I have been busy getting ready for next week’s “State of the Industry” session at the Unified Wine & Grape Symposium in Sacramento. The theme of the Unified in 2026 is “Reframe the Narrative.”  There was a lot of bad news about the wine business in 2025. Where are we headed in 2026 and beyond? How can we get out of this rut?

This is my 15th consecutive year on this panel and I thought it would be interesting to look back at my first presentation, which was in 2012. It took some fiddling to find the files, but here are the slides I presented back then along with my unedited and very rough presentation notes.

If you take a few minutes to read through this material, you’ll notice that while the wine business environment was very different back in 2012 in terms of the headlines, many of the detailed concerns were similar to today. Margins were tight then, for example, and tight now, too, but for very different reasons.

Economics is called the dismal science, so I suppose that dark clouds and silver linings are always on the cards. The more things change the more they stay the same in that regard. I think my final point (Boulding’s Law) has held up pretty well, don’t you? Here’s my 2012 report.

The State of the Wine Industry 2012: A Global Perspective

I study globalization and wine so I am here today to start off this session with a global perspective on the state of the industry.

Wine has always been a global industry, or as global as trade barriers and transportation costs allowed.

It is not an accident that when David Ricardo wrote his economics textbook almost 300 years ago, the example he used to illustrate international trade was the wine trade.

It has always been important to have a global perspective on wine but now more than ever. The wine world has become a tight little world where international and global effects cannot be ignored.

Today’s session will have a good deal of good news — a lot more than in some recent years. As an economist, however, it is my job to channel Alan Greenspan back when he warned about the dangers of “irrational exuberance.”

Silver linings do not always come wrapped in dark clouds, but sometimes they do. And it is important to understand them and to think strategically about them.

A Dangerous Phase

One silver lining is growth. The US economy should continue to grow in 2012, although perhaps more slowly than in 2011. And the wine market should continue to recover.

But the dark cloud that surrounds this is the global economy, which has entered a “Dangerous Phase” according to the International Monetary Fund. The global economy will grow this year but more slowly than before and with the largest single economic area — the European Union — likely falling into recession.

GLOBAL GROWTH SQUEEZE

And so economic leaders will be desperately looking for growth … and where will they find it? Consumers do not seem able to carry the load, especially with the housing crisis still unresolved.

Business investment is also inadequate due to poor future expectations and tight credit market conditions.

Government is handcuffed by its own debt and politically gridlocked as well.

So this leaves exports and we can expect nations to push for every competitive advantage for their products to try to grab the growth they need.

EXCHANGE RATES

This explains why exchange rates will be especially volatile in 2012. The US has successfully run a secret “weak dollar” policy for the past few years and now other countries are following suit. Competitive depreciations or currency wars are likely as more countries try to use exchange rates to grasp the growth they desperately require.

WILD CARDS

There are many wild cards that could turn dark clouds into silver linings or vice versa. The most troubling wild cards are the US and the European Union. Will US growth stall? And how will the election affect economic policy?

The questions are even more serious for Europe. How deep will the recession be and will Germany be part of it? And, of course, will the Euro survive in its present form? Big questions.

A Tight Squeeze for Wine

This combination of silver linings and dark clouds will create a Tight Squeeze for the wine industry. Let me explain how these pieces fit together.

A TIGHT SQUEEZE FOR WINE

These global economic factors in combination with the particular dynamic of the wine industry produce the conditions for what I am calling a Tight Squeeze for wine.

INCREASING COMPETITION

Competition is increasing all along the supply chain. There is more competition for wine grapes and bulk wine and more competition as well for those markets and market segments high decent margins.

THE BIG SQUEEZE

Wine maker margins will feel A Big Squeeze.

You will hear a lot today about the competition for wine grapes and bulk wine. Short market conditions are pushing up prices in many key market segments.

Wine producers naturally want to pass along higher costs to consumers but this is problematic in many market segments. Slow economic growth combined with buyers who see discounted prices as the new normal means that some producers will be squeezed out of some markets because of shrinking or even negative margins.

The squeeze will put increased emphasis on lower cost alternative sources of grapes and bulk wines and on those brands and market segments where margins can be maintained or perhaps even increased.

CURRENCY SHIFTS

The exchange rate shifts I talked about a minute ago will impact the Big Squeeze in several ways, creating both silver linings in the form of lower import costs and also dark clouds due to greater import competition.

The dollar is likely to continue to increase in value, but exchange rates are the most difficult thing to predict in economics and it is impossible to tell for sure how individual currency values will be affected. There will be silver linings for some, I’m sure, and clouds for others.

WILD CARDS: CHINA

There are many wild cards in the Big Squeeze scenario, but the biggest is certainly China. Economic growth will slow this year in China, but how much? The worst case scenario would be for Europe’s recession to be deeper than expected and the US recovery to stall. In this case China’s growth could fall dramatically.

How would this affect wine? Well, the direct effects would be rather small I think – slower growth in an otherwise rapidly growing market.

But the indirect effects would be significant. If China’s industrial production slows so would its raw material purchases, which would hit the Chilean Peso, Australian dollar and perhaps the South African rand particularly hard.

What’s the Best Way to Prepare for the Future?

And finally I suggest for your consideration Boulding’s Law, named for Kenneth Boulding, the great economist. Boulding once conducted a study of the history of the future — he looked back in history to see what people thought would happen in the future and then he fast forwarded to find out if they were right.

His conclusion. When the future finally came around, people were generally surprised — even when it was exactly what they expected.

Hence Boulding’s Law: the best way to prepare for the future is to prepare to be surprised!