Matthias Oppenlaender felt a sense of relief as he began harvesting his grapes last week near Niagara-on-the-Lake, Ont. Sunny weather in September has bolstered the quantity and quality of his grapes.
But there's something Mother Nature can't do: Deliver Canadian grape farmers and wine makers from a cruel drop in prices, caused by a slump in what was once considered among the most recession-proof of industries – alcohol.
The downturn has left almost every player in the global wine trade reeling. Consumers are cutting back on purchases or switching to less expensive varieties. Farmers have seen grape prices drop as much as 40 per cent worldwide, while wine companies have cut costs and jobs to cope with declining sales and shrinking profits.
The problem is not simply that people are drinking less wine. It's that they're trading down to cheaper bottles – which in many cases are made from foreign grapes.
Mr. Oppenlaender considers himself one of the lucky ones. Though he knows he'll be getting 8 per cent less for his grapes this year, at least he has buyers for them, unlike many other growers who will leave acres of grapes rotting on their vines because wineries have slashed purchases.
“We have long-term contracts,” he said. “Some of the growers don't, so they unfortunately don't know yet what is going to happen.”
The wine industry's funk extends far beyond the grape-growing region of Niagara. “There's an ocean of grapes out there. There's an ocean of wine,” said David Bond, executive director of the Association of British Columbia Winegrowers, which represents 40 B.C. wineries.
“There were more grapes left on the vine last year in Australia than we grow in Canada,” Mr. Bond said.
Grape Growers of Ontario, an organization represents about 500 farmers, estimates that 8,000 tonnes of local grapes won't get sold this year, representing about 14 per cent of the total harvest. That's the highest surplus ever and it's more than twice last year's excess.
Many wineries are seeing unprecedented sales declines for their upper-end labels. Sales of wines priced $20 (U.S.) or higher have fallen by as much as 13 per cent this year in the United States after growing at double-digit levels for years, according to Silicon Valley Bank in Santa Clara, Calif.
“I've never seen a sales decline like this. What we are dealing with is a worldwide economic issue,” said Rob McMillan, who heads the bank's wine industry division.
“People who were buying $20 to $25 wine are now buying $15 to $18 bottles. People who were buying $15 to $18 bottles are now buying $12 to $15,” said Tom Green of 20 Bees Winery in Niagara-on-the-Lake. “Some of the $15-price-range products have slowed in sales but the $10 to $12 products have increased dramatically.”
That shift has hit the bottom lines of some of the industry's biggest companies.
Australian beverage giant Foster's Group Ltd. said the profit in its wine division fell by 50 per cent this year and the company is now considering getting out of wine altogether. Victor, N.Y.-based Constellation Brands Inc., the world's largest wine maker, reported a 15-per-cent drop in sales for the first quarter ended May 31 and an 85-per-cent cut in profit. The company has trimmed 400 jobs this year, or about 5 per cent of its work force, and it is concentrating on making lower-priced wines.
Many Canadian growers and wineries say the impact of the recession has been compounded by government regulations that they say benefit lower-priced imports. They point to “cellared in Canada” labelling rules, which allow large wineries to market wine as Canadian even if it contains 30 per cent or less Canadian grapes. These wines dominate many provincial liquor board store shelves and sell for under $10 a bottle, far less than wines made from 100-per-cent Canadian grapes.
In Ontario, blended wines must include 30 per cent Ontario grapes to qualify as “cellared in Canada,” but B.C. has no content requirement. As a result, big wine companies import bulk wine juice from Chile or California for as little as 21 cents a litre, bottle it in B.C. and market it as B.C. wine, Mr. Bond said. “Why does the government of British Columbia believe in deception and how long do we endorse this policy?” he said.
Growers say forcing these wineries to blend in more local grapes would also help reduce the crop surplus.
Hillary Dawson, president of the Wine Council of Ontario, which represents large and small wineries, said the industry favours changing the label to help consumers. But she said new content regulations won't necessarily help farmers. “There's a lot of other factors that relate to the oversupply of grapes,” she said.
Ms. Dawson said big wine companies such as Andrew Peller Ltd. and Vincor Canada, a division of Constellation, buy half of the Ontario grape crop annually and make several wines, including “cellared in Canada” products. But many farmers planted crops on speculation this year, hoping the wine business would maintain its historic growth, she said. Others say changing the rules could increase the cost of cellared-in-Canada wines and further reduce the demand for grapes.
“For years and years and years it was a seller's market for grapes down here and it's turning into a buyer's market,” said Rob Power of Creekside Estate Winery, near St. Catharines. “But nobody is out partying about that because the industry is in quite a state of disarray.”
