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What will be the variables defining the wine market?

October 15, 2013 by María Elena Graffigna | in Exports, News

A recent report made for the "Journal of Wine Economics" spotlights the movements wine-producing countries will face with the view to the future and how their exchange rate will affect the global industry. Likewise, it mentions the impact exchange variables will have on the changes of consumers’ preferences.

Kym Anderson, who participated in the wine forum ‘IX Foro Internacional Vitivinícola’ as one of the Virtual Panel of International Experts, and Glyn Wittwer analyze in a report, based on an econometric model, the movements of the international wine markets and the influence of exchange rate shocks in these markets, in the 2007-2011 period. The report was prepared for the “Journal of Wine Economics”.

According to the report, the exchange variables have been the most influential factor in the wine exports of the leading global competitors, in the changes of consumers’ preferences and China’s growth as importer. The international financial crisis and China’s economic boom had a great impact on these macroeconomic variables. In addition, an underlying factor is the return to the gradual trend toward premium wines after a period that experienced a trading-down process, toward lower priced wines, due to the recession in many economies.

Anderson explained that the great influence of real exchange rates in the past few years is partly because since 1980s, most countries have adopted systems of flexible exchange rate; and partly due to the fact that wine world has become more globalized.

In short, the real exchange rates (RER) have been fundamental to explain the loss of competitiveness of southern hemisphere producers, whose currencies have strengthened. On the contrary, European and American producers have been favored in this respect. Nonetheless, the situations in their domestic markets have been different for the two latter actors, marked by the influence of other variables. The recovery in the United States, after the crisis, unlike Europe, counteracted the effects of price increase given by the real exchange rates, leading to an important boost in their imports.

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