Why Prosecco DOC is not a good business for small producers

4th August 2014

Why Prosecco DOC is not a good business for small producers
This morning I came across another article that writes about the Prosecco’s success story. To be honest I am a bit tired of all these articles because they all show big nice positive numbers, but none tells the story from the producers’ point of view, who actually struggle to make it. No one writes about those people who are losing money by producing it, or are obliged to stock it without the possibility to sell or bottle a percentage of their production as Prosecco. Now you may ask, what does that mean? Fair question, probably only us, producers, deal with this problem and no one really talks about it because it is in no one’s interest to talk “bad” about Prosecco. Producers are too busy with their passion and running after the trade, and the trade is too busy making sure the producers sell underpriced. The vicious circle of the supply and demand game makes it seem all wonderful.Let me rewind and explain; in 2012 for the sake of controlling the market value of Prosecco through controlled volume releases, the Consortium of DOC Prosecco moved forward a request to the regions of Veneto and Friuli to stock 10% of the total production in the wineries. This meant that after harvesting and processing the grapes, producers found themselves with 10% of their Prosecco volumes blocked without the possibility to sell or bottle as Prosecco. Thankfully, this prohibition ended in February 2013. Producers could face 2013 harvest with an empty winery if they wanted. At least this was the case for us. Luckily, during those stocking months the market value of the product remained stable, so producers were fairly happy.The same request was forwarded again for the 2013 harvest, but instead of 10% of total production, we had to block 20%. The legislation approved by the Veneto Region on August 22, 2013 (right before harvest) says that we cannot sell 20% of our production until July 31, 2014 unless the Consortium decides otherwise. Until that date, we can sell it as Glera, which has no market value, or as IGT white wine, which has even less value. The “good” news is that few days ago the Consortium has asked to liberate 100.000 hectoliters, just under 1/3 of the stocked quantity.Prosecco Sfriso harvest

The 20% of total production translated to my small winery looks like this: our total 2013 Prosecco DOC production was 230 hectoliters out of which 46 hectoliters are still sitting and resting in the winery. The value of blocked production if sold bulk as “IGT white wine” is equivalent to about €0.30/liter against average market price of €1.10 for Prosecco DOC. Can you all see what’s wrong with this? Our production cost for Prosecco is approximately €0.60/liter (from vineyard to winery, excluding bottling, packaging, taxes, VAT). Now given these figures, anyone can see the unsuccessful business for us small producers. The 20% of our production in proportion to our small size is an important number. What makes us angry is that it’s not us doing bad business, it’s the regulations that are forcing us into this unpleasant situation. We have Prosecco DOC in our winery and cannot sell it as such, but if we want to start our harvest in a few months with an empty winery, we can sell the wine as a simple IGT white wine at 70% under its market value. Great job done by the Consortiums to keep the market value stable and playing with the demand and supply seesaw game on the producers’ expenses. The not so funny thing is that if we had sold out our bottled Prosecco, we would have needed to buy from someone who still has over 20% of its production in stock, to be able to bottle new Prosecco, while we still have our own wine resting and nicely ageing in the casks in our winery. A lose-lose situation. Given the latest news, we can sell roughly 13 hectoliters and will still need to keep 33 hectoliters in the winery. Still a lose-lose situation.

Let me put some market figures in here: production area of Doc Prosecco is about 20.000 hectares distributed in nine provinces of Veneto and Friuli regions. More than 10.000 producers and more than 300 bottlers are moving this market forward. The 2013 total production was over 1.8 million hectoliters for approximately 240 million bottles, of which only 35% destined for the domestic market and the remaining 65% for export. Today there are roughly 360.000 hectoliters of Prosecco still in the wineries, of which 100.000 will be “freed” for the sake of controlling the demand and supply chain. Important to note that these 20.000 hectares will reach their maximum production capacity in 2015, with a prediction of about 400 million bottles. If we look at the tendency, we can expect to have to block 30% or more of this year’s production, always for the sake of the market demand and supply. If we have to store production because there is not enough demand, or to keep market prices, are we sure it was a good decision back in 2009 to increase the production area from only one province to nine provinces? Wouldn’t it be easier at this point to decrease the allowed yield per hectare? Unfortunately, there is much politics involved for the “sake of few” big players. The business outlook for small producers like us is not good. We have higher production costs, and can’t even sell our wines because of market politics. We simply can’t compete with on-shelf prices that are lower than our finished bottle cost.

Conclusion? We can deduct that this huge BOOM in sales of Prosecco is not enough to absorb the even bigger production quantities, and the future is not bright! This love story will end, and we can already see the decline of it.

If this prohibition continues, producers will start 2014 harvest with 2013 Prosecco DOC in stock, unless they sell as IGT white wine under-priced. If they decide to stock it and sell once the blockage is over the markets will get the 2013 Prosecco sold maybe late 2014 and beginning of 2015, and we all know that Prosecco is not for ageing. You have been warned!

So what can a small winery do? Be creative and be better! There are many opportunities outside the Prosecco world! What are we going to do? We will continue bottling our own wines, as always, and will make a better product calling it maybe “Reka’s New Favourite Sparkling”.

Cheers,
Reka

sfrisowinery.com

Glass of Bubbly

Glass of Bubbly

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