As a new year begins, we at Ciatti wish all of our friends, clients and business associates a very happy, healthy and prosperous 12 months ahead. We thank you for your continued support.
As every January, this month’s report looks back at the year just passed and ahead to the new one. It is now approaching two years since the start of the COVID-19 pandemic and the virus is still with us, but there are two reasons for being hopeful that 2022 is the year it finally has its grip on the news headlines weakened. Firstly, vaccination and booster campaigns – well advanced by now in many countries – seem to be reducing mortality rates; secondly, the emergence of the highly transmissible but apparently milder Omicron variant potentially offers a pathway to a world in which COVID-19 can be treated as an endemic virus similar to flu.
Away from the virus itself, we see two of its knocks-on effects – the global supply chain crisis and rising inflation – as the biggest issues facing the wine trade in 2022. The worldwide shipping container shortage really made its presence felt in 2021 as economies began emerging from 2020’s pandemic shock, causing extensive delays and freight price inflation which had to be factored into potential bulk wine deals: could X wines get from Y to Z in one month, two months, three? Who would cover the increased freight costs? Wines can have their price attractiveness offset if they must travel badlylogjammed logistics routes, bringing more expensive but geographically less remote wines into play. Trucking, warehouse and port terminal capacity have also been widely inadequate in dealing with the return to full demand. The feeling is that consistent improvements in the supply chain situation are unlikely to be felt until the second half of 2022.
In addition to record freight rates, the wine industry felt a significant upward pressure on dry-good and other input costs in 2021, as part of inflationary factors at play in the wider economy. The US, the EU and the UK were all experiencing high inflation levels by the end of 2021 off the back of the supply chain logjam, labour shortages, and strong spending. And – in general – bulk wine prices come into 2022 at elevated levels versus where they were in January last year, with perhaps only prices on Australian reds and South African reds and whites consistently tracking below where they were a year ago.
The result for the wine industry is that, in 2022, it must move up on shelf prices to cover these rising costs just as consumers might begin to register wider price inflation and rein in spending. If or when this starts to occur in 2022 only time will tell. The European Central Bank believes current inflation levels are a passing “hump” that will decline this year; if true, and if the Southern Hemisphere’s 2022 harvests come in good-sized in the next few months, we can easily envisage some of the inflationary factors on wine dissipating. Ciatti is there to help you every step of the way in 2022, whatever it may bring – just give us a call. Happy New Year, and stay safe.