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A good year for wine trade

Price versus volume in international wine trade

Nearly all major wine suppliers saw export volumes improve in 2010 compared to 2009, according to the latest Rabobank Wine Quarterly. But price volatility remains a key challenge for suppliers due to varying foreign exchange rates. Wine demand from countries like Brazil, Russia and China is supporting volume growth, but many suppliers are facing fierce price pressure.
 
Emerging markets as safety valve

The UK, the world’s largest wine importer (by value), is facing serious structural issues. Seeing their profitability threatened in a market they’d come to rely on, major suppliers have turned their attention to finding new markets. And with some success. The figures in the January 2011 Wine Quarterly show Australia, Argentina, Chile and Spain reporting double digit growth in wine exports to China, Russia, Brazil and/or Mexico in 2010.
 
But even with the astounding growth of wine consumption in emerging markets, it will be years before the volumes sold there match traditional import markets, And in many cases, the prices suppliers receive in emerging markets, especially Russia, are far below their traditional markets. Although Australia is proving an interesting exception.
 
Australia reverses pricing trend

In recent years, the pricing power of Australian wine exporters to the U.K. and the U.S. was hurt by continued discounting to offload overproduction. In contrast, Australian wine now commands much higher prices in emerging markets than wines from Spain, Chile, Argentina and France. In new markets where consumers have no preconceived ideas about wine-producing regions, it pays to invest in educating your customers. Suppliers who take the trouble to promote their region and build their brand will be able to improve pricing in the long run. The Australian example indicates that using emerging countries simply to offload excess supply at low prices may represent a missed opportunity.
 
Foreign exchange rates impact prices

The average unit prices of wine sold into developed markets either rose slightly or fell less dramatically in the final quarter of 2010. According to the Rabobank report, in some cases this is due to favourable exchange rates rather than a general improvement in prices. European and Argentine suppliers may be deriving price benefits from weak local currencies. But Australian suppliers are facing export price declines which are largely attributable to exchange rate variations against the U.S. dollar and the pound sterling.

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