The rising threat posed by imports is a frequent topic of discussion when I meet with California winegrowers. With the volume of domestic sales declining in several market segments (especially below $10 retail), it is natural to be suspicious of the impact of international competition.
Home Court Advantage
Imports account for about a quarter to a third of US wine sales, a proportion that been relatively steady for the last few years but is higher now than it was 25 years ago. Recent Nielsen data, for example, indicate that imports of still wine accounted for about 26% of sales in the channels they measure when calculated by value and 24% by volume. Imports take a larger proportion of sales in sparkling wines and in channels that the Nielsen figures do not measure, such as on-trade sales.
Is this a lot (or too much, as my winegrower friends would have it)? It depends on how you look at it. OIV data tell us that the United States accounted for about 8.5% of world wine production volume in 2018, so a two-thirds domestic market share is a very substantial “home court” advantage that domestic producers naturally want to defend.
The slowly rising import market share has many causes. The US is the world’s most attractive wine market, so foreign producers put a great deal of effort into cracking the market. Technology is also a factor. The advent of efficient bulk wine shipping has facilitated increased competitiveness of foreign wine producers and allowed domestic brands to efficiently add foreign wines to their portfolios. Some brands, such as Cupcake, have had great success by offering wines from around the world under a single brand umbrella.
A Fragmented Market
The intensity of import competition depends on which market segment you are looking at. The U.S. wine market is incredibly fragmented and so it is dangerous to generalize. This is true in many ways including simple geography. Because it is costly to get distribution in all 50 states, many medium and smaller foreign wine companies have learned that it is better for them to focus on a few local markets, say, New York, Florida, Texas, and Illinois, instead of attempting national distribution. These are among the states with the broadest and most intense import competition.
The tables shown above, which tell more of the story, are taken from the latest edition of Wine by Numbers, a publication of the Unione Italiana Vini that tracks international wine trade. They tell part of the story of 2018 imports in the U.S. market. Looking at bottled wine imports, for example, you can see that import penetration is dominated by three countries, but which three is different depending upon whether you look at the volume of imports or their value.
Globally the top three wine producing nations — France, Italy, and Spain — account for more than half of all wine production, so you would expect that to be true in terms of U.S. wine imports. But it is not, in part because Spain punches below its weight here.
Looking at the volume of bottled imports, Italy is far ahead in first place with more than a third of total wine imports. France is number two, powered by the rising Rosè market, while Australia is in third place ahead of Chile, Argentina and then finally Spain. Italy and France account for more than half of all bottled imports measured by volume.
The picture changes when you look at the value of imports. Italy and France are still the top two import sources, accounting for more than half of all import spending by themselves, but New Zealand rises to third place on the basis of its higher average bottle price — second only to France in the table.
A Tale of Two Wine Import Categories
Looking at the most recent Nielsen figures published in Wine Business Monthly, t is fascinating that wine imports, as measured by dollar value, are so influenced by two categories — New Zealand Sauvignon Blanc and French Rosè. Both categories have experienced rising sales at premium prices. Obviously sales of these wines come at the expense of U.S. products to a certain extent, but the market is not perfectly competitive here. Marlborough Sauvignon Blanc and French Rosè are powerful brands — differentiated products we saw in economics — that are difficult to challenge, which undoubtedly helps account for their premium prices.
Big in Bulk
Bulk wine imports tell a very different story. Chile, Australia, and New Zealand are the top bulk imports measured by volume in 2018. More Chilean and Australian wine is imported in bulk than in bottle according to these figures.
New Zealand’s higher average price means that it ranks #1 in bulk wine by value despite markedly smaller import value. About a third of all Kiwi wine imports arrive via bulk shipments.
Are imports a rising threat to U.S. producers? Yes, if I have to generalize, simply because all the important foreign wine producers I have talked with in the last few years are trying harder and harder to move their U.S. export needle. Their efforts have had and will have an impact. U.S. producers are wise to study their efforts and try to learn from them.
But, in practical terms, the actual surge in imports has been more narrow than broad — Marlborough Sauvignon Blanc and French Rosé. And there is something to learn from that, too. The most successful international competition has come at premium prices, with focus on quality, reputation, and product differentiation. Value not volume drives their success.
Thanks Mike I have been preaching for years that the California and US wine grape growers and produces need to level the field. I believe we only export about 10% of what is imported in dollar value. Also consider the tariffs on US wine around the world compared to what we/US charge
Mike. I’m a bit disappointed that you’ve apparently bought into the idea that imports somehow are “threats” to U.S. wine. I thought economists believed in trade. Any producer would, of course, prefer less competition (and higher prices), but to talk about imports as “threats” to U.S. wine obscures two points.
First off, trade is influenced by currency exchange rates and in the past year the dollar has strengthened against foreign producers by just under 10%, making foreign wines less expensive relative to U.S. produced wines. Since April of 2018, the Euro has fallen by 9.5%, the Chilean Peso by 9.3%, the Argentine Peso by a 115% (devaluation), the Australian dollar by 7.9% and the New Zealand dollar by 9%. With regard to exports, two major markets for U.s. wine are Canada and the U.K., and the U.S. dollar has risen by 4.7% against the Canadian dollar and 8.2% against the British Pound. Given these figures, an economist would expect more imports of wine and less volume of exports.
The volume of imported wine relative to all U.S. wine has fluctuated quite a bit over the past 20 years, ranging from a low of about 25% of volume to a high of about 33% (about a decade ago and again today). Much of that fluctuation was a result of exchange rates.
The other aspect that needs to be examined is at what price points are imports competing with U.S. produced wine? Well over 60% of the 403 million cases of all wine sold in the U.S. in 2017 retailed at under $10 a bottle. This is the price point where imports are most competitive with U.S. (actually, California) wine. Wine retailing at under $10 a bottle needs to be produced from inexpensive grapes, generally those grown in California’s fertile Central Valley. The problem here is not that Central Valley grape growers can’t compete with foreign producers–they can– but rather that a more profitable use of their land is to grow other crops (often almonds, walnuts and pistachios) where California has a climatic advantage over foreign producers. Vineyards have a productive lifespan of about 30 years here in California due to trunk diseases. When it comes time to replant, many grape growers switch to other crops, reducing supply of inexpensive grapes. But the market for inexpensive wine, although slowing in growth in percentage terms, is not going away and must be supplied. Large suppliers such as Gallo or the Wine Group turn to bulk imports, which represent about 25% of U.S. imports by volume.
I addressed this at the 2010 ASWE meeting at Davis (where I met you). I predicted an expansion in demand for wine (430 million cases by 2030–currently we are at 403 million cases), and asked the question where would the inexpensive wine come from to fill demand? My answer was imports, which seems to be coming true with respect to increasing bulk imports. To see these imports as a “threat” to the U.S. (California really, as it produces about 87% of all U.S. wine) wine industry is to misunderstand the nature of the U.S. wine industry in general and California agriculture in particular.
Thanks for this comment, Jim. I used the term “threat” in the title because that is how many growers I have met see the situation. Actually, as the column suggests and your comments details, the situation is different. There is certainly competition, but the growth in imports has been in very specific wine categories (NZ SB and French Rose) which sell for premium prices. Sorry if I didn’t make this clear enough. Thanks again for your analysis.
Being a grower/producer here in Traverse City, MI, in one of the few true cool climate fine wine regions in the Midwest, we find it difficult to compete with imports right in our own back yard. Many of the local wine shops and restaurants play the “ignorance card” and only offer a few local wines on shelf and menus, getting better margins on lesser imported wines. Our quality and styles of wine deserve better allegiance from our own local and regional compadres who sell fine wine. I was floored reading a response from the New York Times’ Eric Asimov about the differences in the French and American wine cultures written during the Trump threat of increasing the tariffs on French wine. Mr. Asimov stated that the French culture, as it relates to wine allegiance, is quite different than the U.S. in that they only are interested in the local wines and would not support the imports. So why even try to make it an even playing field? Wow, there’s a concept for changing the U.S. wine culture. Now let’s talk about the cost of wear and tear on our infrastructure to support moving such large volumes of glass and liquid from port to distribution centers. The roads and bridges take a beating in getting this stuff to the market. Guess who pays for the maintenance – I bet it’s not the tariffs that the U.S. charges that will cover the cost, more likely the U.S. taxpayer.
We’d love to change the culture of the U.S. wine lover to mimic the old-world local commitment. The U.S. grows and makes just about all the most interesting grapes and styles of wine. Our quality is on par or even better than what comes in from the ships. Tariffs are complicated, but they can serve a purpose. At a minimum, if the playing field was fair as it relates to tariffs that are charged for exporting U.S. wines as it is for importing foreign wines, we could help shift consumers allegiance and nurture the evolving fine wine sector here. That would be good for America, and Americans.
Hi Mike, I’d like to respond to Robert Brengman’s use of Eric Asimov’s comment that the French are only “interested in the local wines and would not support imports.” Asimov’s opinion is flat wrong. According to the OIV 2018 report on production and trade (http://www.oiv.int/public/medias/6371/oiv-statistical-report-on-world-vitiviniculture-2018.pdf) in 2018 France consumed 27 million hectoliters of wine and Imported 7.7 million hectoliters–or 28% of what they consumed. For comparison, the U.S. 32.6 million hectoliters and imported 11.8 million hectoliters, about 36% of consumption. I think these figures contradict Asimov’s opinion. And with regard to the cost of moving wine around, since about 87% of U.S. produced wine comes from California and must be hauled, the cost of movement on roads would seem to be a wash relative to imports. Ultimately, imports give consumers more variety and choice than does a tariff-protected market. Brengman’s job is not just to produce fine wine, but to educate consumers about the qualities of his wines. This was the same problem that confronted California wines relative to European wines in the 1950s and the 1960s. Hard work with consumers is the answer–not tariffs.