No Time to Wine

News broke last week of a pending wine shortage across various media outlets, but first reported by Morgan Stanley wine analysts.  Their story is simple, consumption is exceeding production of wine and we should all fear that wine will be too expensive to buy in the future and we may have shortages.

wine

At first look this sounds depressing as wine is commonplace for many households on Sunday dinners, or every dinner for that matter, and certainly for special occasions.  However, taking a closer look at the analysis it reveals that perhaps world wine is not being produced less all over the world, but rather Morgan Stanley’s analysts were a bit off.

Here’s how the report went wrong:

  1. The Morgan Stanley report was released by Morgan Stanley Australia in which case the analyst projected that net exports for Australian wine would increase and production is likely to stay the same, hence a “shortage” of wine. Further, this was a prediction for an investment pick for wine.
  2. The prediction for production and demand is a Morgan Stanley estimate not an  Organisation Iternationale de la Vigne et du Vin (OIV) estimate which is the leading economic data collection organizations for wine.  Going into the OIV report myself, it reveals that Spain has a record high level of wine production this year; Italy has already produced 2% more wine than in 2012, France 7%, Portugal 7% and Romania 79%.  What the Morgan Stanley analyst may have misread was that planted areas in vineyards in the U.S., South America, South Africa and China’s have slowed, but remained positive. So, yes, there are less vineyards, but vineyards are more productive due to technology and therefore, wine should not be in “shortage”.
  3. The OIV further predicts that world wine production will be between 7.1% and 10.5%, yet Morgan Stanley predicts no such increase.
  4. “Shortages” are only realized if there are price ceilings which prohibit prices from rising to equate demand and supply. So long as price rises to meet losses in production, if there was any, there will never be a shortage.

Below is the real chart of wine production and consumption from the OIV, as reported by Reuters.

wine consumption wine production

How to read this chart: the OIV is measuring wine in million hectoliters, which is 100 million liters. In 2013 it is forecast that consumption will be approximately 245 mhl and production could either be 285 mhl or 280 mhl, both clearly revealing that production exceeds consumption.

To access the full OIV report and see the data yourself, please go to their website and look at their neatly assembled data and report. Note at the bottom of this table the OIV predicts a 9% increase in the production of wine from last year.

wine table

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4 thoughts on “No Time to Wine

  1. There is not much to add here, but it seems to be a real mistake by Morgan Stanley to predict a shortcoming on wine. As your numbers show this is in fact not the case. It also seems unrealistic that wine producers would leave money on the table by not producing enough wine for consumption. Consumers may fear this could lead to demand-pull inflation in the wine industry and wine companies may be able to raise prices. However all this seems to be refuted by your numbers and the simple fact that if there truly was a shortage of wine, companies would be all over producing this very popular product.

    • I think it is not a means of suppliers not wanting to produce enough wine to meet consumption, but rather the grapes cannot be planted as frequently or there is just not enough farm land designated for wine production. This is what I believe Morgan Stanley was trying to get at, but falsely misinterpreted the numbers. And you are correct in that wine companies would be trying to obtain land if there really was a shortage due to the increased wine demand in recent years.

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