As 2023 came to a close, alarms were raised across the global wine sector, according to a research of Observatorio Español del Mercado del Vino (OEMV).
After years of steady growth in the value of wine trade, the sector began experiencing a decline not only in volume, but also in value. This was a significant shift, as the value of wine had consistently increased, even during the two major crises in recent history: the 2009 financial downturn and the COVID-19 pandemic.
Impact of COVID-19 on Global Wine Trade
During the worst of the COVID-19 crisis, from February to May 2020, global wine trade saw a loss of 2.4 million hectolitres in just three months. The economic impact was substantial, with a reduction in turnover by 2.2 billion EUR—from 31.9 billion EUR in February 2020 to 29.6 billion EUR in January 2021. However, the global wine market showed remarkable resilience. By December 2020, the volume of wine traded worldwide had already recovered to pre-pandemic levels (105.5 million hectolitres). Sales continued to grow until reaching 111.9 million hectolitres by January 2022—a maximum growth rate of 8.6% from the lowest point during the crisis (May 2020) to the peak in early 2022.
The recovery in terms of value, however, took a bit longer due to inflationary pressures driven by global factors such as slower economic growth, the energy crisis, and geopolitical tensions like the war in Russia, combined with wine-specific challenges like supply shortages. The value of world wine trade didn't fully recover until May 2021, but once it did, the growth was significant, with turnover rising by 28.6% and increasing by almost 6.2 billion EUR from the worst point of the pandemic to March 2023.
The Recent Decline in Global Wine Trade
Despite this post-pandemic growth, both volume and value of global wine exports started to decline again in 2023. By May 2024, the value of global wine trade had fallen to 35.7 billion EUR, marking a sharp reversal of the premiumization trend, which had driven higher prices despite lower trade volumes since 2009. Premiumization, while reducing trade volumes, allowed wine producers to benefit from improved turnover by focusing on higher-priced wines. However, the simultaneous fall in both value and volume in 2023 is causing widespread concern in the industry.
Short-term vs. Long-term Factors in the Current Crisis
Industry experts are now debating whether the decline in wine trade is a long-term trend or a short-term crisis triggered by the post-pandemic growth surge. While the situation remains complex, the available data from early 2024 suggests that both long-term and short-term factors are at play. A key short-term factor is overstocking, particularly in the United States, which has been a major contributor to the recent slump in global wine trade.
The Role of the US in the Global Wine Market Decline
The US is a critical player in the global wine market, accounting for 17% of the world’s wine trade in value and nearly 13% in volume. This makes the US the largest market for wine by value and the third-largest by volume. What happens in the US market has a direct impact on global trade.
Between mid-2021 and mid-2023, US wine imports surged, which was part of the post-pandemic recovery that fueled global wine trade. However, by mid-2023, these imports began to decline sharply. The fall in US wine imports has been the most pronounced factor in the global decline, although other major markets, such as Germany, the UK, and China, also recorded losses, albeit more gradually.
US wine imports saw a dramatic increase after the pandemic, reaching unprecedented levels of 14.35 million hectolitres by March 2023. In value terms, the rise was even more impressive, with an increase of more than 2.5 billion EUR, from 4.6 billion EUR during the pandemic’s worst to 7.2 billion EUR in early 2023. This surge was driven by a combination of increased volume and rising prices, reflecting both higher demand and inflationary pressures on production costs.
The Over-Stocking Problem in the US
While the initial post-pandemic surge in US wine imports was seen as a positive indicator of market recovery, it also led to overstocking. This excess inventory built up between 2021 and 2023 is now weighing on the US market, contributing to the sharp drop in imports from mid-2023 onwards. Wine consumption in the US has not declined significantly, but the excessive accumulation of stock has slowed new imports as distributors work through existing inventories.
The figures for the first half of 2024 indicate a stabilisation in US wine imports, with volumes hovering around 12.26 to 12.28 million hectolitres between December 2023 and July 2024. This suggests that the sharp fall in US imports may have been a temporary correction to overstocking rather than a sign of declining demand.
Estimation of Overstocking in the US Wine Market
By comparing the real volume of imports to a hypothetical scenario where post-pandemic import rates followed pre-pandemic trends, it is estimated that the US market accumulated an excess stock of approximately 2.16 million hectolitres. This surplus, built up over two years, has caused a temporary downturn in imports as distributors work through their stockpiles.
If this hypothesis holds, the decline in US wine imports will correct itself in the coming months, assuming wine consumption remains steady. However, if other factors, such as changes in consumer preferences or broader economic conditions, also play a role, the recovery may be slower or less robust than expected.
Conclusion: A Temporary Crisis or a Structural Shift?
The global wine sector is at a crossroads. While the recent decline in both volume and value is concerning, especially after years of steady growth, the data suggests that much of the current downturn is due to short-term factors like overstocking in key markets such as the US. However, the persistence of global economic challenges and shifts in consumer preferences could signal a longer-term change in the wine trade. The coming months will be critical in determining whether this is a temporary crisis or the beginning of a more significant shift in the global wine industry.
Source: OEMV