• Buyers back in charge as Europe awaits strong 2018 harvest

    After a year in which producers were in the unusual position of giving ‘take it or leave it prices’ for their grapes on the back of 2017’s bad European harvest, the roles are once again reversed as buyers find themselves once again calling all the shots as forecasts predict strong crops across the main wine producing powerhouses of Europe. Richard Siddle examines what that means for grape prices.

    After a year in which producers were in the unusual position of giving ‘take it or leave it prices’ for their grapes on the back of 2017’s bad European harvest, the roles are once again reversed as buyers find themselves once again calling all the shots as forecasts predict strong crops across the main wine producing powerhouses of Europe. Richard Siddle examines what that means for grape prices.

    mm By September 12, 2018
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    Major retail and distributor wine buyers have got their mojo back. They know there are grapes to be bought and they can pick and choose where and who they buy them from as the 2018 European harvest gets itself back on track.

    “It was the best of times, it was the worst of times…it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us.”

    Sound familiar? No, it’s not the diary of a major retail wine buyer over the last 18 months, but it could very well be. Literary lovers amongst you will recognise this quote as being the opening lines from Charles Dickens’ A Tale of Two Cities. Which is particularly apt when you look at the fortunes of different wine producing countries over the last two to three vintages, but 2017 in particular.

    As we head towards September you can feel the anticipation growing across the wine buying community about what is in store for the coming months. How will the big European wine producing power houses perform compared to the shock and awe of the 2017 vintage that has left buyers desperately trying to source and pin down enough supplies to keep their businesses and customers happy.

    If we are looking at the 2018 European harvest through the eyes of Charles Dickens then the signs are it is going to be a “season of Light” after the “Darkness” of last year. Across France, Germany, Spain and Italy the reports are that harvests are back on track, will be average at worse, and higher in key areas.

    Buyers are back on the front foot and calling the shots on pricing says VINEX's Paul Attwood-Phiippe
    Buyers are back on the front foot and calling the shots on pricing says VINEX’s Paul Attwood-Phiippe

    It all means a very different picture to a year ago, says Paul Attwood-Philippe, VINEX’s when crops were so low in the main producing countries that it was the producers who suddenly held the power in negotiations and buyers were in the unusual position of having to take whatever prices were being offered.

    The situation now, however, is very much business back to usual. Major buyers, importers and distributors have seized on the news that harvests are expected to be back to normal, and are looking to push back prices to what they were in 2016, adds Attwood-Philippe.

    “It’s certainly encouraged buyers to be more bullish, to get in early, secure their supplies and get on top of lower prices. They’re back on the front foot and being able to be more aggressive than they were last year,” he says.

    It means we can expect to see a 10-20% decrease in average grape prices from what they were in 2017 and into this year.

    “We will see 10 cents a litre less for 75cl bottle on most generics across the board,” confirms Attwood-Philippe.

    Leading the way will be Pinot Grigio, where major buyers have already been putting on pressure for prices to be relaxed, which, in turn, will act as a springboard for prices to be re-calibrated for other main grape varieties.   

    Spain, he says, is “going to be very good” with some “big volumes”.

    Overall the harvest situation looks stronger the further north you go. It’s here where the balance has been right across the growing period with good early rains and cool weather and a high water table, followed by the heat in June and July with enough rainfall to keep the vines refreshed. The key here being cooler nights and good canopy cover during the growing season that have allowed the vines to recover from the heat in the day.

    “The more northern the vineyards are, the happier they will be,” he says.

    Attwood-Philippe expects to see a particularly good harvest for France – “anywhere north of Lyon” – and following similar line across in to Germany and Central Europe. The situation is a little more complex in areas below that line, particularly in the south of France and Languedoc where the weather extremes have resulted in problems with mildrew, he adds.

    Pushing back on Australia and New Zealand

    Australian producers have been able to hold on to premium prices, but for how much longer?
    Australian producers have been able to hold on to premium prices, but for how much longer?

    The healthier news from the northern hemisphere, could now have an impact on the demand and position of key varieties from Australia and New Zealand in particular, claims Attwood-Philippe.

    Up to now the southern hemisphere has been able to keep its prices high. Whilst buyers might want to be buying Australian Chardonnay at 90 cents a litre, producers are holding firm at A$1.10. Similarly in New Zealand where buyers are looking for Sauvignon Blanc at NZ$3.15 price points, producers are sticking to NZ$3.50, he explains.

    “We have been saying at VIINEX for some time that NZ$3.30 would be a good place to buy for New Zealand Sauvignon Blanc and that is where the market is moving to.

    If the northern hemisphere harvest ends up being as strong as expected then it could then give buyers that extra leverage to push back on southern prices even more, as they are getting the cash flow back into their businesses from a better position in the north, he adds. 

    Return of Eastern Europe

    Producers in Moldova and Romania in particular have benefited from the shortage in the 2017 harvest
    Producers in Moldova and Romania in particular have benefited from the shortage in the 2017 harvest

    The big winners from the bad 2017 northern European harvest came in Eastern Europe where producers were able to fill the gaps left in France, Spain and Italy with good quality wines at great price points.

    Whilst some buyers will be able to return to their original markets to source wines in 2018, Attwood-Philippe believes the last 12 months has been a real turning point for countries such as Moldova and Romania in particular in terms of putting them on the major buyers’ agenda.

    They might have known for a while that it was possible to buy good wines from these countries, but they have not had to do so. Now that they have and they have been well received by their end consumers, there is every reason to keep going back for more.

    “It is a big investment for a buyer to start working in a new market like Moldova and to make it work you have to be in it for the medium to long term. What we have seen in the last year is that the quality is there and the reputation within the industry to go and work there has really gone up,” he explains.

    That combined with cheaper labour and transport costs means Eastern Europe is here to stay on the global wine buying map. Particularly as more local producers see the potential and look to sell more wine in western Europe rather than rely on their traditional markets in Russia and their neighbouring countries. 

    Drop their prices

    A cheaper labour force has made wines from Eastern Europe even more in demand
    A cheaper labour force has made wines from Eastern Europe even more in demand

    That said to be in the game this year, East European producers are going to have to drop their prices by around 10-15%. Wines that were on the market at 70 to 80 cents a litre last year are going to be closer to 60-65 cents, with Pinot Grigio setting the agenda for the rest of the varieties to follow at that price point. We can also expect to see Merlot, Cabernet Sauvingon, Chardonnay and Sauvignon Blanc drop down to 50 cents a litre. 

    “The buyers and supermarkets who have built relationships in the area have stolen a march on the others,” he adds.

    It is still, though, very much an emerging market and Attwood-Philippe thinks it could be three to five years before the majority of producers are fully on board supplying new markets.

    “These markets are really opening up now. They are understandably naturally cautious as well and it will take time for them to create partnerships and get more confidence.”

    But he adds: “It’s been a tipping point in the last year and the shortages in western Europe have really done Eastern Europe a favour.

    “We have seen an increase in demand from retailers, particularly in the UK, for bottled wine projects from Eastern Europe. Particularly as you can get an equivalent wine with a typically southern French style compared to Australia and New Zealand which is much more expensive.” 

    The attraction of bringing more euros into their countries is also one that East European producers and investors will be keen to capitalise on.

    Outside of the UK other major European buyers are more sceptical about Eastern Europe. Primarily because they have such strong domestic wine sales, but also their consumers are less ambitious and willing to try unknown wine regions.

    “The buyers are very much aware of the opportunities there, but will probably wait to see what succeeds in the UK before they make their move. Then they have to convince their internal teams, and their own consumers.”

    But as we know only too well, harvests may come around only every 12 months, but a lot can happen in that time.

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