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Wednesday Warblings
Analyzing Imbalance In The Supply/Demand Equation

By Stephen Eliot

Surplus has been the norm in international wine production for the last thirty or so years, but according to a recent report by Wine Intelligence, a company specializing in global wine-market analysis, things changed significantly in 2012. For the first time in a long time, wine supply and consumer demand are roughly equal, and the implications of such equilibrium might be profound.

Despite the fact that starting in the 1970s the international wine market has seen striking change, the world’s thirst for wine and the amount that has been produced have been amazingly constant, and there has, over the years, always been more of the stuff made than we have been able to drink. Simple math would then lead one to conclude that a “buyer’s market” has therefore been the norm for decades, but, at least for the nonce, the landscape is changed.

Due to significant consumer demand from new Asian markets, the steady decline in production on the parts of traditional producers like Italy and France and less-than-favorable weather conditions in many of the world’s wine-growing regions, surplus is gone and a “seller’s market” has begun.

What, then, is in store for those of us at the very end of the supply chain in the new order of things? It is reasonable to expect higher prices and far fewer bargains, and, as the recent metamorphosis of Trader Joe’s “Two-Buck Chuck” into “Two-Fifty Chuck” suggests, change has already begun.

Last summer, we heard from one winemaker after the next that prices for grapes were on the rise and that competition for top-quality fruit was growing increasingly fierce well in advance of harvest. As excited as they and we are about the quality of California wines in 2012, it does not take much of a crystal ball to predict that the cost of production will be reflected in the price tags of those finished wines. Similarly, we expect that those who make wines at the lower end of the price spectrum will have to work harder to find fruit, and those who ply their trades as “negociants” will have an especially difficult time procuring steady and consistent supplies.

The question must be asked, of course, “is this new market calculus permanent, or is it a momentary anomaly owing to quirks in the weather and a sudden rise in demand that the industry has yet to address?” It is a question that will be answered in time, and if history is any guide, demand will lead to new plantings and back to the typical equilibrium in which optimism leads consumption. For now, all signs point to a few years in which wine lovers might have to pay a bit more and work a bit harder in finding noteworthy values, and it is hard to argue with the conclusion of the Wine Intelligence report that “it’s clear that 2013 will not be the year of bargain wine.”


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