Rabobank Wine Quarterly Q2: Can Brazil Regain Its Rhythm?

Press release

July 22nd 2013

Rabobank Wine Quarterly Q2: Can Brazil regain its rhythm?

Although South America’ s largest economy has seen annual wine imports triple over the past ten years, in 2011 and 2012 import growth rates slowed dramatically and 2013 appears to remain lacklustre. According to a report from Rabobank, fiscal tightening to control inflation has slowed economic growth in recent years while inflation itself has eroded consumer spending power. The depreciation of the Brazilian real by approximately 25%, and threats of domestic market safeguards have created additional hurdles and uncertainty for foreign suppliers. “ The Brazilian wine market has been drawing increasing international attention in recent years with good reason.” said Rabobank analyst Stephen Rannekleiv. “ Despite recent slower growth, the market environment is evolving rapidly. Large retailers are reviewing their management of the wine category by eliminating slower-rotating labels, resulting in an increased opportunity for bigger brands. We have also seen an increase in the direct-to-consumer market and a new tax environment that has increased transparency in the import and distribution category, thereby encouraging greater foreign and domestic investment. So while, the market is likely to remain challenging in the short term for foreign suppliers, there are some promising developments and our long-term outlook is positive.” Globally, supply conditions appear to be improving. In Europe, the strained supply following the light harvest in 2012 appears to be easing as a result of the continued decline in demand from within the European Union. Coupled with large harvests from many southern hemisphere suppliers, bulk wine prices are starting to drop; especially

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for European suppliers in France and Spain, where prices earlier in the year were at a historical high.

In the context of global trade, European producers appear to be achieving better pricing due to tighter domestic supplies and a weak euro. As a result, while export volumes have fallen, overall export values have increased. Similarly, Australia, New Zealand and Argentina saw total export volumes decline in the first few months of 2013 but also saw overall improvements in average pricing.

In the US, bulk wine import volumes declined -17% in Q1 2013 whereas bottled wine imports grew (+8%), potentially marking the start of a shift in recent trends. France and Italy experienced the largest volume gains in bottled wine imports into the US, accounting for more than half of the 1.3million case increase. Meanwhile Spain, Portugal and South Africa also experienced strong growth (+17%, +38%, +10% respectively), though off a much smaller base.

Recent renewed support for the US dollar and the knock-on gains against the Australian dollar, Chilean Peso and New Zealand dollar is good news for wine suppliers in those countries. Eyes will now be on Europe where the reversal of gains made by the euro earlier in the year may prove less welcome.

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Alternatively, for other information, please contact Rabobank’ s press office: [email protected] +31 30 21 66918

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