Burgundy expects lower wine prices in softer market

By Michel Rose
PARIS (Reuters Life!) - Burgundy wines, hit by a fall in U.S. and British demand suffered a 30 percent drop in first-quarter exports and a "more difficult" year ahead is expected to lead to price cuts for the region's finest vintages.
Increased volumes in 2009 compared to the relatively poor harvest of 2008 which helped producers maintain prices, combined with an enduring economic crisis will force prices down, the BIVB sector organization said.
"The harvests in 2009 should be good, we will start picking grapes early, around September 10. If the crisis continues, then it will be difficult. A drop in prices of grand crus wines is to be expected," BIVB President Pierre-Henry Gagey said.
Stable sales in France in the first three months of this year mean global sales of Burgundy wines dropped only 11 percent in the first quarter of 2009, but the domestic market is now also feeling the pinch of the crisis.
"In the last few months, I have the impression that it hasn't improved, maybe it will at the end of this year. All in all, we will maybe finish this year on a 15 to 20 percent drop (in sales)," Gagey added.
"Our clients will expect price cuts," Gagey added. "But we were more reasonable than wines from Bordeaux, where the price increase was crazy."
STRONG EURO
He added that the rise of the euro versus the U.S. dollar and the pound sterling increased the pressure on producers to reduce their margins in those markets, to hang on to big retailers such as Tesco or Sainsbury's in Britain.
"In England, it's a catastrophe. Supermarkets are very powerful there. They refuse to sell a bottle at more than 10 pounds, and with an increase in taxes from the government, it's up to the producers to swallow the extra cost," Gagey said.
Some 46.5 percent of Burgundy wine bottles were exported in March 2009, and Britain and the United-States are the region's top two markets, with 45 percent of total exports shipped to these two countries alone.
But if sales in France held up well in 2008 and helped compensate for the fall in exports, this year should see a further drop in consumption in French restaurants.
"Restaurants are a concern for us. Wines are horribly expensive there, and the fall in VAT (Value Added Tax) on food should accentuate the price difference with liquids," Gagey said. "People will only drink wine at home with friends."
Total sales of Burgundy wines dropped some 5.1 percent last year compared to the record high of 2007, with 194 million bottles sold and 94 million of these exported, on revenues of 1.1 billion euros.
Wines from the Burgundy region in central France account for 3.3 percent of the total French wine production, and 0.5 percent of the world's wine production. Chardonnay and Pinot Noir grapes are the main varieties found in Burgundy.
(Editing by Marcel Michelson and Paul Casciato)

Source: Reuters