Jaime E. FensterseiferJaime E. FensterseiferSchool of Management and Agribusiness Research CenterSchool of Management and Agribusiness Research Center

Federal Federal UniversityUniversity ofof Rio Grande do Sul Rio Grande do SulPorto Alegre - RS, Porto Alegre - RS, BrazilBrazil

The Emerging Brazilian Wine Industry The Emerging Brazilian Wine Industry Wine MarketWine Market, Imports, Exports, Imports, Exports

Characteristics of Consumption BehaviourCharacteristics of Consumption BehaviourConcluding RemarksConcluding Remarks

Eiswein Grapes

The Brazilian Wine The Brazilian Wine SectorSector

in Perspective in Perspective

Viticulture Regions

20052005 20062006 2007*2007* 2008**2008**USAUSA 399399 406406 409409 411411

ArgentinaArgentina 219 223 226 225ChileChile 191191 195195 196196 198198

AustraliaAustralia 167167 169169 174174 173173South South AfricaAfrica

134134 134134 133133 132132

BrazilBrazil 7878 9494 9797 100100New New

ZealandZealand2424 2727 3030 3535

Uruguay**Uruguay****

8.58.5 8.68.6 8.78.7 8.58.5

Evolution of Areas under Vines in Selected Countries

(In 1000Ha)

Source: OIV State of the Vitiviniculture World Market 2009

* Provisional ** Forecast *** Data from INAVI (www.vinosdeluruguay.com)

PeriodPeriod 11stst PeriodPeriod(1870’s to 1920’s)(1870’s to 1920’s)

22ndnd PeriodPeriod(1930’s to 1960’s)(1930’s to 1960’s)

33rdrd PeriodPeriod(1970’s to 1990’s)(1970’s to 1990’s)

44thth PeriodPeriod

(2000’s - transition)(2000’s - transition)

GeneratGenerationion

FirstFirst Second Second ThirdThird FourthFourth

StageStage ImplantatiImplantation of on of

viticultureviticulture

Product Product diversificatidiversificati

onon

Quality Quality upgradingupgrading

Search for Search for identityidentity

WinesWines American American grape grape

varietiesvarieties

Hybrid and Hybrid and viniferavinifera varietiesvarieties

Varietal Varietal

wineswinesVQPRDVQPRD

Source: Adapted from Tonietto & Mello (2001)

Evolution of the Brazilian Wine Industry

Distribution of Wineries by Distribution of Wineries by StateState

PR: 47

RJ : 53

SP: 78

SC: 96

MG; 46

PE; 27

MT; 17

BA; 15

RO; 13

CE; 12

ES; 12PA; 11

PB; 11

GO; 8

MA; 4 MS; 3DF; 2

RN; 2

AL; 1AM; 1

SE; 1

RS: 702

Source: MAPA, IBRAVIN, 2007

Total: 1162RS: 60.4%

Concerted efforts towards upgrading wine qualityConcerted efforts towards upgrading wine quality Strong entrepreneurial spiritStrong entrepreneurial spirit Development of regional identity for the different Development of regional identity for the different

terroirsterroirs Good research, laboratorial, technical assistance Good research, laboratorial, technical assistance

and training infra-structureand training infra-structure Enotourism: it is well developed in the Serra Enotourism: it is well developed in the Serra

Gaúcha region and begins to spread to other Gaúcha region and begins to spread to other regions of the countryregions of the country

Investments in new grape growing areas with Investments in new grape growing areas with favourable soil and climatic conditionsfavourable soil and climatic conditions

The synergistic effects and positive externalities The synergistic effects and positive externalities arising from the existence of an institutionally arising from the existence of an institutionally developed wine “cluster” (Serra Gaúcha)developed wine “cluster” (Serra Gaúcha)

Salient Features of the Brazilian Salient Features of the Brazilian Wine Industry...Wine Industry...

…

An export consortium involving 38 important wineries An export consortium involving 38 important wineries (collective entrance in the export market “learning (collective entrance in the export market “learning curve”)curve”)

A consistent and significant increase in exports A consistent and significant increase in exports (although still extremely low) resulting from the (although still extremely low) resulting from the collective learning processcollective learning process

A consistent increase in commercialization of fine A consistent increase in commercialization of fine sparkling wines sparkling wines (a high potential and fast growing segment, (a high potential and fast growing segment, where the local product has succeeded in maintaining a 2/3 where the local product has succeeded in maintaining a 2/3 market share)market share)

Important wineries are in the process of “active Important wineries are in the process of “active internationalization” processinternationalization” process

Collective planning capability: a 20-year horizon and Collective planning capability: a 20-year horizon and collectively formulated Strategic Development Plan for collectively formulated Strategic Development Plan for the wine sector (the wine sector (Vision 2025Vision 2025), among other projects.), among other projects.

… … Salient Features of the Brazilian Salient Features of the Brazilian Wine IndustryWine Industry

Aggressive export strategies on the part of established as Aggressive export strategies on the part of established as well as emergent wine-producing countrieswell as emergent wine-producing countries

Excess global supplyExcess global supply Rather stagnant worldwide consumptionRather stagnant worldwide consumption Low Low per capitaper capita wine consumption wine consumption (2 litres, compared with (2 litres, compared with

around 30 litres for around 30 litres for Argentina and Uruguay, its Argentina and Uruguay, its neighboursneighbours and Mercosur partners) and Mercosur partners) Absence of a culture of regular and moderate wine Absence of a culture of regular and moderate wine

consumption during mealsconsumption during meals

Lack of image as a wine-producing countryLack of image as a wine-producing country

Low importance of the sector for the national economyLow importance of the sector for the national economy (although it is (although it is

economically important for Rio Grande do Sul, where it is economically important for Rio Grande do Sul, where it is concentrated)concentrated)

High incidence of taxes High incidence of taxes (they represent over 42% of the consumer (they represent over 42% of the consumer price, compared with approximately half of that for Argentina and price, compared with approximately half of that for Argentina and even less for Chile, currently the two largest wine exporters to Brazil)even less for Chile, currently the two largest wine exporters to Brazil)

Competitive environment and Competitive environment and limiting factors limiting factors

faced by the Brazilian wine faced by the Brazilian wine industryindustry

TableTable ((nonnon--viniferavinifera)) andand FineFine ((viniferavinifera)) Brazilian Wines Commercialized in Brazilian Wines Commercialized in

the Domestic Marketthe Domestic Market (Still Wines, in Millions of Litres)(Still Wines, in Millions of Litres)

Source: Compiled from UVIBRA (2009)

20020011

20020022

20032003 20020044

20020055

20020066

20020077

20020088

Fine Fine WineWine

28.628.6 25.425.4 23.323.3 19.719.7 21.921.9 22.522.5 20.20.99

17.17.00

Table Table WineWine

221.221.44

227.227.44

217.217.00

224.224.88

270.270.77

244.244.99

221221.1.1

197197.6.6

TOTALTOTAL 250.250.00

252.252.88

240.240.33

244.244.55

292.292.66

267.267.44

242242.0.0

214214.6.6

Vinifera: 70.8Non-vinifera: 471.9

Grape Production

(Millions of Kg )Wine Production

(Millions of Litres)

Fine wine: 40.9 Table wine: 249.3 Derived products*: 74.5 *Includes sparkling wines (17.5 M.

Litres)

Production Base (Average for 2006 to 2008):

TOTALTable Wine

Fine Wine

Countries Vol. % Vol. %Italy 8.11 28.9 9.72 17.9Portugal 5.22 18.6 6.21 11.4Chile 5.16 18.4 18.66 34.3France 3.12 11.1 2.47 4.5Argentina 2.59 9.2 14.42 26.5Uruguay 1.67 5.9 0.92 1.7Germany 0.91 3.3 0.30 0.5Spain 0.62 2.2 1.00 1.8U.S.A. 0.37 1.3 0.06 0.1Others 0.28 1.0 0.64 1.2Tot.Imp. 28.06 49.5 54.41 76.2Brazil 28.65 50.5 17.01 23.8TOTAL 56.71 100 71.42 100

2001 2008

Source: UVIBRA (2009), elaboration by the author.

Fine Still and Sparkling Wines Market (2001-2008)Still Wines

(Millions of Litres)Sparkling

Wines(Thousands of Litres)

Countries Vol. % Vol. %France 702 35.9 992 28.3Italy 1029 52.5 1052 30.0Spain 142 7.3 267 7.6Argentina 32 1.7 1015 29.0Portugal 20 1.0 62 1.8Chile 16 0.8 84 2.4Uruguay 9 0.5 2 0.1Germany 0 0.0 2 0.1S. Africa 7 0.3 9 0.3Others 1 0.0 16 0.5Tot. Imp. 1960 30.4 3502 27.0Brazil 4490 69.6 9469 73.0TOTAL 6450 100 12971 100

2001 2008

Fine Still Wines Market: Brazil vs Imports

(2001-2008)

TOTAL

Imports

Brazil

Vol.

Brazil

Imports

%(Millions of Litres)

(% Market share)

Fine Sparkling Wine Market : Brazil vs Imports

(2001-2008)

Total

Brazil

Imports

Vol.(% Market share)(Thousands of

Litres) Brazil

Imports

%

Imported Still Wines: Top 5 Origins (OW vs NW)

(% of Imported Volume, 2001-2008)

C+A

I+P+F

% Chile

Argentina

Italy

Portugal

France

%

Imported Sparkling Wines: Imported Sparkling Wines: Top 4 Top 4 OriginsOrigins (OW vs NW) ((% of Imported Volume,% of Imported Volume,

2001-2008)2001-2008)

Spain

ItalyArgent.France

F+I+S

Argentina

%%

GOLDGOLD SILVERSILVER TOTALTOTAL

ARGENTINAARGENTINA 22 55 77AUSTRALIAAUSTRALIA 88 1111 1919

BRAZILBRAZIL 1111 3131 4242CHILECHILE 33 66 99

NEW ZEALANDNEW ZEALAND 11 11 22SOUTH AFRICASOUTH AFRICA 00 33 33

URUGUAYURUGUAY 11 33 44

USAUSA 11 22 33

TOTALTOTAL 2727 6262 8989

Effervescents du Monde ® (Sum of Medals: 2003-2008)

Source: Compiled from www.effervescents-du-monde.com <Accessed 15/06/2009>

2002003*3*

20042004 20052005 20062006 20072007 2008*2008***

RussiaRussia 0.00.0 0.00.0 177.6177.6 334.2334.2 87.787.7 6207.66207.6 ParaguayParaguay 1231.1231.

772238.42238.4 2109.62109.6 2.037.2.037.

001369.91369.9 2267.12267.1

USAUSA 26.426.4 105.2105.2 372.4372.4 411.7411.7 500.6500.6 727.6727.6 NetherlandsNetherlands 0.00.0 17.717.7 17.717.7 0.50.5 181.2181.2 340.4340.4 GermanyGermany 0.00.0 14.414.4 59.459.4 38.638.6 123.0123.0 271.1271.1 SwitzerlandSwitzerland 10.710.7 5.35.3 23.123.1 131.3131.3 26.126.1 71.271.2 UKUK 0.00.0 0.60.6 10.810.8 39.339.3 42.642.6 121.0121.0 JapanJapan 173.9173.9 440.6440.6 582.5582.5 341.8341.8 361.7361.7 235.2235.2 SwedenSweden 00 5.05.0 00 16.116.1 3.53.5 32.932.9 AustraliaAustralia 00 00 0.0090.009 00 0.060.06 218.7218.7 OthersOthers 202.202.

99441.8441.8 550.1550.1 489.2489.2 829.4829.4 283.9283.9

Total ExportsTotal Exports 1611619.29.2

3269.3269.00

3903.3903.22

38393839.7.7

3525.3525.88

1077610776.7.7

Avg. Price Avg. Price (US$/L)(US$/L)

0.540.54 0.630.63 0.780.78 0.840.84 1.151.15 0.720.72

Brazilian Wines (Still plus Sparkling) Exports (In 1000L, ranked by value exported in 2008)

*First year after creation of Wines from Brazil**In 2008 exported to 41 countries Source: Compiled from MDIC/SECEX

Some General Characteristics Some General Characteristics of Wine Consumption of Wine Consumption

BehaviourBehaviour Growing interest in wines in generalGrowing interest in wines in general (wine is “in”) (wine is “in”) Increasing interest in learning about wineIncreasing interest in learning about wine As consumers increase their knowledge about wine there As consumers increase their knowledge about wine there

is a tendency to consume more wines from traditional is a tendency to consume more wines from traditional European countriesEuropean countries (Argentine and Chilean wines are (Argentine and Chilean wines are considered, however, more price-competitive)considered, however, more price-competitive)

Imported wines are perceived as being of a higher quality Imported wines are perceived as being of a higher quality than Brazilian winesthan Brazilian wines (although steady improvements in the (although steady improvements in the quality of Brazilian wines are generally recognized)quality of Brazilian wines are generally recognized)

Brazilian sparkling wines are considered price-Brazilian sparkling wines are considered price-competitive and there is, in general, a preference for the competitive and there is, in general, a preference for the national productnational product

Preponderant preference for red wines (66.9 %), followed Preponderant preference for red wines (66.9 %), followed by white (31.3 %) and rosé (1.8 %)by white (31.3 %) and rosé (1.8 %) (based on consumption (based on consumption data for 2008)data for 2008)

Substitute products annual per capita consumption: Beer Substitute products annual per capita consumption: Beer (56 L) and (56 L) and CachaçaCachaça (11 L) (11 L) (compared to 2 L for Wine)(compared to 2 L for Wine)

►► It is a market to be developed ! It is a market to be developed ! ◄◄

▼▼High growth potential:High growth potential:

190 million inhabitants190 million inhabitants 2nd largest wine consumer in Latin America2nd largest wine consumer in Latin America growing interest in winegrowing interest in wine low low per capitaper capita wine consumption wine consumption tendency for wine to partly substitute the two highly tendency for wine to partly substitute the two highly consumed alcoholic beverages (beer andconsumed alcoholic beverages (beer and cachaça cachaça)) increasing purchasing power and growing middle increasing purchasing power and growing middle

classclass favourablefavourable economic outlook economic outlook

▼▼Partenariats, Joint-ventures, Joint Partenariats, Joint-ventures, Joint promotionpromotion

(Cooperation and Competition!)(Cooperation and Competition!)

Concluding Remarks

MM e r c ie r c i !!jaime.ef@terra.com.brjaime.ef@terra.com.br