Recession anxiety

This is the feeling that emerged following the panel discussion "Wine on the Nine-Thirds Test: Economic Analysis and Objectives for the Sector. Costs, market, profitability and budgets of Vineyard Italy. 2022 estimates and business priorities" at wine2wine business forum. Cost overruns and falling sales also thicken clouds over 2023.
 

• Industry indicators slowing down according to the Uiv/Vinitaly Observatory: -16% sales in 2023
• Cost and recession weigh, but also growth crisis
• Minister Lollobrigida (via video link): defense and promotion at the center of the ministry's action

Rising cost items and falling sales, plummeting profitability, recession anxiety. For Italian wine, fresh off years of significant growth in world markets, the big chill has already arrived, and it will be felt throughout 2023. So says the Uiv/Vinitaly Observatory's economic survey, presented today at Veronafiere's wine2wine, during the supply chain conference.

According to the study, the cost surplus recorded by Italian companies this year - 1.5 billion, 83 percent more, resulting from increases in energy and dry raw material prices alone, such as caps, glass and paper - will complicate companies' 2022 budgets. Starting with EBITDA, expected to be 10% this year, down from 25% in 2021 and worse even than the annus horribilis 2020, when the profitability indicator found was at 17%. But the real cold shower will be in 2023: in a recessionary scenario, Mol will go into free fall (4%), with turnover, at -16%, which in many cases will not be able to cover decreasing costs (-11%) but still relatively high. In monetary terms, the Mol reduction expected next year is about 900 million euros, thus standing at 530 million euros compared to 1.4 billion in 2022 and 3.4 billion in 2021.

With regard to the market, the Observatory of the Italian Wine Union and Vinitaly forecasts a year-end 2022 with overall sales down 1 percent in volume (41.4 million hectoliters), for a value increase, thanks to horeca and direct sales, of 6 percent, to 14.3 billion. Much better abroad on the value dynamic (+10% vs. +1% in the Italian market), while volumes are expected to be stable in Italy and slightly decreasing in international markets, especially the U.S., Germany, but also China and, of course, Russia. However, the value figure, the analysis notes, should not be misleading: the wholly inflationary 7% increase in the average price is not enough to cover costs, as shown by companies' requests to distribution to increase price lists by an average of 12%.

A matter, that of cost surplus, at the center of government action that "intends to act also on the excise front," as confirmed by the Minister of Agriculture, Food Sovereignty and Forestry, Francesco Lollobrigida who spoke via video link-up at the opening of the proceedings. The minister stressed that "Wine is part of the economic and cultural backbone of Italy, thanks to a production system that has made quality its flag, as well as a competitive element on a global scale. For this reason," Lollobrigida continued, "we must protect our way of producing, which is often the object of regulatory aggression. We have also given a signal on this in Europe by voting wholeheartedly against the wine cut to horizontal promotion funds." In this scenario of uncertainty, concluded Minister Francesco Lollobrigida, "The ministry is interested in a confrontation with the supply chain to share proposals of a regulatory and economic nature that will allow wine and companies in the sector to remain competitive at the national level, in foreign markets and also in the European forum."

Overall, in a year kept afloat by domestic and international horeca as well as direct sales, 2022 will close worse than it began. In this sense, neither the 10 percent drop in sales volumes in the GDO of the top 3 foreign markets (U.S., Germany and Uk) to the end of September, nor especially the average values of bulk wine, relative to a new vintage above 50 million hectoliters, down 15-20 percent, helps. The analysis dwells on the point, because the economic difficulties exacerbate the growth crisis of a wine superpower that produces too much wine, and unsold wine also drags down the value of the "healthy" product. "A reduction of 3 million hectoliters," the analysis cites, "would help lighten the surplus supply chain, freeing up energy on the healthy part and put on the market. Overproduction generates surpluses among both common wines and PDOs-PGIs; that is why it would be necessary to bring order to the system of certified products: out of a total of 458 PDOs-PGIs, only 90 have a bottled-on-claimed rate above 80 percent, while there are as many as 270 (60 percent of the total) appellations below 60 percent bottled.

Participants' statements

Luca Rigotti, wine sector coordinator Alleanza delle Cooperative: "Cooperative wine is in the same difficulties in which the entire sector finds itself: we are talking about costs that are now unmanageable, from energy to logistics, and difficulties in finding raw materials. For the 2021 harvest we manage to have satisfactory results, but for the next one it will be impossible not to go and affect the remuneration of grapes. I think there is a problem of less structured companies that will necessarily have to make a path of amalgamation, merger or reorganization: there are many forms to become more competitive and in this way reduce costs. For sure it will be a difficult year, there are many problems related to a liquid socio-economic-political scenario, which gives insecurity. The wine world has to team up to make it clear that we are an important economy and that we want a mature wine system, which walks the path of sustainability."

Riccardo Cotarella, president of Assoenologi: "The vulnus of our sector is the gap between supply and demand. We produce too much: we cannot plant continuously, before making wine we need to think about who, where and how to sell it. That of quality is a problem that was solved long ago thanks precisely to the work of winemakers and producers who enable us to carry it out. Now it is time to work on the relationship between supply and demand, and only then can we give value through the tangible and intangible heritage of our country. As the French teach us, we must not talk about the grapes but about our territory; no one can steal that. We must give importance to what is ours."

Luca Brunelli, deputy director Cia-Agricoltori Italiani: "Our producers and farmers have invested and built a vineyard Italy that is still depotentiated: we need to team up as a country to fully utilize that potential. There are in fact pathways that have not yet been mapped out or at least not used to the fullest. Moreover, the world of wine represents a sector that, compared to other agricultural activities, has kept our territories and rural areas alive. It takes work, intention and continuity, and in this sense the role that agriculture plays is fundamental: it makes rural areas livable."

Francesco Ferreri, Coldiretti national board member and Coldiretti Sicilia president: "We are living through a complex moment because companies are suffering from rising energy costs and everything that is part of the production of the wine world has undergone an increase. But the Italy-wine system is unique in the world because of its varieties and its distribution within our country. This is what we have to protect today because this is what has allowed the sector to be one of the first export items of the Belpaese. The vineyard is the most important thing we have: today we are experiencing a not inconsiderable attack on the entire Mediterranean diet."

Giordano Emo Capodilista, vice president of Confagricoltura: "Not only in Italy but also in other producing countries we are experiencing difficulties. There is a post-Covid period of adjustment, aggravated by the conflict, which does not help. The occasion must induce us to team up and be united: promotion, Cancer Plan, Nutriscore are issues on the table in Brussels where our demands must advance in a united manner. The new Pnrr projects can also be opportunities for growth and efficiency in the system, not least the energy chapter."

Giangiacomo Gallarati Scotti Bonaldi, president of Federdoc: "Indeed, the current numbers reflect a trend that draws our attention; however, the Italian wine consortia, which represent the entire supply chain, can help find a balance between supply and demand, for example through the definition of production strategies, field yields, and plant blocking. That said, it will also be necessary to have a common vision and try to get ahead of the times: sustainability may in fact prove to be an important element for the future; we are convinced that certified sustainable wines will have greater appeal in foreign markets."

Micaela Pallini, president of Federvini: "Companies are facing very difficult times. When we talk about anti-inflation measures, so working on interest rates, for Italian wine we need to consider our 3 reference markets-the United States, Germany and the United Kingdom-which are starting to show signs of difficulty. In the United States in particular in 2023, rates are expected to rise by 5-7% and could reach 10%. This is a very important theme because it will affect American consumers. The big theme for the coming year is alcohol and health: the Irish health warning unfortunately went ahead, despite the contrary opinion of many. Among the priority issues is that of Pac promotional funds and free trade agreements."

Andrea Pieropan, Fivi board member: "Fivi represents 1,500 companies, even very small ones, structures that in most cases do not have international outlets, with an extremely local market, often outside even the large-scale retail trade. Beyond the crisis, which affects everyone a bit, we believe it is important to reduce the burden on companies. Among our proposals, we have developed a 'Bureaucracy' dossier, already anticipated to the previous minister: it is necessary to intervene on everything that generates cost and reduces marginality."

Lamberto Frescobaldi, president of Unione italiana vini (Uiv): "It is in particular phases such as the one that lies ahead, not only for wine but also for so many sectors of our economy, that we must have the courage to make decisions capable of accelerating increasingly necessary evolutionary dynamics. Today it is becoming increasingly evident that those who make the most wine not only do not win but risk causing others to lose; therefore, it is urgent to take action on the reorganization of the many PDOs and PGIs that sell only part of what they claim and to revise the rules governing the market management of appellation wines. It will also be important to act on the limitation, without derogations, to 300 quintals per hectare of yields on ordinary wines, subjecting these to timely controls as well given their non-negligible weight on the total."

Carlo Ferro, Ice Agenzia president: "Ice Agenzia is ready to accelerate system action to support exporting companies. The strengthening of collaboration with Veronafiere and Vinitaly goes in this direction. Just as the twenty new initiatives put in place by Ice Agenzia in the very last few years to address even the totally unusual geopolitical dynamics that are pushing for reshaping toward individual markets go in this direction. These include the use of blockchain technology with related services made available free of charge by Ice: these are new opportunities to follow from marketing to training, another preparatory element for foreign markets."

For the CEO of Veronafiere, Maurizio Danese: "Italian wine is not only a flagship product but a healthy sector that makes a decisive contribution to the economic and social development of the Belpaese. To deal seriously and carefully with the dynamics of a sector in its evolutionary stages is a service that Vinitaly will increasingly want to pursue. On the one hand to put these studies at the service of businesses and stakeholders, and on the other because it is from the analysis of needs and priorities that the new course of an event that wants to be increasingly pragmatic and in tune with the reality of the sector will continue with even greater determination."