9.2 MHL), France (5,9 Mhl) , Russia (4,5
Mhl), Netherlands (3,3 Mhl), Canada (3,3 Mhl), Belgium( 3 Mhl), Sweden(1,93 Mhl),
Denmark (1,92 Mhl). The total global wine imports in terms of volume in 2010 is 86,6
Mhl.

Table N 12.

Source: OIV(2010)
48

On the international arena, Germany is the first importer country of wine in terms of
quantity, buying abroad 14.1 million hectoliters (2009). Over the period 1998-2006, the
value of imports increased by 27%, amounting to 1.76 billion dollars in 2006, while
the growth in terms of volume has been reduced (+9%).
Concerning bottled wine, the imported quantities are lower than those of bulk wine
(42% vs. 58%), while in terms of value the situation is completely different (80% vs.
20%).In 2009, three quarters of German imports were represented by table wines,
mainly bulk wine and equally divided between white and red wine .

UK. In 2009, the United Kingdom imported 11,86

million hectoliters of wine,

approximately $ 3.7 billion (OIV,2010). During the period 1998-2006, the growth of the
value of imports was 45%, 10 % higher compared to growth in volume .British imports
of table wine have been characterized, from 1998 to 2006, by a shift in consumer
preferences in favour of wines from new regions (New World) in respect of the Old
World. Among the New World countries, which export more than 50% of British
imports by volume and 60% in value, Australia has a leading role, with high growth
performance. Anyway, British demand, compared to other markets, is characterized by
an harmonic geographic differentiation between European and New World producers.
Australian producers have been able to gain the confidence of British consumers and
they have doubled exports in both volume and value, increasing prices and causing a
marketing competition. The leading position of Australia is also confirmed by the
average price of its exports. From 1998 to 2006 it has always been higher than all other
supplier countries and during the same period it grew faster than the prices of imported
wines from other trading partners (Nielsen, 2011). It seems important to emphasize that
the average price of Australian wine reaches the price of European wines with
denomination of origin (quality wines).
USA. Wine importations in Us are controlled by the Food and Drug Administration(
FDA), that in December 2003 has implemented a system of registration, inspections and
checks, concerning all operators that have trade relations with the United State of
America in the field of food distribution in order to ensure the free and safe movement
of goods on the market. Wine producers have to pay attention to the new rules to avoid
the entry prohibition in US market and the seizure of products.
49

Due to the consumers dissatisfaction for domestic production, the imports of wine in
US have steadily increased from 1999 to 2009 reaching 9.2 million hectoliters with a
value of $ 3,98 billion (OEMV,2011). Compared to 1998, the growth has been more in
terms of value (+79%) than in volume (+50% ). Imports are almost entirely
characterized by bottled wines; in fact, over the years, American consumers have
deepened their wine culture, in particular in metropolitan areas, considering wine an
artisan product.
The majority of wine importations in U.S. come from Italy (growth in terms of value
and volume), France (over the period 1998-2006, it has lost half of its market volume)
and Australia.
CANADA. Thanks to the growth of consumption, imports have increased because the
domestic production could not meet demand. Imports now cover 70% of consumption.
Over the period 1998-2009, the volume of imported wine in Canada has increased by
over 50%, reaching almost 3,28 million hectoliters in 2009. The value of imports has
been characterized by a more sustained growth (+170%), reaching almost $ 1.5 billion
in 2009 (OEMV, 2011). This data show that Canadian consumers have changed their
preferences towards quality wines, which have higher prices. More than half of the
bottles of wine imported in 2006 came from European countries, in particular from
France (especially for the high demand in the state of Quebec), Italy, Spain and
Portugal. In 2009, three New World countries, USA, Chile and Australia, provided
over one third of the volume of wine in the Canadian market. In terms of value, in 2009
the main supplying country was France, followed by Australia ,Italy, USA and Chile.
NETHERLANDS. From 1998 to 2006, wine imports have grown faster in value than
volume (75% vs. 57%), amounting to 640 million dollars and 2,8 million hectoliters.
The Netherlands import mainly table wine (62%). The non-European countries provide
57% of imports in terms of volume and 4% more in terms of value.
RUSSIA. The Russian alcoholic beverages market is one of the most interesting in the
world, for its size (the population is over 140 million people) and for the high pro-capita
consumption. The geographical position of Russia does not allow a significant wine
production, so imports meet about 60% of the total wine demand. In 2009, Russia
imported 4,52 Mhl and France is the first country to export to Russia, with a market
50

share of 21.7%, followed by Spain, Italy and Bulgaria; while Georgia and Moldova,
traditionally the biggest exporters of wine to the Russian Federation, have lost their
market share. Italian exports are increasing due to the awareness about wine culture and
the preferences of rich Russian consumers for high quality wines. The problems of the
Russian market rest on the high taxation of imports and the fragility, being highly
susceptible to arbitrary government policy (Scholes, 2006).
To conclude this section on international trade, it seems important to emphasize how the
global wine market has increased in size since the 90s. In actual fact, it has become
much more complex, variable and uncertain, which is in line with the globalization of
wine. In fact, this change has its origin in the evolution of economic, social and cultural
variables, which have contributed to increasing the complexity of demand and to
developing new consumption areas. For example, Japan, which imported 1,4 million
hectoliters in 2006 ( OIV,2010) and China that will be analyzed in the next section . In
addition, these variables have influenced the growth of competitive abilities of new
wine producing countries ,that have altered the existing balance ,introducing new
factors of competitiveness.

51

52

Chap.5. China: an emerging wine market

The incredible growth of the Chinese economy during the last ten years has boosted
suppliers and wine producers to export wine to China and entry this new emerging
markets. According to International Monetary Fund and World Bank data, in 2010
China is the third country in terms of GDP(5 878 257 millions of US$), behind The
United States of America and the Euro-zone. In addition China is the most populated
country in the world, more than 1,3 billion people , and thus it represents a future
opportunity for many imported products, wine in particular. The potentialities of China
are supported also by the improving of living standards , since the adoption of a marketoriented economy and by the high growth rate that is constantly at high level in respect
of the most industrialized countries; even though China has suffered a partial setback
with the financial crisis, the growth rate was 10,3% in 2010, ranking 6th in the world
(CIA, 2010). Analysts consider that middle class in China is gaining a leading role, in
fact about 211 million Chinese are middle class in terms of income, and moreover, it
appears that over 300 million are middle class according to their consumption patterns,
and over 400 million consider themselves middle class (Mitry and., 2009). This recent
situation, characterized by a large number of well off people, opens new scenarios of
competiveness to wine companies that want to exploit the potential market; in actual
fact, wine sales have substantially increased in China for the past ten years, as illustrated
in table N13.

5.1. Wine Production in China

Grapes have been grown in China for more than two millennia, but the production was
rather insignificant until the founding of the Peoples Republic of China in 1949. In
fact, the most important alcoholic beverages in China were liquor distilled from
sorghum or maize, known as baijiu, and beer; while production and consumption of
wine grapes have always been at a very low level. In China, the word for alcohol "jiu" is
used to mean all types of alcoholic beverages, from "pijiu"(beer) to liquors (just called
"jiu") to grape wine ("putaojiu"). The origins of the alcoholic beverages from fermented
grain in China cannot be traced with precision and the distilled drink was not popular
53

until the 19th century. Wine is generally classified into two types, namely yellow
liquors (huangjiu) or clear (white) liquor (baijiu). At the time of the founding of the
Peoples Republic of China, the annual production of wine grapes was less than 200
tons. It has reached 10, 000 tons in 1966 and in 1980 has exceeded 50 thousand tons
for the first time. Since that time, the wine industry has entered a period of rapid
development since the wine production has increased rapidly from 85 tons per year in
1949 to 250 thousand tons in the period 1985-1993. In 1994, China has changed the
structure of production, promoting an increase in quality wines, issuing a national
standard concerning the quantity of grape juice in wine and eliminating the productions
of wine with less than 50% of grape juice. As a consequence, the production of wine
has slightly decreased, totaling about 200,000 tons per year, but the quality of wines has
increased significantly (CRI,2009).
During the last 20 years, the wine industry in China has developed rapidly; according to
the results of the fifth industrial census. At the end of 1995, China had more than 240
wineries, while today there are about 500 companies operating in the sector with
estimated (OIV), 490 thousand ha and a growth rate of 113%, the highest in the world
over the past five years. In 1995, responding to increased demand of raw materials for
the production of wine, China has introduced and cultivated a large number of global
grapes varieties, for the production of red and white wine, rapidly extending the
cultivation area of grapes. Today in China there are some important cultivation areas:
Xinjiang, Ningxia and Gansu (North-west), Jilin (North-east), Shanxi, Huailai and
Changli (North), Beijing-Tianjin (North), Shandong (West coast) , Henan and Yunnan
(South-west). Among the hundreds of grape varieties grown in China, the most
important wine varieties include Chardonnay, Italian Riesling, Ugni blanc, Chenin
blanc, Sauvignon blanc for white wines. The main varieties for red wine are Cabernet,
Sauvignon , Merlot, Pinot noir.
The Chinese wine industry is characterized by small size firms and decentralized
production capacity. The majority of these companies are government-owned and they
pursue a productive logic based on quantity, that is likely to change in favour of quality,
with the progressive refinement of the Chinese palate. Many of these companies bottled
wine imported from abroad and it is common to find labels reading Product of France

54

bottled in China , so the wine production with Chinese grapes, represents a qualifying
factor.
The wine production in China has had a specific turning point about twenty years ago,
during the first opening phases of China towards western market, when many jointventure companies producing wine, especially from French and Hong Kong, seeing the
potentialities of this emerging market, have heavily invested in China, laying the
foundations for the future of the Chinese wine industry. The joint venture was in fact
the only solution for a foreigner to invest in China, due to the protectionist and strict
government policies. Wine production in China has reached 993,7 thousand tons (Table
N13) or 13 000 mhl in 2010 (OIV ,2011) and the Italian Trade Commission figures
estimate, for the next three years, a productivity growth rate between 12% and 15% a
year, even if the wine production contributes only a small portion towards the total
alcoholic beverage production within the country.
Currently, the average production capacity of a wine company does not reach 2,000
tone s. It seems interesting to note that the companies with a production capacity less
than 1,000 tons amount to 70%, while those with a production capacity between 1000
and 5000 tons amount to 20% (Chinese Radio International, CRI, 2009). There are 7
companies with a capacity exceeding 10,000 tons in China: Changyu, Greatwall,
Dynasty, Weilong, Huaxia, Fengshou and Tonghua and they control more than 2/3 of
the wine market. Changyu Winery is the market leader and it is the first winery that
was listed in '97. It has 13 production sites, of which the most prestigious is the Chateau
Castle, where the best wines are produced. As other important wineries, Changyu
Winery was born from a French participation which included the Beverages Castel
Group. Changyu is the largest producer of wines in Asia: 4 production lines, more than
4,000 employees, 2.29 RMB billion total assets and an annual production capacity
amounting to 80,000 tons (Italian Trade Commission, ITC, 2009).

55

Table N13, Wine production in China.

Source: International Journal of Wine Research 2010.

Probably the second most important company in terms of vineyards is the Great Wall
Winery, founded in 1983, which belongs to Huaxia food Group. Great Wall is probably
the most popular brand in China, the total production amounts to 60,000 tons per year,
divided into seven different varieties. It exports about 1,500 tons of wine per year
representing nearly 50% of Chinese wine exports. The Beijing Dragon Seal Company
was one of the first wineries to import vine from France. It was founded by Pernod
Richard, a French multinational and it has more than 1,200 hectares of vineyards in the
area of Hebei, south of Beijing. In the three above-mentioned companies, the Chinese
government holds the majority, while a completely private company is the Dynasty
Winery, founded in 1980 with the participation of the French group Remy Martin.
Nowadays the Chinese government tends to give Chinese or foreign private
entrepreneurs more space to invest in the Chinese wine emerging market. Due to the

56

shift in Chinese consumer preferences from spirit products to wine, Chinas powerful
baijiu grain spirit companies have now stepped into the wine business in the hope of
capitalizing on the growth of the wine market. Maotai and Wuliangye, the most
recognized of these companies, have recently established wine businesses, leveraging
their baijiu sales networks. Observing trends and data, it is clear that Chinese wine
production is still an unexplored sector with high growth possibilities, also supported by
government campaigns, encouraging consumers to switch from drinks to grape wine
consumption in order to preserve national stocks of rice .

5.2. Chinese wine consumption and consumers profile

The Chinese have a cultural tradition of consuming alcoholic beverages, especially beer,
and spirits distilled from sorghum or maize and wine made from rice. The habits remain
but the variety of alcoholic drinks has grown considerably since the Chinese
government is protecting rice in order to use this precious cereal just for food aims and
it is promoting the production and consumption of wine made from grapes. For
example, beer production in the beginning of nineties was more than 50% of the
national alcoholic beverages production, while nowadays the trend is changing. Wine is
becoming a substitute for beer and spirits and the annual growth rate of consumption is
increasing by double-digits, reaching more than 10% per annum. In 2010, according to
OIV, China is the fifth global wine consumer (14,3 Mhl), but the data could be
deceptive if compared with the population, in fact the per capita wine consumption is
still paltry in relation to consumption in France or Italy.

57

Table N14, Source: Euromonitor International and US Census Bureau.

The Chinese wine consumption will rapidly increase ( currently 1,12 liter per capita);
,in actual fact, according to the latest data from the International Wine & Spirits
Research (ISWR), the wine consumption in China has increased by 100% in the period
2005-2009, from 46,9 million to 95,9 million cases (WineNews, 2011) and the ISWR
forecasts this figure will increase over 20% by 2014, reaching 126,4 million cases.
The wine market potential is huge, even if wine still accounts for considerably less than
5% of total alcohol retail consumption in China.

Chinas wine consumption is

concentrated in the economic centers, such as the Yangtze River Delta and Shanghai, its
prosperous satellite cities in Jiangsu province to the west and Zhejiang province to the
south. In North China, Beijing and its surrounding cities and coastal cities like Dalian
are growing markets, as are South Chinas two large economic centers of Guangzhou
and Shenzhen with their geographic connections to Hong Kong.

58

Wine is associated in China with western customs, and it is viewed as fashionable,

sophisticated and worldly. Nowadays Chinese have still a poor wine knowledge and
awareness, even if the wine culture is diffusing in economically developed areas.
Wine will only begin to become a mass market product when drunk by rural
inhabitants and urban professionals alike, and this is a very long way off. It has
been estimated that, at present, if you discount the large number of rural
workers and lower paid industrial workers who might never buy a bottle of wine
in their lives, the maximum number of people worth considering as a marketable
demographic in China is at the very most 167 million(Redfern Associates,pp 4,
2010).
The majority of Chinese know four types of alcoholic beverage: hong jiu or red wine, pi
jiu or beer, bai jiu or Chinese spirits and yang jiu or foreign spirits (Liu and., 2007). In
particular, they think red wine represent the wine category completely, in fact red wine
is more available in the market while white wine should be promoted more aggressively
to become a desirable product. Chinese drink red wine for a series of reasons, the first
one is that red is a lucky colour in their culture and it is a symbol of positivity and
happiness; people drink red wine during birthdays or weddings, in fact in the Chinese
culture the wedding dress is red. On the contrary, white is an unlucky colour, often
associated with death.
Besides the lucky association, red wine is sold better, because Chinese prefer strong
taste and red wine has a stronger taste than white wine. In Chinese consumers
perceptual maps of alcoholic drinks, red wine is a substitute of Chinese and foreign
spirits and it is also consumed to celebrate Chinese New Year and other festivities.
Currently, red wine appears also during banquets with important business connections
or guanxi hu (Liu and., 2007) that is a Chinese term meaning "networks" or
"connections," understood to be a network of relationships designed to provide support
and cooperation among the parties involved in doing business(Investopedia, 2011). In
addition, considering the Chinese perception of red wine, it is a healthy drink, with
health benefits and important for a balanced diet; red wine is also recommended to
pregnant women by doctors. Red wine is healthier than Chinese spirits because it
contains less alcohol and the diffusion of this product is also supported by the fact that
59

living healthy is an emerging trend for Chinas middle and upper-income classes.
Related to social classes, drinking red wine suggests good social image, elegance and
grace, all of which indicate a good mianzi, a key Chinese characteristic, which means
face or image. Since wine is seen as a luxury product, consumption of luxury products
often symbolizes personal identity and social status. In China different prices have
different face values so people prefer to consume expensive wines in public occasion (to
earn mianzi), while in private occasion wine is rarely consumed. Foreign wines ,in
particular from France (e.g. Cabernet Sauvignon, Merlot and Chardonnay) are more
prestigious than national wines which are often not clear for the consumer in terms of
taste and grapes used. It seems important to emphasize that Chinese wine market is still
immature, national wine represents 90% of all consumption of wine and that people
have not a deep awareness and knowledge of the product.
By analyzing the Chinese wine market, it seems clear that consumers evaluate wine
primarily on extrinsic cues (brand, price and distribution) respect to intrinsic ones (
colour, aroma and taste). In fact, this is demonstrated by a Vitisphere dossier, that fixes
the criteria that guide consumers choice: brand (44%), taste (28%), price( 16%),
origin(8%) and package (4%). This analysis emphasizes the aspects that wine
companies have to develop and promote in order to entry successfully in the emerging
Chinese wine market. The targeted sector for typical wine customers include mid-tohigh income earners, those in tertiary education and the 20-50 year-old age group, open
to western customs and globalization. The Chinese governments one-child policy has
contributed to creating a new well-off generation and female consumers are also been
observed to drink more in recent years (Redfern Associates, 2010).
In China there are two sales channels for wine retail and HoReCa (hotels, restaurants
& cafes). Data from Wine market in China 2010 suggest that 70%- 80% of wine sales
occur in the Horeca channel . In fact, in city centers, restaurants and wine bars, are
spreading exponentially, offering wine with increasing insistence. The wine culture
represents an attraction for many people, fascinated by western customs and according
to Riccardo Modesti, an expert in the sector, French and Italian bars, that offer quality
wines, are increasingly requested in Shanghai and Beijing.

60

5.3. Trade and Imported wine in China

Nowadays the wine production in China satisfies only a part of the national demand, so
export is practically absent, except in certain cases like limited agreements with India,
that however has a low wine consumption. The confused and unregulated wine
production in China, characterized by low quality, has permitted to foreign producers
and suppliers to entry in the market, occupying a high quality segment with incredible
growth possibilities. In the period 2003-2009, foreign wine imports have grown 274
percent in total volume; 464 percent since 2001. In contrast, during the same period the
total market has grown by 91 percent (USDA, 2009). In 2010 China imported 286 mHl
of wine, while in terms of value the imports reached 604 million Euros, with a growth
of 85,6% and 65,4% respectively (Wine News Report,2011) compared to the previous
year.
The Chinese wine imports are divided into bottled and bulk wine. The two segments
have increased considerably over the past years, with similar growth rates, estimated
around 60% in terms of volume and 85 % in value over 2009, according to Chinese
Customs data analyzed by the OEMV (Spanish Observatory of Wine Markets).
Chinese demand for wine has attracted large and small exporters. In the last ten years,
more than 70 countries have entered in this emerging market, but in 2008 just over 50
countries exported wine to China, demonstrating that the Chinese wine market is not for
everyone. The wine importations in China have had a great impulse, since December
2001, when China entered the WTO. This step has permitted to significantly reduce
customs duties, (65% in the beginning), that was an obstacle to the entry of goods like
wine in China. The customs duties have been reduced from 24,2% in 2003 to 14% in
2008 for bottled wine, and from 29 % in 2003 to 20% in 2008 for bulk wine.
(ITC,2009) However duties and taxes lead to large wine price increases from producer
to consumer, characterized by mark-ups that sometimes reach 7-8 times the original
value. As regards customs duties, the situation is evolving in favour of foreign exporter;
in fact, China has recently cleared duties on imports of wine in the Special Autonomous
Regions of Hong Kong and Macao. This reform decreases the final cost per bottle by
20-30 percent to the advantage of consumers too. So, if the initial value of a bottle was
$ 10 and it was sold in Hong Kong at $ 31, now, without any duty, it will cost less than
61

$ 23. It is important to note that, despite these openings of the Chinese government, it
would not be surprising if duties were increased in the next years, in case that foreign
wines would erode market share to the detriment of domestic ones.
Through a Sino-French joint venture, France entered the market in 1980 with the
creation of Dynasty. It had been the only wine exporter to China until 1997 when the
first amounts of other foreign wines began to enter the market. Despite the presence of
new competitors, France continues to dominate the market, holding 45% of imported
market share, with a 67% growth rate in 2010 in terms of volume and 50% percent in
value from 2008 (Wine News Report,2011).
Australia (16,2 % market share) follows, with growths in the period 2009-2010 of
54,6% in value and 27,5% in volume; Italy saw the biggest growth among the BIG
SIX, +81,9% in value and +78,3% in volume, but Italys market share (7%) is modest
in comparison to the size of its wine industry and export potential. It still has a long way
to go to take its rightful place in this market. Chile has been characterized by a +63,6 %
growth in value and +54.3% in volume (Wine News Report,2011). If we consider
import volume, Spain (9,5 million liters) passes the U.S (9,2 million liters). The position
of Germany (2% market share) also deserves some attention because it is the only
exporting country that has reduced its average price ( -4,9%), compared to the average
market rise of 15%. Table N 15 (Appendix A, pp 75).
Indeed, the leading role of France is a direct consequence of organization on the
Chinese territory, through joint ventures and investments in local wineries. In addition,
French wines are exploiting their competitive advantage based on classical history,
tradition and the aura of exclusivity that characterizes these products.
The most important key to a successful export strategy to China is establishing
a long term commitment to building personal relationships especially in the wine
sector, where active promotions and distributor relationships can make or break
a chance of success. In actual fact, many exporters make the faulty assumption
that China is a market of over 1.3 billion consumers. Chinese are vastly diverse
among regions and social strata, making wine marketing the process of finding
the right niche. Nationwide distribution success stories tend to come after labels

62

built upon their entry level niche, putting in the ground work and face to face
time creating and developing their market.(USDA,2009)
To conclude, the Chinese emerging market is potentially infinite and it is rapidly
expanding. However, there are problems that should not been underestimated to
evaluate the market. For example, bureaucracy is problematic, the distribution may be
impossible in some regions due to the lack of infrastructure, the banking system is
developing right now and it is going through a period of radical changes and
counterfeiting could be a real threat.

63

64

Chap.6. Conclusions
The international wine market, that already has important dimensions with about 22
billion U.S. dollars of exports in 2006 (OIV,2008) and 183 billion U.S dollars in terms
of sale to consumers in 2009 (Cremonesi,2011), will be characterized by further growth
in future due to the removal of technical and institutional barriers, the dissemination of
innovations related to logistics and the organization of commerce and communication.
In addition to problems common to other sectors, such as an economic and complex
downturn, especially on the EU market, the difficult situation in world politics and the
global financial crisis; the world economic scenario, that involves the wine system, is
characterized by the renewed aggressiveness of new competitors in the world markets,
where large groups emerge in offering drinks and wine produced with low production
costs and strong economies of scale. These companies are market oriented and focused
to face competition, through the exchange of technologies and scientific knowledge. In
fact, if we consider the effects of globalization on the wine industry, is it possible to
emphasize a series of aspects. First of all the lowering of transaction costs of doing
business and the movement of crucial inputs and know-how from established to new
areas of application; secondly government policies have had profound influences on the
globalization of wine markets over the countries and many agreements have been and
will be necessary to harmonize the rules of production, trade and competition. Clear
examples are the CMO and the EU-USA agreements which have had consistent
attention in this work. According to Rabobank, wine is currently the least concentrated
of all beverage industries. In actual fact, the world market share of the 3 largest firms in
the late 1990s was just 6 percent in the wine industry, compared to 35 percent for beer
and 42 per cent for spirits. However perhaps more significant than the extent of firm
concentration in the global market is the extent to which wine companies are becoming
multinational in terms of production and distribution, forming alliances with foreign
companies to reach economies of scope, especially with distributors and retail chains.
This process has been happening much more in the New World than in the Old World.
Another important effect of globalization, is the industrial technology transfer. It is
accelerating not only with the spread of multinational firms but also through individual

65

viticulturalists and wine-makers, who export their services spending time abroad as
consultants.
The wine producers from the New World countries, in contrast with the traditional
system of the Old World, have developed an offer designed according to consumer
expectations, which would satisfy not only the positive value for money, but also the
easy recognition of the combination of brand-vine. In general, they are characterized by
large heavily concentrated companies (For example, in Australia the four top companies
control 80% of wine production) and workers with high productivity, partly thanks to
the use of adequate machineries for cultivation and harvesting operations, which take
place in vineyards designed to adequately respond to such transactions with low costs.
Regarding global consumption of wine, it is expected to be stable or slightly declining
in the traditional producers countries of Europe and to increase largely, in particular, in
North America, Asia and Eastern Europe. The new consumer countries are
characterized by high rates of economic development, high percentage of population
ready to pay and a new culture for wine that will replace strong spirits. Parallel to this
aspect, also the consumer has evolved: he or she has to make choices in an increasingly
complex environment, where there is new and exciting information that make his or her
behavior more pragmatic and demanding. Also the consumer, supported by opinion
makers and mass media, carefully assesses the quality/price ratio and links the price
range to sensory wine features.
In the wine industry, emerging markets are significant as they are constantly gaining a
key role. China, in particular, is showing an incredible growth in a sector that was
peripheral 20 years ago. This evolution is a symbol of the homogenization of the culture
and signals how business is strictly connected with globalization. In fact, China is a
country with great possibility of growth and it is still an unexplored market that will be
one of the principal wine actors for the next years thanks to huge investments by
multinationals ,the attraction of numerous Chinese population towards the Western
Culture and the high economic growth that will lead to a diffused well-being.
Despite this, globalization has also had negative consequences on the wine industry. In
fact, a problem connected to globalization is the homogenization of production and
consequently the diffusion of an International taste, that risks to delete the

66

peculiarities of the different and traditional productions. An example could be the still
remote temptation to create a mass product with a unique label, easily recognizable,
distributed all over the world and consumed like a substitute for soft drinks, the so
called coca-cola wine. Another negative effect in terms of differentiation and tradition
is, for example, the decision to change the denomination of the wine Mosel-Saar-Ruwer
into the easier Mosel, because foreign consumers cannot pronounce the name of wine
correctly.
The creation of multinationals, even if it is a positive factor in terms of costs reduction,
it could also be considered a negative factor because it has caused the reduction of
wineries particularities. It seems important to emphasize that one of the consequences
of concentration is the vertical integration of the sector. In fact, in these cases a
company controls the supply chain, the grapes and wine production, the bottling and the
distribution with the risk of creating oligopolies. Analyzing the wine trade data, it is
possible to focus on the most relevant and evident effect of globalization, nowadays 1
bottle out of 4 is consumed in a country where it has not been produced, which testifies
the openness and the vastness of the wine market. In addition, this particular market
touches each sector of an economy such as primary and secondary industry and tertiary
sector.
To conclude, the whole wine industry is a market with great possibilities of growth and
evolution which will be characterized in the future by new actors, emerging markets
and new scenarios in terms of production and consumption. It seems that wine has
always influence and been influenced by the peoples since the inception of the wine
industry 6000 years ago.

67

68

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APPENDIX A
Table N15: Wine Market Share of Sales Volume by Country of Origin, IWSR (2009)

75