World’s bulk brokers gather in Amsterdam

Wednesday, 19 February, 2014
Edo Heyns, WineLand
With global bulk wine exports reaching a total of 37 million hectolitres in 2012, depending on who you talk to, this increasingly significant part of world wine export is considered to be anything from the fall of the South African industry to its saving grace. Edo Heyns went to the 5th World Bulk Wine Exhibition (WBWE) in Amsterdam.

The post-event figures of the World Bulk Wine Exhibition tell a story. During two days on neutral Dutch soil, 175 wineries from 16 countries presented a massive selection of wines to buyers from 71 countries.

France and Spain, with 43 wineries from each of these traditional heavyweights, were by far the most represented producer countries, followed by Italy, with 22 wineries in attendance. New World producers did not lag far behind, with 15 producers from both Chile and Argentina and eight from both Australia and South Africa.

The most significant figure is, however, the 40% increase in visiting buyers, who had the opportunity to sip, wheel and deal over two days for the close to 30 million hectolitres represented by the wineries., according to the show organisers. On the buying side, France, USA, China, Germany and Russia were particularly prominent.

In the five years that the show was presented, this was the most international edition, indicating that the shift to bulk is a global occurrence and a growing trend. Bulk is big business and it is fair to say that this “necessary evil” is here to stay.

Global trends
At the WBWE Conference OIV director general, Federico Castellucci said that from 2005 to 2012 global bulk wine trading increased by 61%. This increase – which includes imports to supplement domestic production in wine producing countries, as well as wine for consumption in non-producing countries – is expected to continue in coming years.

Castellucci indicated that in 2012 – the most recent official OIV statistics at the time – South Africa was the world’s 7th largest bulk wine exporter, but that on average it fetched the third lowest price, after Spain and Italy – the two largest exporters by volume.

Chile boasted the highest average price for bulk wine, with the USA and China – two growing markets – as their major export destinations. Germany, France and the UK were the top three bulk wine importers in 2012. Castellucci said that despite increasing prices, global bulk wine exports showed an upwards trend during the past five years, particularly in the UK and USA.

While prices of imports to non-producing countries may increase due to what Castellucci refers to as “conditioned” products, generally sold at higher prices, wine producing countries also import bulk wine to substitute deficits caused by poor yields. After the 2012 vintage France and Italy were prime examples of this, both importing significant volumes, following the smallest European harvest in decades.

“The shortfall of the 2012 vintage forced prices up and particularly affected those countries that are dependent on cheap supplies, but the better northern hemisphere results of 2013 brings about new perspectives for the bulk market,” explained Castellucci.

Another speaker at the Conference, Rafael del Rey, from Spanish Observatory of Wine Markets, specifically discussed more recent bulk wine trends, based on figures from July 2013 – when wine supplies in traditional northern hemisphere wine producing countries were particularly low.

He said that although Spanish bulk exports decreased by almost 4 million hector litres in 2013, it showed an increase in revenue due to a significant price hike. “This year has been quite a revolution: increases of about 50% in export prices for bulk to all destinations have led to decreased volumes exported to less established markets
like Russia and China and caused great concern to producing importers like France and Italy, who rely on Spanish supplies,” explains Del Rey.

According to Del Rey, Chile and South Africa particularly benefitted from the deficit that was left by lower Spanish bulk exports to both producing and non-producing countries. The void left by the poor European harvests was, however, often for cheaper wines, even though both South Africa and Chile recorded higher prices for bulk wines.

Del Rey concluded that the drastic shifts caused by the smaller2012 harvest in particularly Spain, Italy and France illustrated that bulk wine prices are very sensitive, depending strongly on changes in world production, which is in turn not buffered by stabilising systems like distilling and is highly dependent on weather conditions.

South African bulk in context
Accounting for only about 4% of global wine sales, compared to the likes of bulk giants, Spain and Italy, South Africa is considered to be a smaller player. Bulk wine, however, at one stage represented more than 60% of total exports, which is high for such a small industry.

Considering other New World producers, New Zealand bulk represents only 30% of their total exports in volume, while for Chile bulk exports account for 16% of total value and 37% of total volume. Australian bulk, however, also overtook packaged exports in 2012.

In an interview with WineLand, Del Rey suggested that in South Africa’s case, bulk should not represent more than 50% of total exports. “In the commodity wine trade, it is difficult for South Africa to compete with the sheer size of some of the competitors,” explained Del Rey.

The Sawis year on year export statistics for 2013 indicate that while Germany and the UK are South Africa’s top export destinations, the markets that showed the most growth – France (197%),Italy (150%) and Spain (166%) – are all wine producing countries, that are therefore not sustainable markets.

Premium bulk: oxymoron or opportunity?
A silent tasting area at the WBWE offered wine buyers the opportunity to taste hundreds of bulk wines on offer, while an annual competition (for which no South African wines were entered) was also part of the Exhibition’s goal to emphasise the quality standards of modern bulk wine.

Quality at the show, however, varied considerably. While some of the wines particularly from Chile and Argentina could compete with world-class bottled products, other producers sold wines that have not been stabilised, fined or filtered, and some prices were even determined by alcohol units.

While South Africa may not be the biggest bulk supplier, most of the South African producers argued that there is indeed an opportunity to position South Africa as a quality bulk supplier that offers extraordinary value for money.

Back home, the Department of Agriculture, Forestry and Fisheries’ Wendy Jonker, explains that South Africa is a world leader in regulating bulk wine exports, with systems in place that guarantee traceability and minimum standards for all exported bulk wines.

Although bulk wine exports cannot carry certification seals, these wines are also certified. “South Africa worked hard to establish itself as a world-class wine producer, something that needs to be cherished and protected. Proper regulation of bulk wine is important and we continue to raise the bar of export standards in this regard,” comments Wendy.

Wine Online –a centralized electronic export certification system– was introduced in October 2012 to allow for statistical accountability of bulk wine exports. Wineries are categorized by their risk profiles and samples are requested accordingly. The samples that are sent from their export destinations are – like in the case of packaged wine – evaluated through both sensory and chemical analyses.

“Wineries that do not comply are blacklisted and forced to adhere to a discipline of submitting samples as required. The Department has good relationships with export countries and although there were some complaints a few years ago, the new system allows for proper accountability, whereby the required document can be submitted to any country in the appropriate language,” explains Wendy.

Ferdinand Appel, CEO at uni Wines, argues that South Africa has all the resources to establish itself as a top quality bulk wine producer, but that it runs the risk of shooting itself in the foot by underselling wines and selling sub-standard products to whoever is willing to buy them. “Branded bulk, usually wines sold in large retail environments , has the benefit of still promoting brand South Africa and should be preferred to speculative ‘spot bulk’ or unbranded bulk,” explains Appel.

This is echoed by Origin Wine CEO, Neville Carew, who suggests that retail requirements are tough. “Origin completed 26 audits in 2013. Particularly when supermarkets bottle bulk wines under their own brands, they carry the risk and need assurance of a consistent, quality product.”

Origin certainly walks the talk, receiving the accolade of Tesco Supplier of the Year in 2013, which attests of South Africa’s ability to deliver the goods – despite being further away from key markets like the UK than Spain and Italy.

He said that South Africa should not be supplying to the typical “stookwyn markets”. “It would not be sustainable for South Africa to supply bulk wine at a free on board (FOB) rate of less than R4.50 for white wine, while Spain is willing to supply wines at less than 30 Euro cents,” explains Carew.

According to Carew the pricing band in the bulk trade is very narrow and not a lot of bulk wine is exported at more than R7.50FOB. He adds that Origin aims to supply a “basket of goods”, including bulk, bottled and bag in box wines.

Orange River Cellars’ CEO, Herman Cruywagen, takes a similar view, explaining that South Africa needs to drive home the message that it can be a one-stop-shop for quality products at market-related price points. “We are not the cheapest or the biggest, but in terms of value for money, South Africa is hard to beat.”

Perdeberg specifically positioned itself as premium bulk supplier, with CEO Gerhard van der Watt emphasizing that in order to be sustainable, Perdeberg with its dry land vineyards, needs to drive for higher prices. He adds that in many cases buyers are looking for serious volumes, which often requires that cellars collaborate to be able to deliver the goods.

The way forward
Although South African producers opted not to have a generic stand at the WBWE like Argentina and France’s Languedoc-Roussillon region, there was agreement among most of the attending cellars that South Africa needs to lift the profile of its bulk wines and not succumb to prices that scrape the bottom of the proverbial bulk tank.

While some producers admitted that the big 2013 Spanish crop lowered prices to the extent that they would also have to lower their own expectations, Carew suggests that buyers were forced to look elsewhere when Spain and France couldn’t deliver.

“South African producers who took this opportunity by supplying quality products and extraordinary service will retain some of the market share. I think that South Africa offers unique styles that have made meaningful inroads in certain markets –particularly with Sauvignon Blanc and Chenin Blanc,” explains Carew.

Although there are many cases where producers strike it lucky with big orders from new developing markets, in particularly Asia and Africa, long-term relationships are crucial for sustainable business. Appel and Cruywagen agree that this is also why wineries attend the Amsterdam event – to touch base with established buyers, with the outside chance of perhaps making breakthroughs into new markets.

With the increasingly significant role that bulk wine is playing in both the South African and global wine trade, South African producers will inevitably need to formulate cohesive strategy –especially because this segment of the industry contributed significantly to Wosa’s wallet in 2013.

As Chilean trade organization Pro Chile’s director, Christophe Desplas, puts it, “wine is getting closer to the consumer and will create new business and logistic models for the industry.”

Carew believes that 2014 could potentially be a watershed year for the South African wine industry. “Wineries that did not have strong trade relationships coming from 2010 are likely to battle, which implies that many speculators are as good as gone,” predicts Carew.

He adds that the exchange rate has the ability to change the picture and that it is not unlikely that the bulk/packaged ratio might be restored to a more equal balance. “Essentially, the industry needs 100 million bulk litres of current exports to go into packaged product. No wine exporter of substance goes exclusively into bulk because of its glamour, but rather sees bulk as part of the package deal to a sustainable future for the industry as a whole. It would be fair to argue that bulk is a kind of necessary evil. And the South African wine industry would have been dead and buried if it was not for this.”