Extreme weather ends Europe's cheap-wine era

November 15, 2012
It's the end of an era for cheap European wine.

Drought, frost, floods and heavy rain this year have hammered grape harvests in Europe's biggest wine-producing countries, prompting a spike in grape prices and marking an end to almost a decade of extremely cheap wine from the Continent.

Grape farmers in countries such as Spain, France, Italy and Portugal have found themselves forced to give up parts of this year's harvest, while the U.K.'s largest vineyard decided to completely scrap production this season.

Overall wine production in Europe will be down about 20 million hectolitres - the equivalent of around 2.7 billion bottles of wine, and about twice the amount of Chile's entire yearly production, according to Stephen Rannekleiv, executive director for beverage research at Rabobank.

On a more country-specific basis, figures from France's Agriculture Ministry showed last week that wine production in that country alone will slump 20% to 40.7 million hectolitres in 2012.s

And in Italy, this year's output will likely be 9 hectolitre below average harvests in recent years, while Spain is also projected to "experience a significant decline," according to Rabobank's Wine Quarterly report.

"The main issue is that we had some bad weather conditions in Europe and a dramatic decline in France, which is in general the largest producer," said Rannekleiv from Rabobank.

The significant drop in 2012 output stands in sharp contrast to oversupply in previous years, where exceptionally good harvesting conditions boosted production and inventories while demand gradually declined against a weak economic backdrop.

"We saw a big increase particularly in 2004-2006 when we had periods of big harvests globally and a lot of new production coming online in places like Chile and Australia," he said. "The increase in production drove down prices for growers for several years and even when prices started to return to normal producers couldn't raise prices because they carried big inventories."

The excessive inventories were gradually depleted during 2011 and 2012, colliding this year with poor weather conditions . A shortage of grapes has already prompted a spike in prices: Spanish wine concentrate is now priced around 2100 euros per ton, up from 1500 euros a ton earlier this year, according to information from

Rannekleiv said the wine producers to some extent can absorb the increases themselves, but that price hikes especially in the lower end would be inevitable.

"It'll be difficult, but we'll have to see price increases in one form or another. The volumes just aren't there to maintain sales at this [price] level," he said. "It could affect the low end of the sector, where the majority of volumes are moved. Such a move could easily reduce the gap between cheap and middle-priced wine."

The drastic decline in wine production isn't just limited to mainland Europe, however. In the U.K., the country's largest vineyard, Nyetimber, decided to totally scrap this year's harvest because of extreme weather conditions. That was the first time the vineyard has made the decision to skip a full-year's harvest and winemaker Cherie Spriggs has never seen a situation like this before, a representative from the firm said.