Mumbai: Global demand for wine exceeded production by a huge margin last year. With the shortfall forecast to widen this year, Indian producers could use the opportunity to increase exports, given that the domestic market is at saturation point and the quality of local wine is improving, analysts say.

Global wine production peaked in 2004 and continues to decline, according to a recent report by Morgan Stanley Research. Demand for wine exceeded supply by 300 million cases in 2012, the biggest shortfall in over 40 years. Production, too, fell to its lowest levels in more than 40 years, the report said, suggesting “there may be insufficient supply to meet demand in coming years, as current vintages are released".

Vintage is defined as the yield of wine or grapes from a vineyard or district during a season.

Production declines, according to the report, have continued in France, Spain and Italy and the global export market is estimated at about one billion cases. Morgan Stanley in its note said: “As consumption turns to the 2012 vintage, we expect the current production shortfall to culminate in a significant increase in export demand, and higher prices for exports globally. Further growth in consumption in the meantime may exacerbate the shortage when it comes through."

Exports account for 40% of global production—up from 15% 30 years ago, the note added.

Technopak Advisors Pvt. Ltd, a consulting firm, pegs the overall Indian wine market at 975,000 cases, or about 175 crore at wholesale prices, and growing at a compounded annual growth rate (CAGR) of 20-25%. The overall market can be bifurcated into domestic and imported markets, which account for 70% and 30%, respectively.

The trend may offer Indian wine makers an opportunity to expand abroad by exporting more, wine growers say.

“India has not seen a decline in wine production unlike other major wine producing countries, this would allow us to expand and grab more and more global market share" says Cecilia Oldne, head of international business at Sula Vineyards.

Sula has been exporting to 23 countries and plans to enter more markets soon, said Oldne. “Many Indian wine makers are looking at expanding abroad. We currently sell our products in the UK and would soon be launching our wines in markets like Japan, Hong Kong, China and the US," said Shailendra Pai, founder and chief executive officer of Vallonne Vineyards.

Milind Pandit, head sales and marketing of Charosa Winery, said it makes sense for Indian wine makers to expand globally as the Indian market is growing at a slower pace.

“We used to see the Indian wine market growing at 30% earlier, but now it has slowed to much lower rate," Pandit said.

Competing in overseas markets may not be easy.

Ankur Bisen, senior vice-president, retail and consumer products at Technopak, said: “The Indian wine market remains a young market, where most wine is made out of table grape variety.... It would be difficult for Indian players to compete in a global market where vintages are more popular."

Nikhil Agarwal, a wine marketing consultant and founder of a wine portal www.allthingsnice.in, said: “It will take some time for Indian wines to succeed in global markets as a lot of people do not know about Indian wines. The Indian wine industry should work collectively and market itself. There is also a misconception that Indian wines are inferior to foreign ones".

According to Ajay Shetty, chief executive officer of Myra Vineyards, the cost of wine production is higher in India compared with other wine-producing countries. “To improve the quality of wine, we need to invest in better technology, but domestic consumption needs to improve fast to justify such investments," he added.

Nevertheless, many Indian wine makers are adopting several initiatives to improve the quality of wine produced in India. Many have begun growing grapes of foreign origin in India to improve wine quality and appeal to foreign customers. For instance, Vallonne Vineyards has begun growing Malbac, an Argentinian variety of grape, and Cabernt Sauvignon, a French variety. Grover Zampa, another vineyard, recently started growing Cemprinello Greeche—a Spanish grape. Indian wineries are also placing emphasis on viticulture, the science of growing grapes. They are currently bringing in international experts to train farmers to grow grapes of international standards.

Pai of Vallonne Vineyards said: “90% quality of a wine is determined in the vineyard and hence we are investing in bringing in innovation in agricultural practices."

Besides India has a weather more suited to wine than European countries.

According to Morgan Stanley, Europe now has 10% less wine-making capacity than it did in 2005. France and Spain, with Europe’s largest capacity, are 10% and 13% lower respectively than in 2005. The decline is attributed to poor weather conditions in these European regions. France saw a fall of 20% in its wine production and Argentina also saw its wine production to fall 24% in 2012.

Sumedh Singh, chief executive officer of Grover Zampa, said, “Weather is not a concern to Indian wine growers, it is only European wine growers who are suffering due to bad weather".

“There is a misconception that India is too warm to grow grapes of international variety. Nasik for instance is 600 metres above sea level with dry climate and cool nights during growing season which is ideal climate for growing good variety of international grapes... moreover India is the only country in Northern Hemisphere that has winter harvest that makes wine producing unique here," says Sula’s Oldne. Pandit of Charosa Winery believes the quality of Indian wine has improved over the last few years. “Indian wine used to be sweet earlier but now has improvised itself to drier versions of late, which appeals to international customers."

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