AS PRICES OF GRAPES KEEP FALLING SMALL COMPANIES WILL DISAPPEAR, SAYS EDOARDO NARDUZZI, EXPERT IN WINE ECONOMY. “IT’S A STRUCTURAL PROBLEM: SUPPLY IS TOO HIGH. CONTRIBUTIONS FOR VINE EXTIRPATION IS NOT ENOUGH”

The market for Italian wine, especially exports, is showing some signs of recovery. Raw material prices, however, are on the brink of the abyss, as quotations from Piedmont to Sicily often do not even cover costs. “It’s a structural problem. Supply is much higher than demand, and it won’t change even if recovery improves.” This is the blunt analysis of Edoardo Narduzzi, an expert on wine economy, interviewed by WineNews. Without considering that “the first link of the chain is fragmented because small businesses are widespread in Italy and prices keep getting lower. I believe that Doc and Docg grapes run the greatest danger of further reductions in prices even though in early 2000 they had the largest increases and have held up a little better in the last two years. This year’s harvest, however, could see an even further decrease. Table and Igt grapes are already at such low levels that it is difficult to think of further reductions”.

In some areas, like Piedmont, many grape producers have launched the alarm: the 2010 harvest may be unsustainable from an economic standpoint. What should be done? Help businesses get out of the market that can no longer sustain it or try to keep small businesses alive until there is a recovery?

“Even if there is a recovery, supply will still be in excess. And, if we consider that part of the new world and also the Bric countries, especially Russia, China and Brazil, have begun planting vines en masse to produce low cost wine, I believe that a medium-term scenario for small businesses will have a hard time becoming profitable. If we then consider that the recession has created a probably permanent effect of lower prices on the whole, making tighter margins for the wine industry, it is even more difficult to imagine a future that allows all the small grape producers to stay on the market”.

CMO wine has focused on vineyard extirpation contributions to balance supply and demand. Is it an acceptable and sufficient measure, or is something more needed?

“The contributions are shared because they are mostly paid by other countries in the EU, like Germany, rather than Italy. This would be a financial advantage for Italy. The problem is that there are more people employed in agriculture than should be, given our economic level of development. Therefore contributions for extirpation solves only part of the problem, because it helps small companies get out of a business in deficit, but it does not solve the farmer’s problem who, once the vines are extracted has no more income. Contributions for extirpation should be followed by contributions to plant new crops, according to European Union requirements, otherwise there remains the problem of no jobs”.

In your opinion, besides the fall in price of grapes is the price of the territory also in decline? “The price of land is related, at least in part, to the revenue the vineyard can guarantee. It is also true, however, that in some areas the land has a prestige “real estate” or property value, and is separate in determining the value from agricultural production. Certainly, the land of family run farms that do not have the capacity to produce the end product, bottle it and put it on the market are bound to lose value. This is because the largest companies in the area that have market power can buy and, maybe not dictate the price, but can condition it much more than before. The major producers in the territory do not consider the fall of raw material prices negative because it is a way to restore or rebuild the industrial margins they lost with the fall in price of the end product”.

So, beyond each sides’ intentions, is the direction necessarily reduction and merging of properties?

“Merging properties and production in the wine industry is inevitable. Other countries, which are now definitely part of the international wine scene, like Australia, the United States or Chile, do not separate the basic production properties. As a matter of fact, usually the large producers also have several thousand hectares of land on which they grow the raw material directly. The Spanish case is more or less midway, but it becomes very difficult to keep fragmented production units in a global wine market that has increasingly complex marketing, pricing and consumer defense strategies. And this is just the domestic market, let alone on an international level”.

Federico Pizzinelli