The Pernod Ricard team were in London today (February 18) to flesh on the bones for their half year interim results which were announced last week.
The threat of protectionism hanging over the Brazilian wine market during recent months has at last subsided after it was officially announced in São Paulo that representatives of Brazil’s largest wine producers, coordinated by Wines of Brazil (IBRAVIN) have withdrawn their application for safeguards, lodged with Brazil’s Ministry of Development back in March.
The producers have come to an agreement with the associations representing the import, distribution and retail sectors of the wine market, stipulating a series of measures to boost the sales of Brazilian wines without resorting to the quotas and punitive tax increases threatened by the safeguards.
The accord finally sheds some light on the issue after it became clear one month ago that there was insufficient substance in the request for the Ministry of Development to approve safeguards on technical grounds. Despite this news, there has been speculation that the issue would turn “political” and that the government would seek to find other ways of appeasing the large domestic producers.
The intention of Monday’s agreement is to double sales of Brazilian fine wines in their domestic market by 2016, thereby reaching a sales volume of 40 million litres per year. The ambition for 2013 is to increase sales by 35% to 27 million litres.
In order to reach these sales levels, the agreement stipulates that at least 25% of vinhos finos (read vinifera-based wines) sold through supermarkets must be Brazilian in origin, more than double current estimates. In other non-supermarket off-trade outlets, the minimum sales percentage for domestic wines is to be set at 15%. Press reports have so far not outlined how retailers will be held to meet these targets or how they will be monitored.
To encourage importers to list more national wines, the agreement demands that sales rounds between small and medium sized domestic producers and importers be held in the first quarter of 2013. The intention is to increase the number of Brazilian wines carried by importers, though it is not yet clear whether they will be bound to include Brazilian wines in their portfolios.
The most significant detail still to be ironed out surrounds a possible minimum price for imported wines. Producers are seeking to impose a minimum purchase price of US$24 per case of 12 bottles, or approximately R$4 per bottle. While this will be of little relevance to quality wines, it does pose a threat to the cheapest imports. This measure appears contrary to another stated aim in the agreement to increase national per capita wine consumption from its current low level of 1.9 litres per capita to 2.6 litres per capita by 2016. By effectively killing off the sub R$20 bottle of Carmenére or Malbec, the aim of broadening wine’s consumption base among the less well off will be made more difficult.
On the producer side of the agreement, grape growers and wineries will be obliged to maintain their focus on reducing costs, improving scales of production and increasing promotions, as stated in the original safeguards request.
Other actions still to be outlaid in full include joint efforts to reduce taxes on wine, combating black market imports, providing longer lines of credit, developing programs to aid production, reducing stock-holdings and the creation of a promotional fund for the vitivinicultural sector. Actions are also to be developed to incentivise bars and restaurants to list Brazilian wines and to provide training for those who work in the wine section of supermarkets.
Importers will be required to send quarterly reports to the Ministry of Development to show that progress is being made to meet these agreements. If the conditions of the agreement are not met, the request for safeguards may be re-presented at any time.