The Guardian reported that wine sales in China reached £27 billion in 2012, a 20 percent increase over 2011. This is a massive increase as consumption only grew a measly 0.6 percent worldwide. On the supply side worldwide, wine production dropped 6 percent that same year but grew in China. While imports consist of comprise 45% of the market, China is set to become the sixth largest wine producer in the world by 2016, once it overtakes Australia.
Source: Winefolly.com
Increased wine production has been driven by two factors. The first is the combination of rising global temperatures and the development of heartier varietals which can live in a wider variety of geographies than ever before. Second, starting in 1985 the government has encouraged planting vineyards in areas with ideal environmental and climactic conditions. One instance of note was the conversion of 2,500 acres of farmland to vineyards in the Xiaojin valley in the Aba prefecture of Sichuan province. The local government is now planning to plant 16,750 acres of grapes before 2020. This specific project potentially encroaches into panda habitat, so this growth is not without some negative externalities.
This transition to winemaking has not been entirely profitable for the farmers either. One couple noted they would have made more had they still had their apple orchard, following a recent spike in apple prices. Additionally, for importers, price appreciation at the highest end of the markets has slowed and the market is stagnating a little bit. Regardless of short term fluctuations, it is clear that China will continue to become an increasingly important producer and consumer of wine.
It would be interesting to look at wine’s elasticity. I view wine as a luxury good. As prices increased for wine I would buy less… possibly substitute out for a nice beer at dinner instead. It would be interesting to delve into the reason behind the increase in sales of 20%. Are incomes rising in China that much? Is availability changing within the country? Are trends changing in Chinese diet? Chinese vineyards seem like a positive yet I wonder if the land that is rich enough for grape growing could be used to feed the populace. Sowinski does mention the negative externality of pandas loosing their habitat. Since pandas are endangered, hopefully the Chinese Government will work to protect this iconic endangered species.
1. As to elasticities, you can look at studie in the book on beer brewing that I use in Industrial Organization (Econ 243). Wine consumption does increase with income, and Chinese incomes have risen a lot.
2. Wine is (?was> an “in” thing among the nouveau riche, to the extent that it swayed the market for high-end Bordeaux replete with an industry supplying “old” bottles and labels to enable the sales of counterfeit wine. And if you’re wanting to show off, and your guest knows little of wine, you may not care whether it’s genuine!!
3. In central asia (in China, Xinjiang) grapes are widely grown to make raisins – the standard breakfast is dried fruit and nuts, perhaps with yoghurt. So there’s plenty of experience with vineyards, but these weren’t oriented to making wine. But there are inexpensive but drinkable wines in China, good enough to be a sensible break from drinking beer.
I feel like even those who know little about wine still know that the best ones come from France and California. This is a reputation that has grown and solidified over many generations. First of all, I wonder how much the Chinese wines could actually dig into the sales of French and Californian wine. I would assume the Chinese would need a pretty aggressive marketing strategy to break into that market, at least in the West.