The US president has gone into battle on behalf of Boeing (whose financials have pretty much followed the trajectory of a couple of 737s). He has decided to punish EU wine producers for the apparent sins of Airbus (whose planes have generally remained in the sky for the requisite amount of time). Alleging anti-competitive behaviour (which wouldn't be a first in the airplane industry, and would be applauded by American farmers who couldn't survive without their lobbyists), the US is seeking retaliation. Amongst its proposed targets are the wine producers of France, Italy, Germany, Spain, and Portugal. The strategy – to impose a 100% tax on all EU wines entering the USA.
There's no logic or justice to the president's strategy: it's a little like beating up someone in the same school as the boy who kissed your sister. Perhaps he's hoping that by hurting the wine producers they will persuade their governments to investigate or act against Airbus. It's a tenuous link, but it could work in the same theoretical way as the classmates of the boy you beat up forming a gang and picking on the boy who kissed your sister. It has a kind of mafia logic to it: there's no connection between the goods/services sold by a business buying protection and the organisation selling it, but if you know that when you fail to pay the man in the black suit who comes round every week your shop window gets broken, you join the dots.
European wine producers (as well as coopers and other industries affected by the threat) are rightly in a bit of a panic: a 100% duty is not a marginal increase of the kind that the South African fiscus adds every year to the various levies imposed on wine because it's “sinful.” The taxman knows that volumes may decline a little, but that he'll still collect more money from the new duties – otherwise the whole business would be counter-productive. The US president's is the kind of tax designed to bring trade grinding to a halt. Wine (for most people) is non-essential: even collectors of First Growths can live without a vintage or two, or defer the purchase till the trade war is over. The United States is probably the most important market in the world for most European producers: a six-month stay-away would be nothing less than catastrophic – especially given the present state of the trade generally.
The predicament of Bordeaux (by way of an example) – even before the imposition of the US president's Tax – doesn't make for pretty reading. Current sales are 25% down on the volumes of six years ago. This wasn't a problem during a run of smaller-than-average vintages, but 2019 was normal in size: the Bordeaux surplus going into 2020 is equal to the total 2019 Burgundy crop. The reasons that sales have been declining are more complex: partly it is because millennials drink less (but in theory they drink better). However, social engineering (another term for political intervention) has played a part: legislation has changed the drinking habits of most West Europeans. French per capita consumption is less than half of what it was 50 years ago: it's shed 20% in the decade from 2007 to 2016. A 3% – 5% decline every year in Europe suddenly becomes minus 40% over ten years.
On top of this, as part of a wider political agenda the Chinese government has clamped down on gifting. In 2019 Chinese imports fell 35% - representing roughly 5% of the region's sales (and probably more by value.) It's impossible to separate the fate of the wine industry from the machinations of politicians.
Could this be an ill-wind bringing some happiness to South African consumers? It's possible, but I doubt it. While a big stock overhang in Europe will exert downward pressure on prices, it's unlikely that we will see them fall by as much as the annual fluctuation of the Rand. While our currency is (surprisingly) strong at present, the annual variation in the Rand-Euro rate has been in the order of 15%, which alone could wipe out most of this advantage. As a nation, we're not big consumers of imported wine (except for Champagne). This means we don't have much buying clout abroad. It also means that very few traders – or their customers in South Africa - are circling, ready to take advantage of European pricing weakness.
The much more serious potential consequence will be the impact on South African wine producers. If the Europeans are forced to discount in order to move the volumes lost to the US market, they are likely to push SA wines off the shelves of supermarkets and wine merchants everywhere except the US. Could we take over the European listings in the United States? Perhaps a few, though given the much stronger Australian and New Zealand presence in the US market, whatever benefits we might obtain wouldn't be life-changing. More seriously, if the way we secure shelf space in the States repeats the old strategy of coming in cheaper, the long term damage to Brand SA could negate any short-term benefits.
What the wine industry could use is a president at home willing to put the national interest ahead of domestic factionalism. It's clear that politicians have the power to cause enormous damage: they can also function as a force for good. I know this sounds improbable in a country where the government cannot sort out Eskom, and where bureaucracy stifles almost all entrepreneurial progress. Despite this most unsympathetic environment the wine industry has survived; some of our producers have even flourished. Imagine how well they would be doing if the state stopped obstructing, and tried instead to help things along.
