Bulk wine trade facing global supply shortage

An impending “global shortage” of bulk wine, resulting from a small 2016 harvest, will drive prices higher in the next 12 to 18 months, one industry expert has warned, with smart buyers already securing supply into 2017.

Bulk wine “Flexitank”

In 2015, global bulk wine exports reached a record 36.3 million hectolitres – a 3% increase on 2014 – but dropped in value by 13.7% to US$3.1 billion, according to Italy’s Il Corriere Vinicola.

This volume growth was driven by Spain (+10%), still the world’s biggest bulk wine producer, and Chile (+15%). But while a healthy supply in 2015 kept bulk wine prices low, prices are already increasing with the reduced 2016 vintage threatening global supplies.

Savvy buyers are already rushing shore up supply before prices increase further, says Denys Hornabrook, who earlier this year founded Vinex –  a London-based, multi-lingual exchange platform that allows buyers and sellers to trade wine in bulk wine, effectively digitising the bulk wine industry.

The price of bulk wine has been steadily rising over the past year, with Vinex’s Global Price Index (VGPI), which combines the major producing countries trading each varietal to determine a average weight price, recording a 28% increase in the past 12 months to 16 November. Hornabrook expects price rises to continue over the next 12 to 18 months.

‘Global supply shortage’

Denys Hornabrook, the founder of bulk wine trading platform Vinex

“We are entering a really interesting phase where some of the price taking and the pendulum may swing back”, said Hornabrook speaking to the drinks business.

“We are of the view that we are going to be entering a global supply shortage. There are already constraints on what will be able to be produced in 2016. Chile has had its worst vintage in five years, Argentina its worst in 10, South Africa its worst in four.

“Australia was about average and New Zealand had a good vintage. But that’s being compounded by the US having average yields and massive shortages throughout France and Italy.”

In the southern hemisphere, 2016 harvests in Chile and Argentina dropped by 30% and 25% respectively, due largely to the effects of El Nino. Here, the price of bulk wine has already begun to increase leaving international buyers grappling with fluctuations in price.

In Europe, severe hailstorms in France hit bulk wine region the Languedoc, while drought across much of Europe has driven down yields, with France recently reporting on its smallest harvest in 30 years.

‘Flattening out’

Furthermore, a decrease in bulk supply is contributing to a general “flattening out” of the market, says Hornabrook.

Commercial [bulk] wines, by their nature, are substitutable, with buyers lacking supply in one region generally able to secure supply from another following healthy vintages. A lack of Chilean Chardonnay for example can be replaced with Australian Chardonnay. However this becomes harder during years of reduced supply.

“We are seeing retailers own-label taking Pinot Grigio from Romania and large volumes of Shiraz/Syrah coming out of South France, which historically was the domain of Australia”, says Hornabrook.

“We are seeing the flatness start to develop where the markets are open and better connected and supply is more free flowing and less constrained by historical styles. [Bulk] producers that are playing in this space can only control their costs and must be looking for greater efficiencies. Every production and grape dollar must be effective, because they are now competing across currency and across different global forces and interest rates.”

Looking ahead, bulk producers and buyers are likely to face constraints over the coming year, with securing supply the most pressing concern for buyers as price rises continue to loom.