Wine Industry Resources
7.12.2008
Europe's Wine Lake
It would surprise many Americans to learn that each year the European Union transforms millions of bottles of French, Italian, and Spanish wine into alcohol for industrial use. This distillation program is the result of an enormous and growing surplus of wine known as the "Wine Lake", which is burdening Europe's wine industry and costing the EU hundreds of millions of euros.
It should be noted that we're not speaking about fine wines like a $300 bottle of Chateau Margaux or even the less stratospherically-priced fine estate-bottled wines featured in the club. Rather, the wine glut is the result of thousands of small wine producers that at one time had no problem selling their low to mid-quality wines either locally or on the international market, but are now unable to find buyers for over a billion bottles of wine per year.
The reasons for the Wine Lake are varied, but the most important factor is simply the increased competition European producers have been facing from the New World, whose wines have been conquering ever larger shares of the global wine market for the last several decades. In Europe, New World imports are making significant inroads into the market, while consumption of wine in general has fallen. At the same time, sales of high-quality wine is actually increasing, indicating a move away from cheap "table wine" by consumers (please note that in the U.S. almost all wine is labeled as table wine, regardless of quality or price, but in Europe "table wine" is a term for inexpensive low-quality wines). Combined with the fact that U.S., Australian, and South American wines are capturing export markets traditionally dominated by European producers, the Old World now finds itself awash in wine it cannot sell.
Compounding matters for Europe, New World producers are not only capturing larger percentages of the global wine market, they're also shaping the tastes and expectations of consumers in the market. Often typified by more forwardly-fruity flavors, many New World wines are more approachable for novice drinkers (including European ones), and they often tend to be more drinkable when young. New World producers are also typically free of regimented guidelines dictating how their wines must be made, so they're able to experiment and innovate more than their Old World counterparts who must conform to the restrictions imposed by their appellations. Hand-in-hand with the freedom New World producers enjoy when crafting their wines is the fact that their wines are almost universally bottled under varietal names like Merlot, Cabernet Sauvignon, or Chardonnay, a simple but savvy tactic helping consumers more easily identify what a given wine actually is. Old World wines, by contrast, tend to be labeled with their place of origin (appellation) instead of the varietals used in their production, confusing consumers who may not be aware that Cote-Rotie, for instance, is a Syrah based wine blended with up to 20% Viognier. In such a situation, a consumer may pass up an excellent French wine in favor of a New World wine that has a more descriptive label.
European wine producing countries are now in the position of having to find a way to meet the demands of the global marketplace while trying to maintain as much of their Old World traditions as possible. The majority of Europe's vineyards (over 70%) are below twelve acres in size, reflecting the tradition of small-scale family-run wine production. Sadly, given the changing market, many of these vineyards will have to be abandoned. At the end of 2007, an EU plan was enacted to assist small producers in retiring from winemaking while uprooting 400,000 acres of excess grapevines. The EU is also phasing out the subsidies (of almost one billion dollars per year) that have paid for the alcohol distillation program, which has kept so many of these producers in business despite there being no market for their wine. The savings will allow more of the EU's wine budget to go to better marketing of their quality products as well as improving the overall quality of wine production. In addition, wine labels on some wines are to become easier to understand with the use of varietal names. While viewed as a significant step in helping make the EU more efficient and agile in the market, many analysts feel the reforms will not yet be enough to turn the tide. Only time will tell if the EU can begin to make headway in its fight to recapture dominance of the global wine market.
It should be noted that we're not speaking about fine wines like a $300 bottle of Chateau Margaux or even the less stratospherically-priced fine estate-bottled wines featured in the club. Rather, the wine glut is the result of thousands of small wine producers that at one time had no problem selling their low to mid-quality wines either locally or on the international market, but are now unable to find buyers for over a billion bottles of wine per year.
The reasons for the Wine Lake are varied, but the most important factor is simply the increased competition European producers have been facing from the New World, whose wines have been conquering ever larger shares of the global wine market for the last several decades. In Europe, New World imports are making significant inroads into the market, while consumption of wine in general has fallen. At the same time, sales of high-quality wine is actually increasing, indicating a move away from cheap "table wine" by consumers (please note that in the U.S. almost all wine is labeled as table wine, regardless of quality or price, but in Europe "table wine" is a term for inexpensive low-quality wines). Combined with the fact that U.S., Australian, and South American wines are capturing export markets traditionally dominated by European producers, the Old World now finds itself awash in wine it cannot sell.
Compounding matters for Europe, New World producers are not only capturing larger percentages of the global wine market, they're also shaping the tastes and expectations of consumers in the market. Often typified by more forwardly-fruity flavors, many New World wines are more approachable for novice drinkers (including European ones), and they often tend to be more drinkable when young. New World producers are also typically free of regimented guidelines dictating how their wines must be made, so they're able to experiment and innovate more than their Old World counterparts who must conform to the restrictions imposed by their appellations. Hand-in-hand with the freedom New World producers enjoy when crafting their wines is the fact that their wines are almost universally bottled under varietal names like Merlot, Cabernet Sauvignon, or Chardonnay, a simple but savvy tactic helping consumers more easily identify what a given wine actually is. Old World wines, by contrast, tend to be labeled with their place of origin (appellation) instead of the varietals used in their production, confusing consumers who may not be aware that Cote-Rotie, for instance, is a Syrah based wine blended with up to 20% Viognier. In such a situation, a consumer may pass up an excellent French wine in favor of a New World wine that has a more descriptive label.
European wine producing countries are now in the position of having to find a way to meet the demands of the global marketplace while trying to maintain as much of their Old World traditions as possible. The majority of Europe's vineyards (over 70%) are below twelve acres in size, reflecting the tradition of small-scale family-run wine production. Sadly, given the changing market, many of these vineyards will have to be abandoned. At the end of 2007, an EU plan was enacted to assist small producers in retiring from winemaking while uprooting 400,000 acres of excess grapevines. The EU is also phasing out the subsidies (of almost one billion dollars per year) that have paid for the alcohol distillation program, which has kept so many of these producers in business despite there being no market for their wine. The savings will allow more of the EU's wine budget to go to better marketing of their quality products as well as improving the overall quality of wine production. In addition, wine labels on some wines are to become easier to understand with the use of varietal names. While viewed as a significant step in helping make the EU more efficient and agile in the market, many analysts feel the reforms will not yet be enough to turn the tide. Only time will tell if the EU can begin to make headway in its fight to recapture dominance of the global wine market.
