THE PRESS OFFICE - RESEARCH: ITALIAN WINERIES AMONG LEADERS OF EXPORT RECOVERY. THE MPS BANK RESEARCH DEPARTMENT STUDY ANALYZES TRENDS AND PROSPECTS ON THE WINE MARKET

Sources for the research on “Trends and Prospects in the wine sector” are primarily from the “MPS (Monte dei Paschi Bank) Observatory on Italian wine” based on information obtained from the sales network of the Montepaschi Group. There were about 100 questionnaires and interviews with producers and specialists working in the agricultural department of the facility.

Here below are the main topics of the research:
- Production: the 2010 vintage is considered stable, compared to 2009, in terms of quantity and quality, according to the majority of respondents, although the situation appears to vary according to the regions and within the regions. Italy produces 45 million hectoliters (the largest producer together with France) covering 17% of the world production and about 28% of the European Union.
- Turnover: about two-thirds of the sample expects an increase in turnover for 2011. The majority of respondents said less than a 5% increase but for 15.1% it will be above 10%. The presumed revenue growth was primarily due to increased volumes, although one third of respondents expect even a slight price increase. The turnover for the wine market is estimated at around 13.5 billion euros, in addition to about 2 billion euros from satellite industries, besides 1% GDP. The wine market employs more than 1 million people. Two hundred thousand of these people are seasonal workers and 20,000 are immigrants.

- Export: almost 95% of the MPS observatory expects increased sales abroad in 2011: the majority (53.4%) expect an increase of 5%, but as much as 22.5% estimate an increase of more than 10%. Wine consumption in emerging countries, starting with the BRIC (Brazil, Russia, China and India) continues to increase, in contrast with Italian consumption (now close to 40 liters per capita down from 120 liters in the 1970’s). The future of wine is increasingly linked to export. The year 2010 opened with the return of cautious optimism on the markets, thanks to a growth in exports in the first seven months of the year. Made in Italy wine was up 4% in volume and 7% in value thanks mainly to Third Countries, compared to a lower recovery of the EU. Exports of wine total about € 3.5 billion euros which is the first Italian food export item and wine sales cover about 45%.

- End markets: over 80% of the MPS Observatory estimates increased sales in China (at the moment characterized by the consumption of not high quality wine), followed by 78% for the of Northern European and Swiss markets. The traditional markets such as U.S.A. and Germany confirm positive trends, while France is the least suitable. It also shows good prospects for emerging economies such as India, Latin America (Brazil stands out) and Eastern Europe (where, however, the Russian view is the opposite). Any erratic euro / dollar exchange rate can obviously influence and change those expectations.

- Distribution channels: first of all, the large distribution chains are continuing to grow and are approaching 50% of total wine sales in Italy, thanks to supply upgrading, easy access and, according to the producers, also due to faster and more secure payments. Wineries and wine bars represent an opportunity for high quality products and a way to bring new consumers to the market through new forms of consumption, such as “by the glass” wine. There is also a growing preference for direct sales in wineries (private or social), especially small producers or those who combine wine tourism with other agricultural products (cheese, olive oil, salamis...).

- Concerns: first of all, low revenue / cost ratio, mainly due to fragmentation of producers (over 400 thousand with an average area of 1.5 hectares) and weakness in the promotion-marketing stage; reduction in domestic consumption; access to foreign markets and entry of new competitors. Yet widespread concerns emerge even for legislation (EU Common Market Organization wine): in particular, the problems associated with some allowed and not shared production techniques (using sugar to increase alcohol content or debris in the barrels); the reduction in domestic consumption because of alcohol testing; excessive regulations and bureaucracy and for the future (starting in 2015) the liberalization of EU vineyard planting.

- Alliances: The MPS Observatory highlights the need to foster projects related mainly to the final step in the wine sector, namely promotion-marketing that is becoming an increasingly important strategy. There is therefore a strong interest in the new organizational model of “network enterprise” a legal framework in the “network contract” that provides, among other things, tax incentives and the possibility of adhesion for individual traders as well as partnerships. The network contract is a new instrument (since 2009) with a great future and is seen as the most suitable model for a “system” to promote efficiency in the sector and penetrate foreign markets.

- Banks and Wine: bank credit (short /medium-long term) accompanies entrepreneurs throughout the production chain from the installation of the vineyard, the construction of the cellar, to the promotion and marketing of the product. The massive flow of financing to the wine sector and, in general, to the entire food chain is confirmed by the growth of agriculture loans in the banking system which, while feeling the general economic crisis, has stayed positive (+4.5% in September 2010 over June on an annual basis 1.9%, respectively, +1.1 and +1.7% for total production sectors) thanks to a lower deterioration rate (risk): 2.31% for agriculture compared to 2.68% for all businesses. In addition, more than 70% of loans to agricultural enterprises are on a medium/long term level of about 15 percentage points higher than at the beginning of this decade.

- MPS Wine Index: The competitive index, analyzed by the BMPS Research Department is calculated as a weighted average price of nearly 100 Quality wines produced in specified regions (VQPSR) and table wines. Ismea, the Italian agricultural research agency, provided the prices indicated for quality and common wines. After the sharp decline in 2009 (less 18.8%), the index confirms a substantial stability in the first eight months of 2010 compared to December 2009 levels. It is interesting to note the high correlation the Bmps index shows with the future Liv-ex 100 Fine Wine Index, the main benchmark of global wine, confirming how the price trends of Italian wines closely follow the evolution of prices at international levels.