While the basic economics of supply and demand affect pricing of any good, for items marketed globally such as fine wine, significant shifts in currency values in major markets will take their toll.
"Cannot take it any longer"
Yesterday, Reuters ran a story titled Burgundy wine prices hiked in U.S. due to weak dollar (read it, it's short). Prices are being raised 10%-20% in the U.S. (the second biggest Burgundy market after Britain) as "they cannot take it any longer."
Burgundy demand is also high (see
Burgundy exports to hit all-time high and my prior post,
A leading indicator of higher Burgundy prices). Therefore, if the U.S. market balks at higher prices, the wine will simply be sold elsewhere.
Just how much as the dollar weakened?
The dollar has depreciated 19.6% against the Euro since the beginning of 2007 and 26.5% since January 2004. Given that the dollar fell 10.7% against the Euro in 2007, its decline in Q1 2008 has accelerated.
The broader impact of the weak dollar on wine prices
- Domestic wine will become better values relative to imported wine (although certain items used in making some domestic wines such as French oak barrels have increased dramatically in price).
- Domestic U.S. retailers will increase their efforts to sell wine abroad. See my post from earlier this week, Vinfolio to open Hong Kong operations.
- Foreign buying in the U.S. will increase (including European wines being sold back into Europe).
- Foreign investment in the U.S. wine industry should rise.
Bottom line: Fine wine prices are set globally and are on an upward trend given that rising demand is outpacing new supply (see Why fine wine prices will keep rising). Fundamental shifts in currency values will cause supply to shift to other markets as well as new opportunities for those paying attention and able to operate globally.
P.S. Today is the last day to vote for this blog in the 2008 American Wine Blog Awards. Read about it and vote.
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