Rabobank: Global wine supply in flux as drinkers trade up

By Erin Smith

Published: 21 April, 2016

The global wine supply is in flux depending which end of the market producers play in, with wines on the premium end being considerably higher in demand compared to wines on the lower end of the market according to Rabobank's Wine Quarterly Q2 2016 report.

"The balance of global stock levels entering 2016 looks considerably different at opposing ends of the market. The lower end of the market- generic and basic wines- continues to contend with surplus supply, while stocks of the super-premium wines remain a bit higher across many regions," according to the report.

One country facing this dilemma of demand softening for lower-end wines is Chile "inventories reached record levels at the end of 2015, after several years of production growth outpacing consumption growth.

In February Concha y Toro told growers that it would not be buying generic-quality red grapes this year, sending tremors throughout the industry. This reflects the current dynamic of robust inventories and soft demand for generic, low-quality wines, even as demand for higher-quality grapes and wines remains relatively strong," said the report.

The report warned that for the 2016 harvest many Southern Hemisphere countries will have higher crops aggregately, with the exception of New Zealand.

The New Zealand harvest this is well underway is expected to deliver a larger harvest than the light 2015, but will be shy of the record 2014 crop.

Chile, Argentina and South Africa are all expected to come in considerably lower than previously years, with Argentina being hit the hardest by El Niño this year.

Chile's crop is expected to come in around 10% lower than 2015, although it is worth noting that 2015 was a larger than average harvest. Despite the expected decline in the harvest, Chile's supply has exceeded demand and inventories have been piling up. "The decline in production is a step in the right direction, but will be unlikely to bring inventories back to more normalised levels in the near term," warned Rabobank.

Argentina's crop is estimated to be down by 15% on the most conservative side of an already light 2015 crop, with many expecting it to be down more. The 2016 harvest "may be the smallest wine grape crop seen in several decades."

Due to the severe drought the South Africa harvest is also expect to be considerably lower than 2015.

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