(Wines&Vines) - California wine grapes and a growing dichotomy in growth between lower priced and higher priced wines.

Mike Veseth, an economics professor at The University of Puget Sound and the author of The Wine Economist blog, moderated the popular annual briefing at the Unified Wine & Grape Symposium and himself discussed the economic outlook of the global market.

A strong dollar in the global Rubik’s cube

He said changing exchange rates as the “dollar has zoomed up” in value mean imports are getting cheaper and exports more expensive. These changes won’t be felt immediately for bottled wines, but they should have some short-term effects on the bulk market. For large companies that import bulk wines for their value or large-production brands, the strong dollar is a good thing. Chilean wine should get particularly affordable with coming changes on the import duties.

Veseth said it would be interesting to see how the exchange rate would affect the U.S. duty-drawback program, in which wine producers are refunded excise duties for their imports if they export a similar amount of wine. The incentive to reap the rewards of the program is not that great when exports are tougher to sell, but maintaining those exports could help subsidize imported wines. Veseth said he sees three major changes in the global market, which he characterized as being similar to a Rubik’s cube in that it shifts with every vintage. A bad Spanish grape harvest followed by an excellent year in Chile can radically change the international market. To illustrate his point,

Veseth said that South Africa a few years ago enjoyed one year of robust growth in its bulk wine program because of bad harvests elsewhere. The country tried to transition more of its production into bulk to take advantage of the interest, but by the next year that market was gone. “From hero to zero,” Veseth said. 

Another change is in the United Kingdom, which has always been a strong market for wine despite the many challenges faced by U.S. producers seeking to sell their wine there. Veseth said the market became dominated by a few supermarkets that had such purchasing power they created a monopsony, a situation when buying is controlled by only a few parties.

The stores forced suppliers to make such drastic cuts to quality that Veseth said English wine critics regularly complain it’s almost impossible for consumers to buy anything drinkable for less than 5 GBP ($7.60). “You can see it’s a race to the bottom,” he said.

For the hundreds of growers and winemakers listening to Veseth’s remarks, he said the biggest change is the United States’ unrivaled place as the No. 1 market for wine in the world. He said the U.S. market is also marked by growth only in the price segments of more than $9.

Veseth added that importers are well aware of this and are repackaging and rebranding their wines toward this growing premium wine market. “The U.S. market is going to get more crowded and competitive, he said.”