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Delhi Wine Club

Posted: Saturday, February 20 2010. 10:22

Blog: Welcome to India- the New New World

While the news report this week in an Indian business daily talks of the glut in the wine market with more than half the wineries either closed down or without fresh production, a French Report warns France and Europe to buckle up and get ready for competition from the very nations which offer opportunities today, including India.

Welcome to the new New World!!

According to ET, half of Maharashtra’s 58 wineries have either closed down or stopped producing wine due to the glut in the market, with about 2 million liters of wine, amounting to 25% of India’s total production lying unsold.

Many farmers have yet to receive payments for their supplies to wineries last season. And for the current season, where picking and crushing are currently under way, prices have crashed by a staggering 50%. From a reportedly promised rate of Rs 60 per kg, grapes are now being offered at Rs 25-30 a kg.

Rs. 60 a kilo?! Who is fooling whom? The recent scandal in France has at least revealed that the bulk wine was being exported to the US at Rs. 15 a bottle. That it was not Pinot Noir but a more common wine, should not take one away from the fact that the grapes have had an unbridled and unrealistic jump in prices in Maharashtra due to the very production policies that the paper talks about-resulting in farmers asking for ridiculous prices. The farmers who were growing and selling eating grapes at Rs.8-10 a kg before the wine scene, suddenly thought that they were the oil producing state where the prices could be demanded at will.

The wineries have taken the prices of the grapes as a constant factor in the raw material costs without looking at the end demand and the fact that there are a plethora of inexpensive wines waiting in the wings. It is politically incorrect not to support the farmers and promise them huge amounts for their crops, but it is a fact that in countries where the farmers took to crushing and bottling wine without the proper knowledge of the process or the market, the results have been disastrous and no amount of governmental support is adequate. One sees the problem cropping up in ‘free’ wine economies like Australia and New Zealand too, where the prices of grapes have been much lower even before the glut.

If it is the government policy to support the farmers and subsidize them, if need be, it would be a noble gesture. But that would also be a relief to France and rest of the world that believes that India (Brazil and China not to be excluded) will be a threat to them by 2050-the golden milestone that is supposed to make India one of the wine super powers, according to many studies. With such policies, Indian wines would never be able to compete on the quality or the price front.

That the crisis is at least partly of the state’s own making is an open secret. The farmers have been egged on to believe that they need to crush the grapes in the wine parks and the end product is going to be like the proverbial oil- the liquid gold. The recent mishap at  Grover Vineyards obliging them to dump a majority of their wines despite the consultation of Michel Rolland, the international star consultant winemaker, because of perhaps a minor technical or hygiene problem, should be a stark reminder to the farmers, new vintners and the political backers that wine is simply not a mathematical equation where sugar + yeast= wine + carbon dioxide.

Last October, the government came to the rescue by announcing a refund which would reduce VAT to 4% from 25%. Firstly, a government which believes that wine bottles should pay a VAT of 25% is not serious enough in promoting the cause of  the wine or the farmer and has no clue that the world is worried about the potential competition. Secondly, the refund was announced but not a pip has been paid back to the producers-they have been asked to apply for refunds after March 2010. Tardiness and corruption in making refunds is only one side of the coin-the producers have not factored the refund into their pricing and continue to charge the higher prices, hoping for a bonanza of the same type that the farmers were expecting before their world crashed on them.  

The warning about India comes from France's team of foreign trade advisors the Comité National des Conseillers du Commerce Extérieur de la France (CNCCEF), which says countries currently viewed as future growth markets will become threats as well as opportunities as they develop their own wine industries.

It sees the centre of global demand shifting to three main areas: China and India, plus south-east Asia, North and Latin America, Mediterranean and Northern Europe and Russia

The report – Wine in the world as we approach 2050 – pinpoints a number of key issues facing the wine industry over the next 40 years, including market demand, consumer trends, climate change and wine production. While French wine's future is mostly centered on exports, the report warns that a 'new approach' is needed for its domestic market, aimed at halting long-term consumption declines.

So how are we going to do it? India is still an infant and will need a lot of practical help from the government. Smart producers are already inching there way upwards and will want to be in the forefront when the gong strikes 2050. Indage has been a disappointment but is sure to strike back. Lower priced drinkable wines are surfacing from many stables. The producers have to face the reality and realize that we need to follow the automobile model where we are still at the Padmini and Ambassador stage and look at where the government liberalization got us where even the little Nano is ready for export.

 Undoubtedly, the market is ready for more wine consumption despite the uncalled for fears from the spirit industry- the gap is too huge to be worth bothering about. Finally, the report foresees that a consolidation of the wine industry similar to that experienced by beer and spirits will pick up the pace as we go along. We should not discount the new breed of companies that the report says will spawn over time selling 'market wine' suited to local consumers, and made from grapes or bulk wine produced elsewhere.

We are not even into the transition stage. But it is likely that the French report scenario will prevail over the current scenario.

Happy wine drinking!

Subhash Arora

In Montalcino

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