There is a wine glut across the globe. The scenario may further worsen for Indian wineries—when they are already selling their products at depressed prices
In India, wine inventories are piling up, retail prices of wine have been falling and grape harvesters are stuck with their crop as winemakers are no longer looking at buying more grapes from them. The same situation is being faced across the globe.
The scenario is especially grim for Indian wineries. The unsold wine stored in their tanks has resulted in winemakers selling their produce at a lesser price, with some even providing discounts like ‘buy one bottle and get one free’. During the last week of November 2009 when Moneylife had contacted Indus Wines, it had around 90% of its wine lying unsold in its tanks, while Sula Wines had over 40%-50% of its wine still in its inventory.
In Australia, winemakers are also facing a wine glut and are looking to sell their produce in India. At a recent Confederation of Indian Industry (CII) conference, Peter Forby, Australia’s consul general and trade commissioner (western India) said, “There are a number of Australian companies who are looking to encourage the sale of wines in India and a number of Indian companies are looking at collaborating with Australian companies.”
The wine glut in Australia has forced grape harvesters to destroy nearly 40,000 hectares of the 165,000 hectares of wine-growing area in the country
The scenario is similar in other parts of the globe. For years, France produced a surplus amount of wine, which has resulted in global overproduction. But with Chile and Australia in recent years producing more wine for the world market, France ramped up its wine production. The end result is that French producers are turning their wines into ethanol.
In California’s wine country, Napa Valley, the scenario is also grim with the recession also affecting the wine industry. Napa Valley, which faced a property bubble, overstock of premium wines and rising competition from around the globe, saw premium wine brands dropping their prices.
According to Silicon Valley Bank's annual wine market report for the US market, domestic sales of bottles that cost more than $10 were estimated to have fallen 2% to 8%. Premium wines priced between $50 and $125 were considered as dead zones in 2009. Not just that, even the costs of raw material plummeted—grapes were being sold at $1,000 a tonne in 2009, when in 2008 the cost would have been $5,000.
The Napa scenario isn’t different from the one India is facing right now. The past two years have not been great for winemakers with the aftermath of the recession impacting the hospitality industry.
Before 2007, the wine market was growing at 28% on an annual basis. However, since 2008, the market has been dropping on an average of nearly 30%.
The problem facing the industry is not only the drop in demand and sales, but also the restricted marketing structure—both domestic and international—for Indian wine firms, according to Nasik Valley Grape Promotion Association president, Pradeep Panchpatel. With the current bleak export scenario—and the worldwide glut—Mr Panchpatel believes that winemakers can’t make any profit abroad. “Export duties are very expensive and hard to bear,” he said.
Mr Panchpatel added that the government should support vineyards by permitting them to produce brandy and also lower the current tax rates.
Grape farmers are still awaiting their payments for their supplies to wineries last year. But what is even worse is that this year, there are no buyers for their grapes.
Many farmers have started selling their grapes to wineries on credit in the hope of getting some cash in the future. Others have started selling their grapes at a price much lower than the market price.
Again, the Indian government has not been able to market domestic produce internationally. Farmers were earlier told that winemaking was a lucrative business. However, the government failed to mention that the business was one with a lot of risks involved.