By Rob Boyd, who points out that his  "short sabbatical from writing for Grape turned into a long one" - we're pleased to have him contributing again.

Swings, roundabouts and a wine world in flux

As a comeback piece I thought I'd take a look at the world of wine, and at how it's holding up through the current economic recession, and see how various international players have fared.

One of the obvious pieces of good news is that the current worldwide economic downturn has remained in the category of a recession, and has certainly not slipped into the more serious category of depression, let alone come close to rivalling the Great Depression of the 1930's in its impact. In fact some economies are coming out of recession and are already seeing growth. The most obvious macro economic reason for this is that the emergence of the so called BRICKS countries has provided a buffer to First World woes. However none of this excludes the fact that it has been a serious downturn, and luxury spending (including wine) has been massively impacted.

The USA wine industry (and Napa in particular) has seen good news and bad, but more bad than good. Lack of spend in the ultra luxury bracket has led to massive discounting (anywhere between 30 and 50 %) which in turn has led to discounts backing down the system  and then that in turn has led to falling grape prices (Chardonnay grapes in California have fallen from US$2 500 / ton two years ago to US$500 now). This puts the feasibility of many growers in jeopardy, and thus may have a long lasting negative influence.  The good news for the USA is that exports have grown phenomenally, particular to China, and this growth should continue, aided by a weakening dollar.

France has had far more woe than good news of late. The Sarkozy government seems hell bent on sabotaging one the countries greatest assets, and traditional export targets Britain and the USA seem to be in more economic trouble than most. Sales to the UK have fallen 27% and to the USA 9%. The 2008 crop is small (this relative, and in French terms 48 million hl is small) but this may fit the sales profile as exports and domestic consumption falls (again this is relative, estimated domestic consumption for 2009 is 30 million hl).

Australia's troubles have been much reported of late and unfortunately the bad news continues. Constellation Brands put three wineries and twenty-three  vineyards up for sale some back at vastly written down prices, but has so far sold only one winery (Goundrey) and 13 thirteen vineyards. They are now going to close the historic Stonehaven winery. Their exports to the USA and UK seem to be in freefall, and droughts, floods, gluts and shortages continue to plague the industry.

Other counties with (lesser) troubles are Canada (labelling scandal in Ontario, and a consequent glut of unsold locally grown grapes), Germany (extreme price pressure from discount chains, and the planned bridge through historic Mosel), New Zealand (they seemed to have been bulletproof for a number of years, but now oversupply is becoming a problem. Pernod-Ricard recently offered growers in Gisbourne prices that were 80% down on the previous harvest)

On the positive side of the ledger, Italy continues to be in rude health, out producing France last year and maintaining its position at the top of exporters to the USA. Spain also produced more grapes than France last year, and their wines certainly seem to be becoming very fashionable, which allows them to maintain prices. Chile and Argentina continue to grow their market share impressively and are using the value-for-money route as an entry but are also improving quality.

From a consumer point of view, China has emerged (as predicted) as the major player of top end, expensive wine auctions. A recent Sotheby's Auction of two private American wine collections brought in 100% sold figures at almost $2 million above estimates, and 98% of the buyers were Asian. The French Chateaux must thank their lucky stars that  this market has taken up some of the slack for the top Bordeaux and Burgundy offerings.

And South Africa ? I know it has not always seemed easy of late, and the top end restaurant trade has tailed off significantly, but overall we have come through very well, exports to the UK have bucked the downward trend that some of our competitors. Hats off to WOSA and the individual wineries, for their efforts in improving marketing to key target markets. Quality continues to improve and shortages are a more likely occurrence than gluts right now. All is not perfect, and our economy, robust as it is, may lag behind others in recovery from the downturn. The strong rand may put pressure on imports (although investing in capital equipment is obviously cheaper).

All in all a definite "pass" for the South African economy and wine industry, and I'll get to the "could do better" remarks in a follow up post.