Grape surplus triggers freefall in wine prices

The prices of wine may decrease very soon, owing to the surplus of California grapes, CNN reported.

Wine sales could hit its lowest figure in five years.

There is less demand now than ever before, with prices expected to stay low for over three years.

The founder of Silicon Valley Bank's Wine Division, Rob McMillan told CNN that he thinks that consumers would get best retail values in 20 years.

As technology and efficiency in terms of harvesting methods keep improving, the harvest of grapes has reaped in better harvests.

However, this mode of operation leads to a lot of wastage, for extra grapes rot and are discarded.

However, grapes may reach secondary markets, for instance, they may be used in the production of brandy or simply as a grape concentrate. Jeff Bitter, the President of Allied Grape Powers told CNN that he doesn't think that these alternative secondary markets provide positive returns.

"The main cause of oversupply today is the culmination of a few years of slowing wine shipment growth, with an ample 2018 wine grape crop as an exclamation point," Bitter told CNN.

"Until 2015, wine shipments had grown, almost predictively, for two decades. The slowdown in growth has caught the industry by surprise'', he added.

"Since it takes up to five years to bring wine to market from the initial planning stages of planting a vineyard, it makes hitting future demand very complicated. In this case, we overshot demand."

To restore balance in the market, growers in California will need to limit the production of vines, and grapes.

"With flattening consumer demand for wine, unless vineyard acres are removed, balance will be difficult to find," McMillan told CNN. 

"Balance will first be found in Napa, followed by other premium regions in California. It will take at least 2-3 years for grape pricing to stabilise."

Consumption of wine in the United States witnessed its first drop in 25 years, as people are increasingly turning to hard liquor and cocktails, reported IWSR.

"The industry should rightly be concerned," McMillan said. "We aren't engaging with the millennial consumer, and boomers who have driven wine sales for the last 30 years won't live forever."

It's possible that millennials prefer other drinks over wine. However, the improved value of wine could improve the consumption of wine.