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July 2007, Volume 13, Number 3

Wine: Global, US, EU

Vinexpo predicted in June 2007 that the US would be the world's largest wine market by 2010, consuming about 12 percent of the world's wine. France, Italy and Spain have been the major producers and consumers of wine during most of the past half century, producing in recent years about 20, 18, and 14 percent of the world's wine, respectively, and consuming most of what each country produces.

According to the Vinexpo study, world wine consumption (including sparkling wine) barely rose from 218 million hectoliters in 1999 to 226 million hectoliters in 2004, but is poised to jump to 240 million hectoliters by 2009. World wine sales (including taxes) rose from $93 billion in 1999 to $103 billion in 2004, and are projected to rise to $114 billion in 2009.

Vinexpo classifies wine into three price segments, and reported that five percent of the wine sold worldwide in 2004 was priced above $10 a 750 ml bottle, 18 percent was priced between $5 and $10 a bottle, and 77 percent was priced below $5 a bottle. Vinexpo said that 70 percent of the world's wine was consumed in Europe in 2004, 20 percent in North and South America, and five percent each in Asia and the rest of the world.

US. The Wall Street Journal on May 25, 2007 reported that wine tourists spent $3 billion in 2006 on travel, lodging and food to taste wine at the 5,110 US wineries.

The European Union in May 2007 granted the Napa Valley "geographic indicator" status, meaning that wine labeled Napa and sold in the EU must be made from grapes grown in Napa. California state law already requires Napa grapes in bottles labeled Napa.

The Wall Street Journal on April 26, 2007 profiled Napa winery Screaming Eagle, which makes only 400 or 500 cases of cabernet sauvignon a year. The winery, which sells a maximum three bottles a year to those on its mailing list, has 4,000 names on a waiting list to buy its wine. The winery changed hands in 2006, but the new owners plan to continue limited production at the 68-acre ranch.

EU. The European Union is the world's leading producer, consumer, exporter and importer of wine, but has a surplus, a lake of wine that cannot be sold. Languedoc-Rousillon growers, whose prices have dropped from E3 to E1 a liter, have attacked supermarkets selling foreign wine.

Much of the EU's low-quality wine is distilled into industrial alcohol; there are 256 distilleries just in France, Spain and Italy.

In summer 2006, the EU proposed reducing EU wine acreage by 400,000 hectares or almost a million acres. On July 4, 2007, the EU revised its proposal, cutting the number of hectares of vineyard to be removed to 200,000. Under the EU plan, farmers would bid for payments in exchange for removing vineyards that account for 10 to 20 percent of EU wine production. The EU believes direct payments are preferable to producing wine that distilleries turn into alcohol.

The EU spends E1.3 billion a year ($1.8 billion) to help the wine industry. It has a three-pronged plan for the next decade- eliminate low-quality vineyards, improve the marketing of mid-priced wine with label changes, and expand premium wine production. Farmers in France, Spain and Italy, producers of over half of the world's wine, are expected to be the major beneficiaries of EU wine reforms.

The EU also wants to improve the marketability of EU wine by simplifying the system of geographical origins and allowing cheaper wine to be labeled with the grape variety and vintage. Most European wines are labeled according to their region of origin, or terroir, a tradition that arose from the notion that the combination of soil and climate in a specific location gives the wine produced there its special character.

The EU 2007 reforms would allow successful vineyards to expand after 2014, potentially reducing the prices of Bordeaux wines, but prohibit the use of sugar to sweeten or raise the alcohol level of wine, a common practice in Germany and Austria. Some E120 million ($163 million) a year would be spent to promote moderate wine drinking. Even with the reforms, wine prices are expected to drop up to 10 percent.

Andrew Bounds, "EU to pull plug on wine lake as it steps up battle with New World," Financial Times, July 5, 2007. Stephen Castle, "Painfully, Europeans Ponder Cutback in Wine Industry," New York Times, July 4, 2007.