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Delhi Wine Club

Posted: Friday, December 11 2009. 17:03

Feature: Distilling Crisis of Indian Wine Industry

An interesting role could soon be assigned to the Indian Grape Processing Board, if the suggestion that the surplus Indian wine should be converted into alcohol and avert the current crisis of unsold wine, and the methodology recommended by the writer Rajiv Seth is implemented.

The ministry of food processing industries (MOFPI) formed Indian Grape Processing Board (IGPB) on 22nd January 2009. Since the ministry has chosen to name the board as grape processing board, should it be assumed that the brandy or distilled wine will also falls under the preview of board,  since brandy is spirit distilled from wine?

The MOFPI has also desired the board to be an autonomous body since its very inception, thus it will be appropriate to suggest to the board to expand its horizon to include brandy in its fold and explain to the authorities why it is necessary to allow the wineries to distill their wines in order to come out of the problems of unsold stocks. If the authorities agree, this can provide a lot of relief to a number of wineries, which are going to face the harvest in next two months.

Many in the industry believe there will be winery closures in the next two years. A range of estimates say that between a quarter and half of businesses will be forced out of the market or required to be merged with others for survival.

Elsewhere in the world brandy comes under the preview of wine boards or specialized organisations. In Australia it is called "Australian Wine and Brandy Corporation (AWBC)", In south Africa they have "S A Wine and Brandy Company" (SAWB). They organise traditional quality grading of wine and brandy in order to maintain quality parameters.

Now the big and the pertinent question is why the brandy should come under the preview of grape processing board. In order to understand that consider this background of Indian wine industry and compare it with wine industry in Europe.

Recognising the Problem

It is widely acknowledged that the Indian wine industry is enduring its toughest period in two decades. Structural surpluses of wine in the form of unsold stocks are now so large that they are causing long-term damage to our industry by devaluing the Indian wine, encouraging discounting, undermining profitability, and hampering our ability to pursue the vision and objectives set out by the Indian grape processing board.

Coupled with inefficient and inappropriate vineyard and wine operations, notably our decreasing cost competitiveness, Indian wine industry have been forced to trade in the low value / low-margin market to sell excess wine, yet our costs are too high for us to be viable in the market in long term - we can not match the cost structures of some of competitors (including a subsidised Europe) at very low price points. The problem is further compounded by the image being created that India is only a low quality producer - making it difficult for our premium wines to gain recognition and international market penetration.

Small wineries are in particularly bad shape and they will not be able to crush any grapes in 2009-10 season or they could crush but would not be able to pay contracted rates. The new breeds of Indian vintners have been ignorant of quality parameters and filling their tanks with wine without bothering to create a market for themselves. In 68 wineries of Maharashtra, the wine produced last year is still lying unsold. As a result the wineries have reduced production. The excess of grapes has come as a dampener to the farmers who must storm the weather. Going back to the table grape variety by uprooting the wine grape variety will have disastrous consequences for Indian wine industry.

Thus all in the industry must recognise that this is our problem and we need to fix it. The industry must restructure to change its product mix to focus on sales that earn viable margins. Bailouts are not an option and neither governments nor industry bodies should be expected to provide the answers. Tough informed decisions must be made by individual growers and wineries, as early as possible otherwise 2010 vintage will come up with many surprises.

After a brief background of problems faced by Indian wine industry let us now move on to examine how the economic crisis has impacted the wine industry of Europe and how they tackle the situation.

The economic crisis has left deep-rooted impacts on wine industry of Europe. The up market strategy that so many wine makers have embraced across Europe for long run, "is taking a short term hit".

Europe produces millions of litres of surplus wine every year. Due to the supply glut French wine producers have smashed their prices. In 2005 vintners in southern France handed out 50,000 free bottles of wine to tourists to publicize their plight as prices continue to crumble amid a huge bottleneck in supply. New figures from the governments wine industry agency, Onivins, shows that France currently has almost a fifth (18 percent)  more of its wine still sitting unsold in vats than last year.

France supply glut, largely caused by a 23 percent production increase has caused prices to tumble in recent years. France lost ground in all its major export markets in last few years despite still controlling 19 percent of global wine exports, and domestic consumption has halved in last 20 years.

All of these factors have now begun to hit the very heart of France's wine sector. In the recent past Europe's wine producers were producing too much wine for which there was no market. That is why a deep-rooted reform of the sector is needed urgently.

In 2005 French wine confederation requested to fund a crisis distillation thus fueling fears that oversupply will significantly devalue the market value of wine.

In 2006 EU farming lobby groups COPA and COGECA has added their voices to the request of several member-states for crisis wine distillation schemes to be opened to take the pressure off the market.

The EU has, since 1981 been distilling surplus wine in to both portable and industrial alcohol.

In 2006 France received European Union money to turn 150 m liters of quality wine into unusable industrial alcohol as the commission promises to clean out Europe's wine lake once and for all. It was the second year in running that French appellation contrôlée wines have needed EU crisis funds.

According to Marian Fischer Boel, European agriculture commissioner, "crisis distillation is becoming a depressingly regular feature of EU common organisation for wine.

In 2007 the European Union has opened a tender to sell unwanted wine lakes in four countries for use in making bio-ethanol. The total volume put up for sale was 18.3 million gallons.

In the past France, Italy and Spain, EU's largest wine makers by volume have been receiving generous amounts of cash to distill some of their excess wines in to wine alcohol or bio-ethanol or industrial alcohol.

In 2006 EU adopted a regulation authorising crisis distillation of wine in Spain. A massive 1,85,000 hectoliters of certain quality wines were allowed for distillation for raw alcohol.

In 2006 EU paid around 130 m Euros to convert surplus wine in to alcohol to member countries.

Considerable surpluses have been recorded in the wine markets in different Member States resulting in a fall in prices and a worrying rise in stocks. The wine Common Market Organisation (CMO) provides for the possibility of a crisis distillation in event of exceptional market disturbances due to major surpluses. The raw alcohol resulting from this distillation can only be used for industrial purposes or as bio-fuel in order not to disturb the market for portable alcohol, which is supplied largely by another distillation system also foreseen in the CMO.

Turning quality wine into bio-ethanol may not be the cheapest way of producing bio-fuel, but it makes use of some of the excess wine that would otherwise go to waste.

Nevertheless, the EU aims to put an end to the practice by cutting the amount of surplus wine produced. "While it offers temporary assistance to producers, it does not deal with the core of the problem - that Europe is producing too much wine for which there is no market.

Having thrown enough light on crisis distillation schemes adopted by EU member countries to pull out their troubled wine industry it is appropriate to ask our Board to work on the need for such schemes so that excessive stocks can be liquidated and fears of wine growers can be set aside.

The resultant distilled wine or brandy can be sold to defence services, which purchases large quantities of brandy from other channels. Hopefully, this way Indian Jawan will come to the rescue of our Kissan and keep the slogan of "Jai Jawan - Jai Kissan" - flying.

Rajiv Seth

Rajiv Seth became the first Indian in the year 1987 to receive a gold medal from wine and spirit education trust, London. Presently he is making continues efforts in educating the lab assistants of a number of wineries on procedures of vinification through his manuals. He also writes for delWine.



Rajiv Seth Says:

Dear Kskarnic,I will like to enhance your understanding a little more about Indian wine industry.Firstly I am talking about distilling wine to Brandy,which will support the portfolio of wineries from same raw materials.Secondly are you aware that in our country Brandy which you drink is spirit with added Oak chips for flavours, and not always distilled of wine.Thirdly the prposed vision document of IGPB has also mentioned of solving the immediate problem of over stocks by liquidiating it some how.Also are you informed that many wineries have given in writing that they are not going to purchase any grapes this year.Are you aware that if grapes are not purchased this year many of our vineyards will be uprooted. Please be informed that France has been distilling wine to legendry Cognac and Armanac in pot stills from as long as 16nth century. products like Marc and Grappa have also been enjoyed from a long time now. On the other hand the role of growing wine grape and its impact on economic upliftment of grape grower of Black comunity has been lauded in south Africa by president Mandela himself. Need more information , please write me.

Posted @ December 18, 2009 14:23


Subhash Arora Says:

Since the article was posted I have received a couple of calls from people interested in buying bulk wine. If any of our producers has extra wine and is interested to sell, please contact me. Needless to say it will be in strict and complete confidence. Subhash Arora

Posted @ December 16, 2009 10:30


kskarnic Says:

All the problems are self created. This is not the case only with grapes.Similar marketing/disposal problem have occured in several other crops like vanilla, areca sugarcane and list is quite long. The greed on the one side and the escalation of cost of all agricultural inputs, misguided marketing strategies, over dependance on Govt. subsidies, and ill conceived projects have all lead to the problem of wineries. Now the propsal to distill wine for extraction of brandy is yet again a way of cheating ourselves. Such activity may give rise to unhealthy competition/ illigal activities/tax evasion all this whch are not known to farmers would imparted to them under the guise of training. Instead farmers may be advised to grow table grapes using low cost techniques and supply the fresh produce to the common people at reasonal prices so that both the cultivator and consumer are benefitted.

Posted @ December 16, 2009 10:29


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