Dec 18: Barring the global meltdown of 2009-2011, the nascent Indian wine industry never had is so bad as this year with both the Indian and imported wines seeing the red flag, expecting a de-growth of 0-30% with an overall reduction expected at over 15% including imported wine, claims Subhash Arora who feels next year is destined to be difficult as well for Indian wines with damage to the current crops as high as 50% in some areas of Maharashtra due to the recent unseasonal rains, resulting in shortage of grapes and increase in prices during the next harvest in 2020
Don’t go by the brave and smiling faces when you meet a producer or an importer and he or she says, ‘all eez well.’ Scratch the surface if you can and go beyond the smile and you will see that most of them are running low on gas and the engine might stall at any minute. Sales have been down this year so far between 10-30 % for the Indian wines and 5-25% for the imported wines.
The reasons go beyond the bureaucratic blunders and apathy. The problems in Delhi have been most acute. The new policy was announced as late as ever- where September/October have become the de-facto standards for the delay of 6 months every year. Additionally, Delhi government announced that the importer and distributor must sign a joint affidavit that the prices in Delhi are the lowest. After a prolonged wait, the spirit distributors buckled down and had to offer the lowest prices-thus resulting in a boon to the consumers. But wine distributors waiting for something to cave in, applied late for the renewal of license. With hardly, 4 months remaining, they have cut down on the number of labels.
There has been a shortage of wine labels-with restaurants and retail. Wine market is akin to the hotel industry where a room not sold for the night is lost forever. This has resulted in fall in demand and shortage with the restaurants. Coupled with above is the continued high label cost of Rs. 60,000 a label. And not to forget the latest policy hammered where the wine and spirits have to be sold off within 3-8 days after coming out of the excise store to the bar, or else the bottles must be destroyed.
The local producers would be further saddled with the high inventory due to lower sales. According to Yatin Patil, President of All India Wine Producers Association, the season usually picks up before Diwali and continues till February. In March, usually the sales that take place are not necessarily reflective of the actual sales in Retail or Restaurants as wines are sometimes dumped in the market duet to no excise duty in Maharashtra. The market has become really quiet and every passing day is creating more tension for all. An informal talk with other producers and importers has established that there is no possibility of sales growth this year unless an unexpected turn for the better takes place.
Top Line being already in question, bottom line does not have much opportunity to grow despite the increase in prices with the producers and importers succumbing to the pressure of heavy discounts demanded by the retailers- anywhere from 20-35% of the MRP. Retailers claim their own problem of high rentals. All these factors make the wine industry cringe and the customer is not buying. The general consensus is that 10-30% drop is expected in sale this year. Already 25-50% of the number of labels have been cut down by each importer because of prohibitive registration charges in Delhi.
Rains causing havoc in Maharashtra
These are not the only problems faced. The unseasonal rains in October and November during the flowering season have resulted in damage of crops in Maharashtra-though the damage has been more to the crops for eating grapes. According to a report in HT ‘With the unseasonal rain in October and November damaging grapes sown on lakhs of hectares in Sangli and Nashik, wine and grape export industries have been hit hard this year.’
‘In Sangli, 55,000 acres of grapes, of the 1.10 lakh acres under cultivation, were destroyed. In Nashik, crops on around 3.40 lakh hectares were hit by unseasonal rain. ‘With the unseasonal rain in October and November damaging grapes sown on lakhs of hectares in Sangli and Nashik, wine and grape export industries have been hit hard this year. In Sangli, 55,000 acres of grapes, of the 1.10 lakh acres under cultivation, were destroyed. In Nashik, crops on around 3.40 lakh hectares were hit by unseasonal rain. Maharashtra crushes 20,000 tonnes of grapes and produces 1.25 crore litres of wine between December and April. However, this year, only 12,000 to 15,000 tonnes of grapes will be crushed, resulting in the production of 70-80 lakh litres of wine.’ Officials from Sangli district agriculture department said 50% of grape orchards were damaged across seven talukas this year, adds the report.
A few inexplicable factors notwithstanding, there is a massive drop expected in production. Says Pradeep Pachpatil of Somanda Vineyards who is tuned more to wine tourism and is seeing a slow and steady increase in sales, ‘there has been a drop of 25-50% of crops in and around Nashik due to rains. Naturally, one can expect higher prices as well as a shortage of grapes-this cannot be passed to the consumer and the producer will have to suffer.
According to OIV, India has 151,000 hA of vine surface, made India 12th in terms of the surface area. It had climbed to 7th position from the earlier 9th position in total grape production in 2018, making 2.9 mT of mostly table grapes, driving past Argentina and Chile in this segment. It is expected to bring India’s ranking back to 9th next year, down from 7.
Sliding demand
Demand for wine has suffered this year for various reasons. Due to the uncertainty and slowing economy, people have been trading down for the last few months due to perceived slow down in the economy-the velocity having increased even after Diwali. There has also been unexpected ‘competition’ from craft beer and gin as similar products from price point and any irritant in wine experience gives them as easy and instant substitute. Most 5-star hotels used to get duty free licenses earlier under the conditions they never met and were arrogant or considered themselves too suave for the government. The government has astutely decreased the duty free benefit from 10% to 5% to 3% and excluding out the hotels with foreign business connections. While they are at liberty now (there is no moral, ethical or any legal understanding to keep the mark-ups to250% but at higher mark-ups there are no takers and most are forced to reduce their profits. Gone are the days of 400-500% mark ups- though too late and after a lesson from the government.
Better balance expected
Producers and importers would have higher than usual stocks at the end of March 2020-if they produce/ import less they might lose on sales and if they forecast the demand they might be left with a higher inventory and resultant pressure on the inventories. With the reduced availability of grapes, the prices may go up marginally but they cannot be passed on to the consumers in today’s scenario. Thus, the production would be less next vintage and the left over stocks of this year might be used to meet the demand first. This might also unite the producers to curtail the exorbitant and unsustainable incentives to Retail which are primarily due to the stronger union of their Association than that of the producers or importers.
I have always maintained that budgets can go haywire due to the government policies and unless the government separates wine from spirits and then treats them separately for policy making, this industry is doomed.
This is a crucial period which might just bring the doomsday earlier- an industry that is capable of giving thousands of jobs to the farmers and those allied with the wine industry. Let us hope the government grasps the situation before throwing the baby out with the bathwater.
For some of the earlier related Articles, please visit:
OIV: Estimates of World Wine Production in 2019 show Drop of 10%
OIV: WORLD VITI-VINICULTURE STATUS 2018
Subhash Arora
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