The latest Wine Quarterly focuses on problems in the UK wine sector, exports from major wine producers have improved significantly this year, but are still below pre-crisis levels and as the world's largest wine importer, the UK is set to become even less profitable.

"The long-term problems in the U.K. wine trade threaten profitability for major suppliers who've become dependent on that market," predicts Stephen Rannekleiv of Rabobank.

UK market hit on several fronts
Wine imports to the U.K. rose by six per cent in the first half of 2010, but this fails to compensate for the almost 10 per cent decline in the same period of 2009. "Even if import volumes do recover in the next two years, many traditional suppliers to the U.K. market still face serious longer-term issues," says Rannekleiv, Executive Director of Rabobank's Food & Agribusiness Research and Advisory Department.

Drinking at home
British consumers are still cautious about spending, in the face of slow economic recovery and government cuts. Many people now prefer to drink at home, where they can smoke if they want to and don't have to worry about drink driving. Rannekleiv: "As people increasingly buy their wine in the off-trade (outside licensed premises), pricing becomes dominated by a small group of retailers that negotiate aggressively to keep prices low. These retailers often use wine as a traffic driver for their stores, training consumers only to buy wine on promotion in the process. This trend will continue to weigh on wine pricing."

High taxes
The U.K. has traditionally paid some of the highest average unit prices for wine. While there is still a market for higher priced bottles, profit margins for suppliers have been falling. "The government has raised excise duty on alcohol almost every year for the past ten years," comments Rannekleiv. "And the VAT rise planned for next year will erode margins even further."

The result is that global suppliers of higher value wines will have to find new markets. Rannekleiv: "China is emerging as a major wine importer and continued economic growth should fuel demand. But a high-end Bordeaux sells in China for around half the price it would fetch in the U.K., so increasing sales to China will not make up for the recent decline in U.K. sales."

Highlights from global suppliers
The Rabobank Wine Quarterly also highlights trends in the global wine trade. Chilean exports to the U.S. and the U.K. were down, but this was more than compensated by export growth to smaller markets such as Canada, Brazil and China. In France, exports from the Burgundy region are up 13 per cent over 2009, but this is still 16 per cent below the same period in 2008. Australian exports of bottled wines are losing out to bulk shipments as the industry runs down the excess stocks from last year. New Zealand exports continue to grow, though volume growth is quickly outpacing value growth, and bulk wine is gaining share of total export shipments.

www.rabobank.com