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Not just another BRIC in the wall

Market Bulletin | Issue 164
Photo: Adobe Stock
09 Jul 2019
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The term ‘BRIC’ was originally coined in 2001 by Jim O'Neill (Goldman Sachs) as an acronym for the four rapidly developing countries of Brazil, Russia, India and China, which symbolised the shift in global economic power away from the developed G7 economies.

As O’Neill predicted, the BRIC economies all grew in global significance. In 2001, China was the world’s sixth largest economy[1] (second by 2017), Brazil the eleventh (now eighth), India the thirteenth (now fifth) and Russia the sixteenth (now eleventh). By 2017, these economies accounted for more than 41 per cent of the world’s population – over 3 billion people[2].

Excluding China, the three remaining nations now comprise close to 8 per cent of global Gross Domestic Product (GDP) and almost a quarter of the world total population (with two of the world’s four largest cities in India and Brazil[3]). Brazil, Russia and India – the ‘BRI’ economies – have all experienced positive per capita GDP growth since 2016 (Figure 1) and, while growing less quickly, relevant to alcohol consumption the adult population aged 15–64 has increased overall in both Brazil and India, with a small decline apparent in Russia.

Figure 1: Gross Domestic Product (per capita and growth rate)

Brazil, Russia and India

Wine Intelligence classify Brazil and Russia as ‘emerging’ markets and India as ‘new emerging’, where ‘wine is still a relatively new and unknown beverage but showing potential’.’

Brazil

A recession in 2015 and 2016 saw Brazil's economy contract 7 per cent. While the economy is starting to show modest recovery from a decade of underperformance, wine sales continue to struggle as the economic situation drove many consumers to switch to cheaper products.

Total wine volume sales in 2017 fell to their lowest level since 2004[4]. By 2018, total volume sales were 37.254 million litres and with modest 9 per cent growth forecast (IWSR) to 2023. According to Wine Intelligence[5] (2019) the regular wine drinking population in Brazil now comprises 32 million adults who drink wine once a month, with 70 per cent of this group drinking wine at least once each week. The 2018 ‘Wine Intelligence Global Compass Wine Market Attractiveness model’ ranked Brazil 26. It jumped 12 places in a year and is the ‘fastest riser’ in attractiveness rankings, driven by the rising share of imports. Per capita consumption of grape wine stands at 2.2 litres (85.5 per cent consumed off-premise) with wine representing 2.4 per cent ‘share of throat’. Most of the wine imported by Brazil comes from neighbouring South American producers in Chile and Argentina.

Russia

Ongoing weak currency and perceived political risks have depressed economic sentiment in Russia. However, in the wake of a recovering economy, the wine market has started to rebound with imported wine volume and value showing growth each year since 2016.

The 2014 devaluation of the Rouble made imported wine significantly more expensive; the value of Rouble halved relative to the Australian Dollar between January 2014 and February 2015 and has remained stable since. While the total value of imported wine fell by 7 per cent, it has grown year-on-year since. Per capita consumption of wine in Russia at 7.3 litres (91 per cent off-premise) represents a 7.7 per cent ‘share of throat’ and has been stable; there is evidence that wine is becoming a more casual lifestyle beverage replacing traditional spirits in everyday life.

India

India has a long history of viticulture that dates back to the time of the Bronze Age Indus Valley civilisation, when grapevines were introduced from Persia. Still undeniably in its infancy, total annual wine consumption is less than 2 million litres (2018), 74.5 per cent of which is produced locally, with imports however accounting for 55.9 per cent of the value.  According to Wine Intelligence’s India Report (2018), 56 per cent of India’s wine drinking population are under the age of 35.

India has one of the youngest populations in the world and as more than 19 million new potential consumers reach legal drinking age annually, wine consumption has grown in recent years. Current per capita consumption of grape wine (2018) stands at only 200ml – one glass – this figure has doubled since 2010 and needs to be considered in the context of India’s total population of 1.35 billion. With a current ‘share of throat’ of 0.3 per cent, wine is increasing in popularity with 73.6 per cent consumed on-premise. Wine was the best performing alcohol category in 2017 in growth terms, with wine sales increased outpacing spirits and beer.[6]

Import trends

Since 2015, Brazil, Russia and India have all shown a growth in both wine import volumes and the proportion of total wine consumption that is imported (Figure 2), with both Brazilian and Russian markets demonstrating marked increases in import percentages over the past 3 years and India remaining relatively stable at 25 per cent.

Figure 2: Wine import trends (volume and per centage of consumption)

Australian exports

Since 2001, the value of wine exports to India has grown 18-fold and to Russia 13 times, albeit off very small bases.

However, exports to Brazil paint a different picture. While volume has nearly tripled from a very low base, value has only doubled. By comparison, in the same time period, Australian wine exports to China have multiplied nearly 800 times in value, and close to 540 times in volume (MAT March 2019 data). More recent trends (Figure 3) demonstrate growth in value of exports to India and Russia, with Brazil seeing a brief resurgence (after the recession of 2015 and 2016) but declines since 2017 and a return to historic 2010 levels.

Figure 3: Australian exports (total value and share of total Australian export value, MAT March 2019)

While the significance of China’s demand for Australian wine is well-documented, in considering Brazil, Russia and India we see relevant emerging trends likely to impact wine consumption and influence imports.

Current Australian exports to these markets are small and relatively concentrated, with few active exporters if we exclude China (Figure 4).

Figure 4: Australian wine exports and exporters (MAT to March 2019)

 

Brazil

Russia

India

China

Total export value (AUD)

$1.97 million

$5.2 million

$8.08 million

$996.53 million

Average value, per exporter (AUD)

$89,493

$132,846

$351,467

$483,987

Number of exporters

22

39

23

2059

Average skewed by

 

5 Exporters with

>$125,000 value

4 Exporters with

>$500,000 value

4 Exporters with

>$500,000 value, 1 with >$4 million

32 Exporters with >$3 million value

 

 

 

 

 

 

 

 

 

 

Shiraz (and its blends) dominate exports to Brazil, Russia and India and the predominant white variety in all three markets is Chardonnay. For Australian exports to Brazil, reds lead the way with Shiraz and Cabernet comprising 63 per cent of exports, with Chardonnay adding 11 per cent. Looking at the larger Russian export market we see a broader spread of varieties and a balance between red and white wine; Sauvignon Blanc, Riesling and Semillon each comprise more than 6 per cent of exports, although Shiraz and Cabernet (51 per cent), and Chardonnay (14 per cent) are again key.

Of the three markets under consideration, India is the largest and has the narrowest range of Australian wine label claims – just four varieties (and their blends) comprise 95 per cent of export value. Sixty-eight per cent of Australian exports are red, with Shiraz and Cabernet Sauvignon joined by Merlot (7 per cent). Chardonnay (28 per cent) represents twice the share it has in Brazil and Russia.

The future

IWSR forecast that from 2018–2023 the total value of wine consumed in India will increase by 55 per cent (in line with volume growth predictions). Brazil will see more modest growth at 10/12.5 per cent (volume/value) and Russia will show a slight decline in volume but a modest 4 per cent increase in value as imports premiumise.

Brazil

For imported wines the picture is relatively optimistic. Imports already accounting for 34.9 per cent of consumption (in volume terms, up by ten percentage points since 2015) and 61.3 per cent of value, but with limited further growth forecast to 2023.

From a low base, Australian exports to Brazil have fallen 41 per cent (in volume) since 2018 (with value down 23 per cent) with 6.5 per cent of Australian imports by value in the IWSR premium category (Figure 5).

Russia

Now the world’s eleventh largest wine producer[7], Russia’s domestic production is concentrated in the southwest of the country, including the disputed region of Crimea. In 2018, 47.7 per cent of wine consumption (by value) was domestically produced, with an additional 10.6 per cent of total consumption imported from neighbouring Georgia. In 2013, government restrictions on the import of Georgian wines were lifted and by 2017 Georgia had become the second ranked country of origin for wine imports (behind Italy), overtaking France in 2016. By 2022, 22 per cent of imports will be from Georgia, although rising political tensions make forecasting challenging. A recent Wine Intelligence[8] survey reflects that only 4 per cent of wine drinkers in Moscow/St. Petersburg had drunk Australian wine in the past 6 months (down from 8 per cent in 2014) with only 25 per cent even aware that Australia makes wine. Australian imports currently rank 10 (value) and 11 (volume), with a forecast 1.4 per cent of total imports (by value) by 2023, of which 29 per cent are at the premium level.

India

Australian imports into India, while dominant in volume terms (35.7 per cent of total), currently rank second after France in terms of value. Within the next year, Australian imports are forecast to overtake France, with projections indicating that between 2020 and 2023 the value of Australian wine imports growth, at 36 per cent, will outpace French growth (11 per cent) more than three-fold. The tariff on wine imports in India is currently at 150 per cent.

In 2018, 6 per cent of Australian imports (by value) were classified as premium; this figure is forecast by IWSR to decline gradually to 4 per cent over the next 5 years. With Italian imports volume expected to grow by 29 per cent between 2020 and 2023, and those from Chile forecast to be up 27 per cent (same period), it is likely that there will be increasing competition in the entry-level segment going forward as concerted efforts are made by other producers to penetrate the Indian market.

Figure 5: Australian imports (premium share and share of total)

For further information regarding markets please visit our Market Insights section and our Export Market Guides. As well as Market Summary and Comparison options, the Market Explorer is a tool that allows users to analyse various export markets by looking at aggregated datasets pulling in economic, demographic, consumption, Australian wine exports and some behaviour data.

 

[1] World Bank (GDP in current US$)

[2] World Bank, 2017

[3] The World’s Cities in 2018 – Data Booklet, United Nations, 2018

[4] Euromonitor ‘Brazil Summary’, June 2018

[5] Wine Intelligence ‘Brazil Landscapes’, 2019

[6] Indian Wine Academy, ‘Indian Wine Insider Report’, 2017

[7] OIV, April 2019

[8] Wine Intelligence ‘Russian Landscape’, 2018


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