As the dollar falls Italian wine imports will...?

The dollar's descent continues.  Last week it cost $1.40 to buy one euro on the currency market, so it cost about $1.45 for a retail customer (ordinary business or vacation traveler) like you or me.  And to think, when I was in Florence soon after the euro conversion, it was 85 US cents for a euro.  In other words, the dollar buys only about 60% as much in euroland as it did 5 years ago.  It's a stunning devaluation. 

Like many recent articles, an op-ed piece in today's New York Times predicts further, possibly much sharper declines.  Long term ones, not only drops connected with the business cycle.  As the author, Steven S. Roach, chairman of Morgan Stanley Asia, concludes:

...no nation has ever devalued its way into prosperity.

So far, the dollar’s weakness has not been a big deal. That may now be about to change. Relative to the rest of the world, the United States looks painfully subprime. So does its currency.

In other words, the Chinese Century is really about to begin.  Le défi chinois.

It's easy to ignore these facts and ominous long-term trends if you're living the Wall Street bonus life, not to mention working the co-opted financial media beat, and if you live in Manhattan. Real estate prices and the cost of everything exceeds the general inflation rate, all fueled by those bonuses and the heady optimism of those law firms, PR agencies, restaurants, clothiers, wine stores, etc., etc., who benefit from the overslop of wealth.  Even if you don't get so much as a trickle of this money flood, the reality of the national situation is easy to forget in this environment.

The rosy predictions of the growth of US wine consumption and the recent growth of Italian wine imports seem to take no account of the darkening situation.  The United States is expected to be the world's largest wine-drinking nation by 2010, knocking back 12.3% of total world consumption, according to the International Wine and Spirit Record (IWSR). The same body predicts that prices will continue to rise despite 42 million hectolitres' overproduction per year (?!).  In 2006 American wine imports grew by 5.7% over the previous year -- and domestic production was up by only 2.6%  In the first half of 2007 imports from Italy increased by 10.4% in volume and 10.9% in value.

But, to quote a cliche, that was then and this is now.  None of these optimistic predictions and recent triumphs deals with a severely weakened dollar and the likely possibility of a punishing recession in America.  None of them, it seems, has seriously addressed the longer term market outcomes of our public and private profligacies.

So how will our declining purchasing power affect wine imports, specifically Italian wine imports?  Will all Italian wine soon begin to suffer?  Or will different regions and styles come to the fore with sharply competitive prices? 

How will Italy fare in comparison to low-cost producers like Chile, Argentina, South Africa -- the usual suspects?

And how successful will Italian producers and their consortia be in both capturing and growing the vaunted but still nascent Chinese and other Asian markets?

These aren't rhetorical questions.  These are critically important questions for those of us who are involved with Italian wine on both sides of the ocean.  After all, 1.2 million people are somehow involved with the wine sector in Italy; 2000 aziende export to other countries; all of which is worth 8 billion euros a year to the Italian economy.  And it's vital to Italy's global reputation as a place where even ordinary people can taste and drink the good life. 

Weigh in with your opinions and recent experiences regarding the American market.  It's important to me and, I'll wager, to you as well.

Comments

[Gabrio Tosti]

Ti ho anticipato di qualche giorno; ho scritto un post a riguardo la scorsa settimana in cui menzionavo il fatto che per contrastare il caro Euro molti produttori hanno un listino prezzi "America" piu` bassi di quelli europei, altri hanno negoziato un tasso fisso di scambio per cui l'importatore ha sempre un cambio costante. Ancora per ora c'e` sempre molto interesse da parte dei produttori ad essere rappresentati a Manhattan quindi pur di essere competitivi sul mercato sono disposti a fare dei sacrifici.
Mr. Chadderdon dice che nei prossimi 9 mesi possiamo vedere l'euro a 1.55 in quel caso vedremo aumentare i prezzi di parecchio dato che non credo che ci siano i margini per assorbire altri 15 punti di incremento.
Buona Bevuta a Tutti
www.de-vino.blogspot.com
www.de-vino.com

[Richard]

This hurts smaller producers more than big ones. For example, look how foreign carmakers have mostly held the line in price increases, depite the Euros rise. You need to have a lot of capital and sell a lot worldwide to do this.

[Terry Hughes]

@ Richard -- and the smaller producers are exactly the ones I care most about. Your example is a good one, because it does show how the big guys can weather many more storms to maintain their market position.

@ Gabrio -- yes, I read your post. But after talking with my friend from DC and reading the op-ed piece, it's pretty plain to me that the effects of Bush's irresponsibility and the American public's fondness for living beyond their means has dug us into a whole that the Chinese, Japanese, etc., aren't so willing to dig us out of these days. A $1.55 for the euro? Foreign affairs bears are looking at a possibility of $2 per euro given the macroeconomic outlook. The future looks fairly dismal.

[Gabrio Tosti]

$2????????
I need to change job :)
The problem is also the lack of intervention from the European Bank I guess this is the right time to cut the rates in Europe as well.

[Terry Hughes]

Seriously, it's very worrying. That may be a worst case scenario, but the way things have been going lately...

[fredric koeppel]

This may be an esoteric example, but few producers are smaller and more handcrafty than the producers in Burgundy. I have been writing a post for KoeppelOnWine about burgundies from 2005; the prices are horrendous. Village wines are going for $50 to $60; premier cru vineyard wines, even not from the best situations, are $75 to $100. Burgundy has always been expensive, but this is unreal. The wines are great, but still ...

[Terry Hughes]

Rich Russians, Chinese, Singaporeans, etc., etc., are bidding all of the big-name appellations up, all over the place. What they can afford we suddenly can't. (I say "we" fully excluding myself.) We'll be feeling like the Brits did for 40 years after the War, only instead of muttering "bloody Yanks" we'll be muttering "goddamn Chinks." (Excluding me personally, mind you.)

[Gabrio Tosti]

Let them buy all the big France shots at those prices it means that the American market will absorb more, higher end, Italian and Spanish wines.
Quality wine from Australia and USA are as expensive if not more but, in my opinion, not close to the European quality/price ratio.

[Alfonso]

Odd- because in the sales game we all try to sell more all the time. that's the goal, more sales to more people. So if we convince our Italian winemakers to hold-the-line on price increases they will expect better performance. And with the inevitable slowdown of consumers buying on credit, one possible area to look into will be the new drinker. Problem is they usually start on the bottom of the food chain, i.e. inexpensive entry level wines. I have tons of data to back all of this up from the mega-computer I'm hooked up to ( what we call "the Matrix", at work).

The simple answer. Day by day, door by door, person by person. Wearing out the old shoe leather, daily diligence, sell, sell, sell. Basic blocking and tackling. People won't stop drinking. How'd you like to be in the perfume business? At least the wine-biz is still committed to using grapes to make their product( most of the time).

But the Chinese curse (the whole living in interesting times thing) is upon us.

[Terry Hughes]

Nice response, Alfonso. You definitely would know.

People won't stop drinking, true. But my question is: will it be Italian wine? And if so, what sort of Italian wine -- from where and at what price points?

[Richard]

Terry,

Rich Russians and Chinese are also driving the art & antique markets sky high. How come so many supposedly intelligent wealthy people never see the burst coming of the bubbles they help create?

Richard

[Giampiero alias Aristide]

I totally agree with Alfonso views. Here in Europe it's considered realistic a target rate of $1.50/$1.55. So Euro is going up, but economic cycle will change. I think that there are interesting opportunities now to build market positions for small italian wineries. A window opportunity that's going to be open for few months. Increasing interest (as you report) in "alternative" italian small wineries should match lower prices, old customers of italian wines and new ones, all this despite the climbing Euro. Those small wineries aren't famous like those from Burgundy or Bordeaux, or like big brands from Piedmont or Tuscany. It's a great time - I guess - to adress your market with a different approach and import&sales organization, specially in big metropolitan areas like NYC or San Francisco, etc. Speeding the introduction of these new products (for your market, of course) could be an interesting opportunity, now. And for the near future.

[East Village Wine Geek]

Well I am just down right dizzy from all the info. If I was in half a state of mind to pipe in I would but because I am on the eve of such experience I cannot add anything else to the discussion. I guess what I am saying is thank you Terry for putting this out there. The ugly dark side needs to be discussed or we will all get hit over the head without knowing what did it. By the way please give me a call about January. You left me a message but I lost it somehow. I don't know if you had left your cell on it but I would love to continue to speak about it. I had heard something about just using In Vino?

EvWg

[Nicola (Cercatore di Offerte)]

E' incredibile... non so se potremo sopportare una differenza così grande.. questa "superiorità" sul dollaro farà si che non sia più conveniente acquistare prodotti in euro... l'unico campo che ho notato sta sempre calando, è (stranamente) quello dei voli lowcost... infatti ci ho fatto pure un sito per cercare di aiutare chi cerca qualcosa di conveniente! http://www.cheapandtravel.com