Rabobank: U.S. Wine Market Tepid

Domestic wine outperforms imports as value rises faster than volume

by Paul Franson
California wine grape production fell by an estimated 10% in 2014. Source: CDFA, USDA-NASS
Utrecht, the Netherlands—Rabobank released the second (fiscal) quarter Rabobank Wine Quarterly today, containing its outlook for global and regional markets. The report is prepared by the company’s Food and Agriculture advisors under Stephen Rannekleiv.

With headquarters in the Netherlands, Rabobank is a major financer of global agriculture with clients in the United Sates.

The complete report, which outlines trends throughout the world, is available by request from rabotransact.com.

U.S. production
Reflecting recent disclosures, the report summarized that California wine grape production fell by an estimated 10% to 3.9 million tons in 2014, according to the latest California Crush Report.

In spite of the decline in volume, an excess supply exists in California’s San Joaquin Valley, which supplies grapes primarily for lower-priced wines. This is due to shifting consumer preferences for more expensive wines and the large harvests in the previous two years.

Although California is generally planting more grapevines, Allied Grape Growers calculated that 15,000 acres of wine grape vines were removed from the San Joaquin Valley at the end of 2014, and that this trend was expected to continue through spring of 2015.

The report states that the U.S. wine market continued to expand in 2014, though the estimated volume growth of less than 2% was well below the rates seen in previous years.

The value of wines, however, grew at a faster pace than volume, since virtually all the growth came from wine priced at more than $9 per bottle. The report concluded: “With broad availabilities of good-quality domestic supplies, domestic wines outperformed imports in 2014.”

U.S. import trends
Imports are a great concern of U.S. wineries. Fortunately, total  import volumes declined 2% for 2014, though the value of imported wine grew 2%.

The dramatic strengthening of the U.S. dollar in the second half of 2014 may boost wine imports in 2015, but the availability and quality of domestic wines will continue to make the market highly competitive and challenging for importers.

According to a summary by source of imports compiled by Gomberg-Fredrikson:

• Italian bottled still wine imports saw a mild decline of 1%, but overall volume rose 1% because of Prosecco’s impressive 13% growth.

• French bottled still wines and sparkling wines performed well, gaining 2% and 6%, respectively, but the dramatic 83% decline in bulk wines resulted in an overall decline of 1% in wines imported into the United States from France.

• Spain was down 5%.

Australian wine did poorly in the United States in 2014, declining 8% by volume and 10% by value. The reported noted, however, “While Australian imports have been challenged in recent years, the strengthening of the U.S. dollar and renewed efforts by Australian exporters could begin to reverse this trend in 2015.”

The U.S. consumer’s love affair with Argentine Malbec seems to have finally come to an end, as total import volumes declined 15% by volume and 7% by value in 2014.

The decline was led by 26% lower bulk wine imports, but the 6% decline in bottled wine imports is also considerable. The report said, “In spite of these challenges, discussions with exporters suggest a certain level of optimism that the ability to resume growth will return when a new government is elected and the policies that aggravate the inflation issue are changed.”

New Zealand, however, continues on a roll with a 19% increase in volume and 17% growth by value in 2014.

Likewise, Portugal is doing well in the U.S. market, with volume up 11% due to favorable media coverage and promotion by key exporters.

Overall, U.S. imports of both bottled still wine and bulk wine declined in 2014, but growth among sparkling wines, vermouths and sangria/coolers was strong.

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