The gradual improvement in the global economy is showing through in recent wine trading trends.

The ‘Rabobank Wine Quarterly' reports that exports from nearly all major wine growing countries have improved compared to the first half of 2009. But as the global wine market struggles with overproduction, the key to long-term profitability will be balancing supply and demand.

Wine exports from most major suppliers are up significantly on 2009 levels. Despite the earthquake in February 2010 , Chile saw the biggest increase in exports to the U.S., thanks to last year's large harvest. New Zealand exports to the U.S. saw the second biggest increase as producers ran down high stocks, a hangover from consumer belt-tightening in 2009.

Oversupply problems

Despite these improving trends the global wine market is still struggling with oversupply.

Figures from the International Organisation of Wine and Vine show that wine production exceeded consumption by around 9 per cent in 2007 and 2008. When consumption declined twice as fast as production in 2009, the gap widened even further.

According to Stephen Rannekleiv, co-author of the Rabobank Wine Quarterly, the constant excess supply is making it hard to build solid brands. This, in turn, makes the wine sector less attractive to beverage companies. "In the first half of  2010 we saw many major companies trying to limit their exposure to wine, selling assets or demerging wine from other activities."

This in stark contrast to consolidation elsewehere in the industry, which was highlighted in another recent Rabobank report ‘Convergence in the beverage sector.'

EU measures are critical

Increasing demand for wine from China and Russia may help restore the balance between supply and demand, but, according to Rannekleiv, Europe is still a key concern.

The EU is continuing its subsidies to take thousands of hectares of grape vines out of production. But it is also phasing out the crisis distillation budget, which was designed to keep excess supply off the market.

Rannekleiv: "A critical question for the future global supply-demand balance is the net effect of these two policies. This is certainly an issue we will be monitoring."

www.rabobank.com