Angelo Gaja and the 2012 Italian harvest forecasts.

Last September Angelo Gaja has spread its reflections on the 2012 grapes harvest forecast, reported by all the mains Italian web sites about wines and wine business.

It is funny how two of the most acute commentators on the wine as Franco Ziliani in Italy and Robert Joseph in U.K., despite their completely different approach, they are aligned to define these expressions of Gaja with courtly terms: “homilies” to Ziliani and even “papal bulls “Joseph. I wonder whether it is due more to a feeling of sacredness or assertiveness (as long as the two are separable).
Anyway I do not want to talk about the form, but rather the content expressed by Gaja, because he actually touch many aspects of the Italian wine business with a vision that for the most part I do not share. Obviously my own point of view may be partial too, even though I hope non-partisan, at least together with that of Gaja will help to give a more complete picture of the situation.
Leaving aside the issue of wrong harvest forecasts form the different sources, I personally never believed that this year’s harvest would exceed 40 million hl and even my dad who is 83 years old makes fun of me for the fact that every year promises to be a vintage “exceptional “as if ever, Gaja back the decline in the production of this harvest to climate change.
According to him, the same reason is the basis of scarcity which was also recorded from 2007 onwards (with the exception of 2010).

In my opinion however the decline in production was mainly due to the sharp reduction in the area of ​​the vineyard Italy. According to the data presented in Verona by journalist Maurizio Gily at the conference that I organized this year together with  Vinitaly, in the  3 campaigns of extirpation 2008/09 – 2010/11 about 30,000 ha. have been uprooted, accounting for 4% of the surface to wine grapes compared to 2007/08, with a reduction of production capacity by 7%. Considering also the extirpation which did not received support from the EU agricultural budget, Gily estimated a loss of about 60,000 hectares in five years. This change in the structure of Italy’s vineyard has a different impact for the different types of wine, according to official data from 2007/08 to 2009/10 harvest the incidence surface of vineyards for wine DOC of the total has decreased from 42% to 45%, that for IGT has grown from 22% to 29% and that for table wine fell from 32% to 28%.

There is no doubt that 2012 exceptionally hot summer has had an effect on the harvest, however, the reduction of the vineyard is the structural cause of the decline in the production of wine grapes. Consequently, for the next few years, Italian harvest will hardly exceed 42/43 million hl., even when favorable climatic trends and adoption of agricultural practices able to address the problems of climate change.
If this reduction of the structural production of wine will turn in a structural change from a situation of surplus to the scarcity of wine, of course depend on the dynamics of the market.
Gaja is in favor of the decline in production of the vintage 2012 as a spur / tool to a greater enhancement of the Italian wine, exported, according to him, at prices lower than those of its main competitors in international markets.
In fact, according to data reported by the blogger Marco Baccaglio, the average value of exports of Italian wine in 2011 was 183 € / hl, an increase of 1.2% compared to five years ago. Less than all of Australia, Chile, USA and New Zealand, but well over 100 euro / hl of Spain (+2.4% compared to 5 years earlier). Without going into details you can find in its post , it is necessary to complete the picture by recalling that in 2011 Italy exported 23.8 millions hl, Spain 22.3 million hl, France 14, 2 million hl and Australia 7 million hl. Therefore the so called “New World” countries need to allocate on the world market quantities of wine significantly lower than Italy, while Spain, with exports close to those of the Italian sells at prices that are about half of ours.

For completeness, I would like to know the effect that high priced famous Appellation of Origin have on France average price (I know about some very aggressive offers of French table wine in the Chinese market). In the case of Australia, Chile, USA and New Zealand there are two other effects which should be considered: the euro / dollar exchange rate and the share on total wine export attaining to global wine brands. It is only by chance that Argentina and South Africa, countries where the wine business have not been able to express global wine brands, show average export prices lower than Italian ones?

This premise was needed to describe in objective terms the scenario on which to base the analysis of the effects that 2012 decline in Italy’s wine production will have on Italian wine industry. Gaja considers that this decline is concentrated on the lower quality, and priced, wines and therefore is evaluation is broadly positive. To me this analysis lacks in a comprehensive vision of the whole wine system.

I will not go here into an examination based on the theory of clusters / networks because it does not seem the place, there are people far more qualified than me to do it and I’ve always been skeptical about the effectiveness of the tactics deterministic formulated on the basis of business theory (those who want the theoretical aspects can start here:

Instead I will use a holistic approach that I consider most effective for analytical purposes, starting from the definition of the term “system” given by Devoto-Oli Italian dictionary as connection elements into an organic whole and functionally unitary. It follows that if the Italian wine is a system, and I think it is, Gaja and Tavernello brands belong, whilst being at opposite poles, to the same organic and functional unit. Further corollary is that the absence or weakening of one of the components of the system leads to a weakening of the entire system. In other words the existence of Gaja is useful, if not necessary, to bag-in-box Tavernello wine and vice versa.
I know that many wine lovers will find absurd, if not outrageous, this statement, and then to clarify it I will adopt another concept commonly used in Italian wine: the pyramid of quality. It is visually obvious that the top of the pyramid rests on the lower layers. It is correct to speak of a pyramid and not of column because it is structural that the surface shrink going from bottom to top.
In practical terms, what is the implication of this view?
From the point of view of the market it must be remembered that the consumer expresses his choices in a comparative way and then the excellence are such because they are confronted with products perceived of different (lower) quality. Excessive flattening on excellence actually leads to a lower perception of them.
In addition to that, market segmentation according to consumer tastes and ability / willingness to pay different price levels, means that the market requires a range of products with different features at different prices, always remembering that consumers are not “locked” inside a segment, but move between the different proposals depending on the occasion, on their life cycle, and so on. This means that those who drink Gaja wines not always drink only wine that level, but will move on a range of wines according to the situation of space and time. Similarly drinkers Tavernello is one who (probably) consume / consume / ha consumed higher level wines. The fact that consumers of Gaja (perhaps) will never overlap with those of Tavernello does not change the fact that it is necessary the whole spectrum of quality to satisfy the market. Conversely, consumers who will not find the product that meets their desires / needs will turn to other drinks category. If it may seems just theory, please consider how perception of wine as an increasingly demanding product in  social, sensory and economic (price) terms influenced its decline in Italy and Spain during the last decade. On the other hand, during the same period beer consumption is constantly increasing.

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