invina analysis of the chilean wine market 2011 06

8/3/2019 InVina Analysis of the Chilean Wine Market 2011 06

1/21

Analysis of the ChileanAnalysis of the ChileanWine MarketWine Market

July 2011July 2011SneakPr

eview


2/21

Produc

tion

&Dem

an

d

1. Production and Demand and Inventory


3/21

Vineyard Planting Rate, Historical and Projected

0

2

4

6

8

10

12

14

16

18

20

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Change

inHas./Y

ear

0

20

40

60

80

100

120

140

Has.

inPro

duction

Net Increase Tot. Has.

Has. In Production

Hec

tareso

fVineyard

Productive Vineyard Hectares

Chile experienced a big planting boom from 1997 to 2001

Since 2001, Chile has not had any significant net increase in vineyards.

It is likely there has been a meaningful amount of renovation (oldvineyards ripped out and new vineyards planted) that net each other outin the official statistics

Source: SAG (Chilean Agriculture and Livestock Service), Wine of Chile*InVina estimate

Has. in production

defined as vineyards

over 3 years old

Last published data

point for change in

total vineyard area

shows minimal

increase. 2008 and

beyond are estimated


4/21

Pro

du

ction

Total Chilean Wine Production

Chiles annual wine production has increased nearly 300% in the 15years since 1994

2009 production surpassed the 1 billion liter mark, but is now consideredto be an exceptional year

Subsequent production in 2010 and 2011 returned to more normal levels

when calculated on hl / has. basis

1

0

100

200

300

400

500

600

700

800

900

1,000

MM

Liters

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total Production, MM Liters

Other

Table Grapes

Viniferous


5/21

Prod

uc

tion

per

He

ctare

Production per Hectare

The 10 year average production per hectare is 68.4 hectoliters (6,840 liters) per hectare inproduction (yellow line). The average for the last 4 years has been 74.5 hl/has, which seems toindicate that overall productivity is trending upward from the 4 years between 2001 and 2005.

The 2009 average production per hectare increased dramatically up to 82.3 hectoliters per hectare

This increase can be partly explained by good rains in 2008 winter, good budding and fruit set inspring 2008, and absence of rains during harvest.

The increase in production per hectare also suggests a strong influx of table grapes into wine

The 2010 and 2011 production per hectare were closer to historical normals

Source: SAG (Chilean Agriculture and Livestock Service), Wine of ChileHL = Hectoliter or 100 liters

Wine Production per hectare of vineyard

0

200

400

600

800

1,000

1,200

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

MM

Liters

0

20

40

60

80

100

120

140

MH

as.

&HectolitersperHas.

Total Wine Production

Has. In Production

Prod. / Has.


6/21

Dem

an

d

Chilean Wine DemandDomestic consumption + Exports

2009 export volumes reached a record level of over 693 million liters Domestic Consumption is assumed to be flat at 260 million liters in 2009 (15.3 liters per capita). However, it is

extremely improtant to note that there is no reliable source for consumption data, and it is usually calculated asproduction exports inventory.

The inferred consumption figures for 2010 show a dramatic reduction.

Exports in 2011 show a 17% decline so far. We are estimating a 12% decline for the year, with imputed consumptionreturning to normal levels.

Source: SAG (Chilean Agriculture and Livestock Service), Wines of Chile

0

100

200

300

400

500

600

700

800

900

MM

Liters

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

2011*

Total Demand, MM Liters

Consumption

Exports


7/21

Inven

tory

Inventory

The 2011 harvest (no official figures avaialble yet) seems to have come in at ho-hum levels

698 MM liters 2010 year-end inventory figure released recently

Bulk exports dropping sharply in 2011

Bottled wine exports continue to grow both in volume and price

Source: SAG (Chilean Agriculture and Livestock Service), Vias de Chile

ProjectionProduction, Demand and Inventory, MM Liters

200

300

400

500

600

700

800

900

1,000

1,100

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

2011*

Year-End InventoryTotal Production

Total Demand 120 millionliters lost due to

earthquake


8/21

Volumen Exportacin, Embotellado y Granel

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

MM

Litros

Bottled Wine

Bulk Wine

Other

Total

Bottle

dWin

eDem

an

d

Total Export Volume breakdown

Bulk wine exports off sharply in 2011 (down 55% so far in 2011, forecasting45% drop for the year)

Bottled wine exports continue increasing, (up 17% so far, forecasting a 14%increase for the year)

Source: Vias de Chile

Shortage

Price shocks

Bulk exports

collapse


9/21

Bottle

dWin

eDem

an

d

Bottled Export Price and Volume

The trend line (R2 = 0.94) shows bottled prices have risen steadily at a rate of some$ 0.71 per year over the last 20 years

Although they dropped suddenly in 2009 due to the global financial crisis, in 2011the prices are resuming their upward march (2011 average is $28.65 per case, andApril 2011 average is $ 29.19)

The 10 year Average Growth for bottled wine export volume (2000 to 2010) is 8.7%Source: Vias de Chile

Bottled Export Price and Volume

y = 0.71x + 11.27R2 = 0.94

-

3.00

6.00

9.00

12.00

15.00

18.00

21.00

24.00

27.00

30.00

33.00

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Bottled,

US$/Case9Lit.

0

100

200

300

400

500

600

MM

Litros

Bottled PriceBottled VolumeLineal (Bottled Price)

10yr.C

AGR

2000201

0:8.7%


10/21

Pro

jec

tion

2. Projecting Production and Demandthrough 2012


11/21

Projec

tion

Revisi

ted

Triple-Shock

2010 delivered a triple shock to the Chilean wine industry:

2009 saw record export figures, which began straining supplies

toward the end of 2009 and first few months of 2010

The industry lost at least 120 million liters in the earthquake, or

about 13% of annual production The 2010 vintage was small (off by 10% from 2009 vintage)

The 2011 vintage is also small

Bottled wine exports continue to grow while bulk wines plummet

A significant supply shock will rock the industry in the 2nd half of

2010 and well into 2011. Wine and grape prices will reach levels

not seen since the end of the 1990s.

Quadruple


12/21

Projec

tion

BASE PROJECTION: Supply Increases,

Demand is Moderate

Production Assumptions

2012 2014 production projected at 74.7 hectoliters per

has.

Demand Assumptions

Export volume -12% in 2011 (bulk wines down 45%,

bottled wines up 14%), 0% in 2012 and 5% in 2013.This compares to 10 year average volume growth of

11.5% (1999 to 2009)

Domestic consumption down to 14.0 liters per capita (vs.

estimated average of 15+ liters per capita in last few

years)


13/21

Pro

jec

tion

Wine Production Projection

Vineyards in production will reach 120,000 has. by 2012 (it wasVineyards in production will reach 120,000 has. by 2012 (it was 104,000 has. in 2003)104,000 has. in 2003)

Wine production surged to 82.3 hl./has. in 2009, then dropped to 71.5 hl./has. in 2010

We project 70 hl./has. for 2011, then 74.7 hl./has. for 2012 & 2013

Source: SAG, InVina projection

Wine Production per hectare of vineyard

0

200

400

600

800

1,000

1,200

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

2012*

2013*

MM

Liters

0

20

40

60

80

100

120

140

MHa

s.

&Hectoliterspe

rHas.

Total Wine Production

Has. In Production

Prod. / Has.


14/21

Dem

an

d

Wine Demand ProjectionDomestic consumption + Exports

Export volume recorded a phenomenal CAGR of 13.1% from 1994 to 2009

This was possible as vineyard area doubled in this period

No significant net increase in vineyards have been registered since 2001, although export growthwas sustainable as these new vineyards entered into production

We forecast that export growth will stagnate in the next few years since there are no newvineyards available to increase production. However, the mix of exports will continue the shift out

of bulk wine exports and increasing bottled wine exports

Also forecasting a moderate drop to 14 liters per capita in consumption

Total Demand, MM Liters

0

200

400

600

800

1,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

2011*

2012*

2013*

MM

Liters

Consumption

Exports

Total Demand

ExportsCA

GR

1994

2009:13.1%

Exports CAGR2009-2013: 0.2%


15/21

Pro

jec

tion

Production, Demand and Inventory

Demand Projection:

2010: -2.5%

2011: -2.3%

2012: 0.4%

2013: 4.0%

Projection

Production, Demand and Inventory, MM Liters

200

300

400

500

600

700

800

900

1,000

1,100

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

2011*

2012*

2013*

Year-End InventoryTotal ProductionTotal Demand

Total Wine production:

2010: 906mm liters

2011: 924 mm liters

2012: 974 mm liters 2013: 993 mm liters

Inventory as % Demand:

2010: 75%

2011: 78%

2012: 83% 2013: 83%


16/21

Pro

jec

tion

Analysis

An industry accustomed to double-digit growth based on anample supply of cheap grapes will be challenged as the growthrate in grape production tapers off

Bulk wine volume will remain depressed as demand for bottled

wine exports keeps wine prices high

New vineyard plantings will resume, though it is unlikely we will

see a repeat of the 1997-2001 surge

Wine and grape prices will remain high through at least to 2013

as supply barely manages to slowly recover from the structural

shortages that were emerging before the 2010 earthquake, and

the added shock of losing 15% of production during the

earthquake.


17/21

Supplemental Charts


18/21

Pro

du

ction

Wine Production Projection

2010 saw a significant decline in production

2011 figures not yet released

Source: SAG

Chilean Wine Production, 000s of Liters

Source: SAG (Chilean Agricultural and Cattle Service)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Wines with D.O.

Wines w/o D.O.

Table grape winesTotal


19/21

D

emand

/Hectare

The fundamental issue: The growth inproduction base has not kept up with demand

To sustain even moderate volume growth, the industry needs yields of 80 hl./has.,which is on the high end of historical levels, and above the 5 year average of 73.9 hl. /has.

Add to this the significant losses suffered in the earthquake which suggests that grapeand wine prices will be very high for the next few years.

Source: SAG (Chilean Agriculture and Livestock Service), Vias de Chile

Consumo + Exportaciones

0

20

40

60

80

100

120

140

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

2012*

2013*

Has.,

000s

0

200

400

600

800

1,000

1,200

Liters,

Millions

Has. In Production

Demand / hl per has.Total Demand


20/21

Inven

toryas

%of

Sa

les

Year-end inventory as % of sales & average wine prices arenegatively correlated

Strong negative correlation exists between the Year-End Inventory as% of Demand(consumption + exports) and the Average Price of Cabernet Sauvignon in the localmarket. The coefficient of correlation from 1999 to 2009 is -0.92

Year-end inventory is from the previous year (so 2006 year-end inventory is correlated to 2007 prices).Source: Cabernet pricesCCV web site, where they attribute the source to: ODEPA. Elaborado con informacin de la SNA. A partir

de Junio 94 SIPRE. These figures are checked against our own observations.Inventory and Demand: SAG and Vias de Chile. *2010 prices based on our own observations

*

Inventory as % Dem and and Caberne t Price

0%

20%

40%

60%

80%

100%

120%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

Inven

toryas

%D

eman

d

0

100

200

300

400

500

600

700

800

Ca

berne

tPrice,

$/L

Inventory / Demand

Cabernet Price, $ / Liter


21/21

Inventory as % Demand and Cabernet Price

0%

20%

40%

60%

80%

100%

120%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

2011*

2013*

Inventoryas%

Deman

0

100

200

300

400

500

600

700

800

CabernetPrice,

$/L

Invento ry / Demand

Cabernet Price, $ / Liter

Wine

Price

Pro

jec

tion

Wine Price Projection

While total inventory grows, it grows only moderately as a % of sales

The relationship between inventory and prices suggest Cabernet wine priceswill hover in the CLP$ 300 to $ 400 per liter range

Source: Cabernet pricesCCV web site, where they attribute the source to: ODEPA.Elaborado con informacin de la SNA. A partir de Junio 94 SIPRE.Inventory and Demand: SAG and Vias de Chile

invina analysis of the chilean wine market 2011 06

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