There’s no global wine shortage

By Felix Salmon
November 1, 2013

Have you heard about the global wine shortage? Of course you have: it’s been covered in pretty much every media outlet imaginable, but Roberto Ferdman’s piece for Quartz (“A global wine shortage could soon be upon us”) was one of the first, and also one of the most detailed. Still, it was the classic single-source article: it basically took one Morgan Stanley report, reproduced a bunch of the key charts, and added a clickbaity headline.

The charts, on their face, tell a pretty clear story, especially this one:

But if you look closely at the Morgan Stanley report, it starts to look less like a dispassionate analysis of supply and demand dynamics in the wine world, and more like an aggressively-argued attempt to put forward one particular investment thesis as strongly as possible. What’s more, the investment thesis is not, particularly, based on the existence of any present or future wine shortage; it’s simply trying to present the idea that demand for Australian wine exports is likely to rise, and to justify the fact that  a company called Treasury Wine Estates is the bank’s “top Australian consumer pick”. (The report was written by Morgan Stanley Australia.)

For instance, the scary chart above is actually this rather less scary chart, tweaked a little:

To create the first chart, Morgan Stanley just took the second chart, added 300 million cases to the red line, and then — this is pretty cunning — simply deleted 2013 altogether, so that the uptick at the end disappears. (The 300 million number is Morgan Stanley’s estimate of the annual demand for “non-wine uses” of wine.)

Although the first chart is scarier than the second chart, even the second chart does a little bait-and-switch, which you can only find by looking at the sourcing note at the bottom of the page. The numbers for the charts come from OIV, the Organisation Internationale de la Vigne et du Vin, including the estimate for 2012 production and consumption. But the 2013 estimate, showing a modest increase in production, is not the OIV estimate; it’s the Morgan Stanley estimate. And what Morgan Stanley doesn’t tell you is that the OIV estimate for 2013 is much higher. Here are the OIV charts:

These charts are less polished, but are actually much more useful. (They also have different units from the Morgan Stanley charts: they’re measured in million hectoliters, which is 100 million liters, while Morgan Stanley uses million unit cases, which is 9 million liters. So when Morgan Stanley says that 300 million unit cases are used for non-wine consumption, that works out at about 33 million hectoliters.)

For one thing, the OIV charts draw sensible straight lines between points, instead of turning them into elegant curves which make the trend seem continuous. The trend is not continuous: these are annual figures per vintage, and each vintage is a unique, separate event. What’s more, while the amount of wine that will be drunk and produced in 2013 is not yet entirely clear. So OIV gives a range of possibilities, while being reasonably certain that wine production is going to increase substantially this year, by somewhere between 7.1% and 10.5%. Morgan Stanley, by contrast, gives no rationale at all for the fact that it has a forecast which is much lower than OIV’s; indeed, nowhere in the Morgan Stanley report is its 2013 forecast ever even quantified.

Add it all up, and the OIV actually concludes, quite explicitly, that the production-consumption difference for wine will “be higher than the estimated industrial needs” in 2013, for the first time since 2007. In other words, far from entering a period of global wine shortage, it looks like the 2008-2012 period of shortage is actually ending.

This global wine shortage, then, just simply isn’t real. Don’t take my word for it: ask the wine trade. Stacy Finz of the San Francisco Chronicle asked a bunch of industry types about the Morgan Stanley report, and none of them took it seriously; Victoria Moore of the Telegraph conducted a similar operation in Europe, and came to much the same conclusion.

My wine-making contacts raised more than an eyebrow at the ready, steady, panic news.

“Tell them to come to the Languedoc if they are worried,” said one. “I think I can help them out.”

Another noted that it is still possible to buy hectares of good vineyard in parts of France and Spain for less than the cost of planting one. In other words, the price of some wine is still lower than its true cost of production, an indication that the balance of supply and demand is still favouring the demanders, not the suppliers.

The Morgan Stanley report paints a picture of a long-term secular downward trend in area under vine, which is running straight into a long-term secular upward trend in global demand for wine. But reality is more complicated than that: thanks to a combination of technology and global warming, an acre of vines can reliably produce more wine, and better wine, than it ever did in the 1970s. And of course if demand for wine really does start consistently exceeding supply, then there’s no reason why area under vine can’t stop going down and start going up.

But never mind all that: the Morgan Stanley report has numbers and charts, and journalists are very bad at being skeptical when faced with such things. Even Finz’s Chronicle article, which sensibly poured cold water on the report, ends with a “Wine by the numbers” box which simply reproduces all of Morgan Stanley’s flawed figures. And besides, the debunkings are never going to go viral in the way that the original “wine shortage!” articles did.

As analysts have known since long before Henry Blodget was covering Amazon, the way to make a splash is to come out with a bold, headline-worthy thesis. Morgan Stanley did exactly that with this report, and I’m sure succeeded beyond their wildest dreams. I’m sure they’ve been celebrating their PR coup all week — probably with sparkling wine of some description.

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Comments
15 comments so far

“Non wine uses” presumably means turning it into vinegar, which is what happens with the stuff nobody wants to drink…

Posted by pikestaff | Report as abusive

That is very enlightening, I think many potential wine investors will thank you for this article.

Posted by Exwaan | Report as abusive

Thank you! Agreed! And even if the shortages were true, I am not sure that it would affect price. While price would increase because of any potential shortage of wine produced per year, an argument could be made that price would decrease because of new sites such as https://truebottle.com/ that create a more efficient, level playing field regarding wine purchasing information.

Posted by BJ009 | Report as abusive

Not to mention that Calif. central valley growers, San Joaquin valley, have torn out a lot of wine grapes and gone back to other crops, due to low prices on bulk wines, they can easily re-grape and be back in 3 yrs. Calif. has now 2 large crops larger in reality than in projections or published official #s.
And in France, there is a lot of idle capacity, and wine being dumped off the market by being distilled or vinegarized.
It is good to see global consumption moving up steadily, but ain’t no investable shortage.

Posted by ManAboutWine | Report as abusive

Wine shortage? Why is the price for inexpensive Chilean wine (AKA red plonk) down at my local store?

Posted by PeterVE | Report as abusive

No, there indeed does not appear to be a global wine shortage. And even new an advanced sites are making wine purchasing information freely accessible to all while creating an equal purchasing playing field and driving the overall wine price down. TrueBottle.com

Posted by BJ009 | Report as abusive

A picture, or in the case a graph, can tell a thousand false stories.

Posted by euro-yank | Report as abusive

I would like to congratulate Mr Salmon for his excellent article :OIV is ,of course ,always available to provide further data for information to the sector and to the press .Federico Castellucci DG OIV

Posted by CastellucciOIV | Report as abusive

Superlative analysis, and a lesson for everyone in digging into these “reports” issued by dishonest stock touts. Great work, Felix!

Posted by ckbryant | Report as abusive

Superlative analysis, and a lesson for everyone in digging into these “reports” issued by dishonest stock touts. Great work, Felix!

Posted by ckbryant | Report as abusive

Superlative analysis, and a lesson for everyone in digging into these “reports” issued by dishonest stock touts. Great work, Felix!

Posted by ckbryant | Report as abusive

I don’t understand why they talk of SHORTAGES at all. Don’t we have prices to equilibrated quantity supplied and demanded? Unless prices are abolished there is no such thing as a SHORTAGE. Everybody who is willing to pay will get his/her wine.

Posted by KarlStorchmann | Report as abusive

Felix good argument. That link to the research doesn’t work for me. Is there another place I can look at the original doc?

Posted by Rararts | Report as abusive

Great Article Felix.. Love the last part…

“As analysts have known since long before Henry Blodget was covering Amazon, the way to make a splash is to come out with a bold, headline-worthy thesis. Morgan Stanley did exactly that with this report, and I’m sure succeeded beyond their wildest dreams. I’m sure they’ve been celebrating their PR coup all week — probably with sparkling wine of some description.”

And I bet that is not ordinary sparkling wine…and they have no idea or can appreciate what they are drinking !!! hahaha…

Cheers, Keith Miller aka Wine Life Radio .com

Posted by millerman | Report as abusive

A splendid insight-Interestingly the link to Morgan- Stanley does not go through – Felix can you provide the reference ?- I am unable to get to the report and look at it. The fact that Frederico Castellucci affirmed your post must make you feel good!

Posted by Oddsonwine | Report as abusive
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