Required Report - public distribution

**Date:** 12/17/2004

**GAIN Report Number:** IT4038

IT4038

**Italy**

**Wine**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Ann Murphy

U.S. Embassy

**Prepared by:**

Sandro Perini

**Report Highlights:**

Italy\'s 2004 wine production rose 20 percent from 2003 to 53 million
hectoliters, thanks to more favorable weather. Quality of this year's
vintage is reported as very good, with peaks of excellence. Wine exports
in CY 2003 dropped significantly in volume, due to reduced shipments of
bulk table wine to Germany and France, but are expected to partially
recover in 2004. Exports to the U.S. (now Italy's leading export market
in terms of value), although growing marginally, are affected by
stronger competition from other exporters, such as Australia. U.S. wine
exports to Italy are estimated to have increased remarkably in 2004, but
represent a very small share of Italian wine consumption.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Rome \[IT1\]

\[IT\]

Table of Contents

[SECTION I. SITUATION AND OUTLOOK 3](#section-i.-situation-and-outlook)

[SECTION II. STATITISTICAL TABLES 4](#section-ii.-statistical-tables)

[WINE 4](#wine)

[ITALIAN WINE IMPORTS BY COUNTRY OF ORIGIN
4](#italian-wine-imports-by-country-of-origin)

[ITALIAN IMPORTS OF WINE AND MUST 5](#italian-imports-of-wine-and-must)

[ITALIAN WINE EXPORTS BY COUNTRY OF DESTINATION
6](#italian-wine-exports-by-country-of-destination)

[ITALIAN EXPORTS OF WINE & MUST 7](#italian-exports-of-wine-must)

[PRODUCTION 8](#production)

[General 8](#general)

[Planted Area 10](#planted-area)

[Distillation 10](#distillation)

[Prices 11](#prices)

[Production Policy 11](#production-policy)

[CONSUMPTION 11](#consumption)

[STOCKS 12](#stocks)

[INTERNATIONAL TRADE 12](#international-trade)

[FOREIGN MARKET DEVELOPMENT 13](#foreign-market-development)

# SECTION I. SITUATION AND OUTLOOK

# 

Italian wine production in 2004 is preliminarily estimated at 53 million
hectoliters, or 20 percent more than last year, which, along with 2002,
were the smallest crops in the last 50 years. Weather conditions were
generally favorable during most of 2004, especially in September. In
terms of quality, the 2004 vintage is rated as very good, with peaks of
excellence for certain white wines. Production of controlled appellation
wines, still representing a minority (about 30 percent of the total
volume), is growing and is mainly concentrated in the north and in
Tuscany.

Wine grape area, has continued the downward trend of the previous two
decades, although at a much lesser rate.

The EU distillation programs, aimed at supporting grower incomes, are
now attracting much lower volumes, after the peaks reached in the early
90\'s. However, in 2003/04 total Italian distilled wine volume was
almost 2 million hectoliters and could reach an even larger quantity in
2004/05, given current market difficulties.

Domestic wine consumption, after the sharp decline reported in past
decades, has now stabilized, although the number of regular consumers is
falling, as wine is increasingly consumed during of special events and
periodically.

Italian wine exports in 2003 dropped 16 percent in volume and 3 percent
in value, mainly as a result of decreased shipment of bulk table wine to
France and Germany. The U.S. has become the leading export market for
Italian wines in value terms (27 percent of the total) surpassing for
the first time Germany, while the U.K. is third. Strong competition from
other producing countries (such as Australia), however, is displacing
Italian exports in both North America and some northern European
countries, while the Euro strength is not helping, either.

U.S. wine exports to Italy, although still marginal if compared to total
consumption, are growing, especially in 2004, when unofficial data
report a value six time larger than last year.

# SECTION II. STATISTICAL TABLES 

# 

## WINE 

# 

![](media/image2.wmf)

### ITALIAN WINE IMPORTS BY COUNTRY OF ORIGIN

+----------------+--------+--------+--------+--------+--------+--------+
| ITALIAN WINE   |        |        |        |        |        |        |
| IMPORTS BY     |        |        |        |        |        |        |
| COUNTRY OF     |        |        |        |        |        |        |
| ORIGIN         |        |        |        |        |        |        |
|                |        |        |        |        |        |        |
| Quantity (1000 |        |        |        |        |        |        |
| Hectoliters)   |        |        |        |        |        |        |
| Value (Million |        |        |        |        |        |        |
| Euros)         |        |        |        |        |        |        |
+================+========+========+========+========+========+========+
|                | 2001   | 2002   | 2003   | 2001   | 2002   | 2003   |
+----------------+--------+--------+--------+--------+--------+--------+
| **Grand        | *      | *      | **     | *      | *      | *      |
| Total**        | *680** | *822** | 1447** | *178** | *204** | *232** |
+----------------+--------+--------+--------+--------+--------+--------+
| France         | 244    | 361    | 407    | 135    | 163    | 168    |
+----------------+--------+--------+--------+--------+--------+--------+
| Germany        | 16     | 21     | 25     | 3      | 3      | 3      |
+----------------+--------+--------+--------+--------+--------+--------+
| Greece         | 5      | 6      | 6      | 1      | 1      | 1      |
+----------------+--------+--------+--------+--------+--------+--------+
| Spain          | 261    | 233    | 843    | 11     | 12     | 35     |
+----------------+--------+--------+--------+--------+--------+--------+
| Portugal       | 37     | 82     | 75     | 10     | 11     | 12     |
+----------------+--------+--------+--------+--------+--------+--------+
| Other EU       | 14     | 21     | 32     | 7      | 5      | 4      |
| countries      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Total EU       | 577    | 724    | 1388   | 167    | 195    | 223    |
+----------------+--------+--------+--------+--------+--------+--------+
| U.S.           | 3      | 2      | 3      | 1      | 1      | 1      |
+----------------+--------+--------+--------+--------+--------+--------+
| Australia      | 2      | 3      | 3      | 1      | 1      | 1      |
+----------------+--------+--------+--------+--------+--------+--------+
| South Africa   | 2      | 1      | 1      | 0      | 0      | 0      |
+----------------+--------+--------+--------+--------+--------+--------+
| Slovakia       | 2      | 2      | 0      | 0      | 0      | 0      |
+----------------+--------+--------+--------+--------+--------+--------+
| Argentina      | 2      | 3      | 3      | 1      | 1      | 1      |
+----------------+--------+--------+--------+--------+--------+--------+
| Chile          | 5      | 4      | 12     | 2      | 1      | 2      |
+----------------+--------+--------+--------+--------+--------+--------+
| Hungary        | 10     | 21     | 16     | 1      | 1      | 1      |
+----------------+--------+--------+--------+--------+--------+--------+
| Romania        | 33     | 24     | 2      | 1      | 1      | 0      |
+----------------+--------+--------+--------+--------+--------+--------+
| Other          | 40     | 41     | 19     | 5      | 4      | 3      |
| Countries      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+

Source: ISTAT

1 Euro = \$0.896 in 2001

1 Euro = \$0.946 in 2002

1 Euro = \$1.131 in 2003

### ITALIAN IMPORTS OF WINE AND MUST

+--------------+--------+--------+--------+--------+--------+-------+
| ITALIAN      |        |        |        |        |        |       |
| IMPORTS OF   |        |        |        |        |        |       |
| WINE AND     |        |        |        |        |        |       |
| MUST         |        |        |        |        |        |       |
|              |        |        |        |        |        |       |
| QUANTITY     |        |        |        |        |        |       |
| VALUE        |        |        |        |        |        |       |
|              |        |        |        |        |        |       |
| (1.000       |        |        |        |        |        |       |
| Hectoliters) |        |        |        |        |        |       |
| (Million     |        |        |        |        |        |       |
| Euros)       |        |        |        |        |        |       |
+==============+========+========+========+========+========+=======+
|              | 2001   | 2002   | 2003   | 2001   | 2002   | 2003  |
+--------------+--------+--------+--------+--------+--------+-------+
| Total Wines  | 565    | 680    | 1447   | 200    | 178    | 232   |
+--------------+--------+--------+--------+--------+--------+-------+
| \- in        | 122    | 108    | 137    | 40     | 41     | 43    |
| bottles      |        |        |        |        |        |       |
+--------------+--------+--------+--------+--------+--------+-------+
| \- in bulk   | 327    | 479    | 1210   | 20     | 21     | 56    |
+--------------+--------+--------+--------+--------+--------+-------+
| \- sparkling | 13     | 16     | 12     | 5      | 4      | 3     |
+--------------+--------+--------+--------+--------+--------+-------+
| \- champagne | 79     | 58     | 61     | 130    | 109    | 113   |
+--------------+--------+--------+--------+--------+--------+-------+
| \- other     | 24     | 19     | 27     | 5      | 3      | 17    |
| spumanti     |        |        |        |        |        |       |
+--------------+--------+--------+--------+--------+--------+-------+
| Must         | 48     | 42     | 90     | 0      | 2      | 3     |
+--------------+--------+--------+--------+--------+--------+-------+
| **Grand      | *      | *      | **     | *      | *      | **    |
| total**      | *613** | *722** | 1537** | *200** | *180** | 235** |
+--------------+--------+--------+--------+--------+--------+-------+

Source: ISTAT

1 Euro = \$0.896 in 2001

1 Euro = \$0.946 in 2002

1 Euro = \$0.131 in 2003

### ITALIAN WINE EXPORTS BY COUNTRY OF DESTINATION

+---------+---------+---------+---------+---------+---------+---------+
| ITALIAN |         |         |         |         |         |         |
| WINE    |         |         |         |         |         |         |
| EXPORTS |         |         |         |         |         |         |
| BY      |         |         |         |         |         |         |
| COUNTRY |         |         |         |         |         |         |
| OF      |         |         |         |         |         |         |
| DEST    |         |         |         |         |         |         |
| INATION |         |         |         |         |         |         |
|         |         |         |         |         |         |         |
| Q       |         |         |         |         |         |         |
| uantity |         |         |         |         |         |         |
| (1000   |         |         |         |         |         |         |
| Hecto   |         |         |         |         |         |         |
| liters) |         |         |         |         |         |         |
| Value   |         |         |         |         |         |         |
| (       |         |         |         |         |         |         |
| Million |         |         |         |         |         |         |
| Euros)  |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
|         | 2001    | 2002    | 2003    | 2001    | 2002    | 2003    |
+---------+---------+---------+---------+---------+---------+---------+
| **Grand | **1     | **1     | **1     | **      | **      | **      |
| Total** | 5,371** | 5,187** | 2,802** | 2,555** | 2,729** | 2,640** |
+---------+---------+---------+---------+---------+---------+---------+
| France  | 2,469   | 1,830   | 976     | 107     | 89      | 73      |
+---------+---------+---------+---------+---------+---------+---------+
| Germany | 5,387   | 5,453   | 4,577   | 744     | 732     | 678     |
+---------+---------+---------+---------+---------+---------+---------+
| U.K.    | 1,206   | 1,362   | 1,323   | 244     | 271     | 280     |
+---------+---------+---------+---------+---------+---------+---------+
| Belgium | 227     | 229     | 200     | 37      | 40      | 40      |
+---------+---------+---------+---------+---------+---------+---------+
| Neth    | 280     | 278     | 256     | 49      | 55      | 52      |
| erlands |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| Denmark | 192     | 234     | 214     | 48      | 59      | 57      |
+---------+---------+---------+---------+---------+---------+---------+
| Spain   | 90      | 78      | 99      | 13      | 14      | 17      |
+---------+---------+---------+---------+---------+---------+---------+
| Sweden  | 357     | 327     | 285     | 66      | 66      | 63      |
+---------+---------+---------+---------+---------+---------+---------+
| Austria | 356     | 363     | 326     | 68      | 68      | 66      |
+---------+---------+---------+---------+---------+---------+---------+
| Other   | 768     | 488     | 337     | 55      | 55      | 45      |
| EU      |         |         |         |         |         |         |
| Co      |         |         |         |         |         |         |
| untries |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| Total   | 11,052  | 10,752  | 8,593   | 1,406   | 1,449   | 1,371   |
| EU      |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| U.S.    | 1,785   | 2,001   | 2,035   | 611     | 718     | 710     |
+---------+---------+---------+---------+---------+---------+---------+
| Swit    | 592     | 599     | 536     | 167     | 172     | 174     |
| zerland |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| Canada  | 404     | 443     | 447     | 113     | 127     | 127     |
+---------+---------+---------+---------+---------+---------+---------+
| Japan   | 354     | 354     | 305     | 112     | 115     | 110     |
+---------+---------+---------+---------+---------+---------+---------+
| Russia  | 23      | 31      | 58      | 8       | 12      | 18      |
+---------+---------+---------+---------+---------+---------+---------+
| Poland  | 134     | 80      | 49      | 9       | 7       | 7       |
+---------+---------+---------+---------+---------+---------+---------+
| Czech   | 270     | 273     | 232     | 9       | 10      | 10      |
| Rep.    |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| Other   | 757     | 654     | 547     | 120     | 119     | 113     |
| Co      |         |         |         |         |         |         |
| untries |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+

Source: ISTAT

1 Euro = \$0.896 in 2001

1 Euro = \$0.946 in 2002

1 Euro = \$1.131 in 2003

## 

## 

### ITALIAN EXPORTS OF WINE & MUST

+---------------------+-------+-------+-------+-------+-------+-------+
| ITALIAN EXPORTS OF  |       |       |       |       |       |       |
| WINE & MUST         |       |       |       |       |       |       |
|                     |       |       |       |       |       |       |
| QUANTITY VALUE      |       |       |       |       |       |       |
|                     |       |       |       |       |       |       |
| (1.000 Hectoliters) |       |       |       |       |       |       |
| (Million Euros)     |       |       |       |       |       |       |
+=====================+=======+=======+=======+=======+=======+=======+
|                     | 2001  | 2002  | 2003  | 2001  | 2002  | 2003  |
+---------------------+-------+-------+-------+-------+-------+-------+
| DOC Wines           | 4,708 | 4,496 | 3972  | 1,399 | 1,429 | 1285  |
+---------------------+-------+-------+-------+-------+-------+-------+
| \- in bottles       | 4,378 | 4,176 | 3688  | 1,359 | 1,388 | 1245  |
+---------------------+-------+-------+-------+-------+-------+-------+
| \- in bulk          | 330   | 320   | 284   | 40    | 41    | 38    |
+---------------------+-------+-------+-------+-------+-------+-------+
| Sparkling wines     | 1,057 | 1,103 | 1086  | 155   | 165   | 172   |
+---------------------+-------+-------+-------+-------+-------+-------+
| Table wines         | 8,806 | 8,716 | 6900  | 800   | 920   | 957   |
+---------------------+-------+-------+-------+-------+-------+-------+
| Spumanti            | 800   | 872   | 844   | 201   | 215   | 228   |
+---------------------+-------+-------+-------+-------+-------+-------+
| Total wines         | 1     | 1     | 12802 | 2,555 | 2,729 | 2640  |
|                     | 5,371 | 5,187 |       |       |       |       |
+---------------------+-------+-------+-------+-------+-------+-------+
| Must                | 243   | 446   | 357   | 25    | 22    | 22    |
+---------------------+-------+-------+-------+-------+-------+-------+
| **Grand total**     | **15, | **15, | **13  | **2,  | **2,  | **2   |
|                     | 614** | 633** | 159** | 580** | 751** | 662** |
+---------------------+-------+-------+-------+-------+-------+-------+

Source: ISTAT

1 Euro = \$0.896 in 2001

1 Euro = \$0.946 in 2002

1 Euro = \$1.131 in 2003

## PRODUCTION

### General

After two consecutive years of extremely low crops, preliminary
estimates by ISTAT (the Official Institute of Statistics) place Italian
2004 wine production at 53 million hectoliters (MHL), or 20 percent more
than the 2003 crop. As a matter of fact, both the 2002 and 2003 outputs
were reported as the lowest of the last 50 years, although for opposite
reasons (excess of rains in 2002 and continued drought in 2003). Weather
conditions this year were, on the contrary, fairly favorable to the crop
development. The plentiful rains of last winter allowed the water
reservoirs impoverished by the previous drought to replenish, enabling a
normal recovery of the vines. In the spring, the continued rains and
relatively low temperatures delayed plant flowering, but with no
dramatic effect on the crop. The summer of 2004 was also characterized
by mild temperatures. The favorable weather conditions in September,
which was generally sunny, confirmed or even further increased the
general expectation of a good crop from both the quantity and quality
standpoints.

While 2004 Italian wine production is estimated to be 20 percent greater
than in 2003, the increase is not uniform up and down the peninsula.
Sicily and Latium, for example, are looking at 5 and 10 percent
increases, respectively, while the output in the Marche region is
expected to be up 30 percent. Veneto will again be the leading producing
region and its output should be 25 percent greater than in 2003. Even
from the quality standpoint, the 2004 vintage is classified as "very
good". For most white wines it is reported as one of the best of the
last 20 years, while for the red wines the 2004 label will be, in many
cases, close to 1997, which was rated as excellent.

Wine grapes are produced in all the twenty Italian regions. The
following table shows the breakdown of wine production by region during
the most recent years.

  -------------------- --------------- ------------ ------------ ------------ ---------------
  **Italian wine                                                              *(1,000
  production**                                                                hectoliters)*

                       **Average**                                             

   Regions             **1995-1999**   **2000**     **2001**     **2002**     **2003**

  Piedmont             3,132           2,938        3,324        2,329        2,282

  Valle d\'Aosta       31              27           18           16           18

  Lombardy             1,525           1,360        1,286        1,123        856

  Trentino Alto Adige  1,127           1,177        1,230        1,063        1,076

  -of which                                                                   

  *Bolzano*            406             *387*        *399*        *358*        333

  *Trento*             721             *790*        *830*        *705*        743

  Veneto               7,628           8,825        8,668        6,847        7,369

  Friuli Venezia       1,137           1,152        1,111        1,006        1,113
  Giulia                                                                      

  Liguria              154             169          104          93           106

  Emilia Romagna       6,249           6,915        7,116        5,682        5,305

  Tuscany              2,611           2,540        2,220        2,319        2,274

  Umbria               889             966          879          776          812

  Marche               1,800           1,609        1,683        1,258        940

  Latium               3,282           3,733        3,008        2,859        2,441

  Abruzzo              4,192           3,689        3,441        3,808        3,319

  Molise               364             310          342          307          274

  Campania             2,113           2,013        1,717        1,761        1,655

  Apulia               8,706           7,782        6,877        5,580        6,089

  Basilicata           511             473          391          309          284

  Calabria             811             613          884          531          476

  Sicily               8,968           7,106        7,149        6,209        6,553

  Sardinia             875             693          845          729          856

  **Grand Total**      **56,104**      **54,088**   **52,293**   **44,604**   **44,096**
  -------------------- --------------- ------------ ------------ ------------ ---------------

Source: ISTAT

As can be seen from the above table, in terms of volume, in 2003 Veneto
was confirmed as the leading producing region, followed by Sicily,
Apulia and Emilia- Romagna. These four regions account, on average, for
more than half of total Italian wine production. About half of total
wine production is represented by white wines, and the remaining half by
red and, to a much lesser extent, rose' wines.

An increasing share of total production is represented by DOC and DOCG
wines. Controlled Appellation wines (DOC wines) come from carefully
delineated areas, have specific requirements regarding the maximum grape
yields per hectare, the minimum alcohol content and other quality
characteristics, and are subject to EU regulations. Currently, in Italy
there are 306 DOC wines (vs 303 last year), while the number of DOCG
wines (Guaranteed Appellation of Origin) rose from 27 of one year ago to
30.

Many of the most valuable, well-known Italian wines are DOCG (i.e. Asti
Spumante, Barolo, Barbaresco, Chianti, Brunello di Montalcino). While
normal DOC wines can be sold at the retail level in containers of up to
60 liters, DOCG wines can be sold in bottles of 5 liters or less and
must have all the appropriate official identification marks. DOC & DOCG
wines' share of total domestic output keeps growing, rising from about
23 percent of the total in 2002 to 30 percent in 2004. The bulk of
Italian production is still table wines. Most of the DOC & DOCG wine
production comes from the north of the country (especially Trentino Alto
Adige, Friuli Venezia Giulia, and Piedmont, which account for over two
thirds of the total) and Tuscany.

### Planted Area

After the sharp declines reported in the 80's and 90's, Italian vine
area in the most recent years has continued to fall, although at a much
slower rate. This year's area is officially reported at 786,000
hectares, or slightly more than half of the area of the early 80's.

Current CAP (Common Agricultural Policy) for the wine sector calls for a
general prohibition of new vine planting through 2010. At the same time,
it provides a special fund to be spent on reconversion and restructuring
of vineyards, aimed at obtaining better quality wines. The EU
allocations for Italy and its main producing regions during the last
three marketing years have been as follows:

2001/02 2002/03 2003/04

hect. Mill.Euros hect. Mill.Euros hect Mill.Euros

Piedmont 1,198 8.8 1,493 10.6 1,340 5.8

Veneto 1,531 11.2 1,531 10.8 1,503 12.0

Emilia-Romagna 1,262 9.3 1,505 10.6 1,255 8.1

Tuscany 1,364 10.0 1,460 10.3 1,421 10.1

Apulia 2,127 15.6 2,409 17.0 2,036 13.7

Sicily 2,521 18.5 2,975 21.5 2,866 42.0

Other regions 5,907 43,2 6,143 43,1 6,451 46.4

TOTAL ITALY 15,910 116.6 17,516 123.9 16,872 138.1

As can be seen from the above table, most of the allocations are spent
in southern Italy, where quality wines are still rarer than in the
northern part of the country.

### Distillation

Current CAP provides two different, voluntary distillation programs
optional distillation (automatically opened at the beginning of each
marketing year), and \"crisis\" distillation (aimed at supporting the
market in case prices for a certain type of wine or in a delimited
producing region show a significant worsening for a certain period of
time). During 2003/04 contracts approved under optional distillation
involved 1,985,000 hectoliters, or a volume significantly larger than
the one in the previous year (1,260,000 hectoliters), due mainly to the
less favorable market situation, especially for table red wines. During
these two marketing years (02/03 and 03/04), however, there was no
"crisis" distillation, as domestic prices always remained over the
distillation prices, mainly as a result of the very low domestic
production. Prospects for the 2004/05 marketing year, on the other hand,
indicate a substantial increase of the volumes to be distilled, as a
consequence of both larger domestic supplies and further declining
prices. Optional distillation, according to trade contacts, could exceed
3.5 MHL, while some wine quantities could be again distilled under the
"crisis" distillation, if the current downward market price trend is not
reversed.

### Prices

After the strong increase reported in 2003/04, due mainly to the reduced
domestic supply, wine prices in 2004 started to weaken, due to stagnant
domestic consumption and declining exports. According to ISMEA, grower
prices averaged some 2.5 percent less than in the previous year for red
table wines and 1 percent less for quality red wines (DOC/DOCG). Prices
of white wines, on the contrary, rose: +5% for table wines and +6% for
quality wines. These increases, however, reflect more the very tight
domestic production than an actual growth in domestic and export demand.
On the contrary, weakening consumption, joined to the expanded domestic
production, is affecting the wine market in 2004/05. During the first
four months of the current marketing year (August-November 2004) grower
prices of red table wines dropped, on average, by 18 percent compared to
the same period of the previous year, while those of table white wines
decreased by 12 percent. Significant reductions are also reported for
quality wine prices: -5 percent for red wines and --10 percent for white
wines.

### Production Policy

Current CAP for the wine sector was fully implemented in 2000/01 and is
not likely to be substantially changed in the coming years. Facing
present market difficulties, (weaker domestic demand, lower exports,
strong Euro, and increasing competition from other countries both in the
European and in the U.S. markets) the Italian wine sector is urging the
local authorities to adopt measures to support wine consumption. One of
these measures is the request recently submitted to the government to
reduce current IVA (Value Added Tax) rate from 20 percent to 10 percent,
arguing that wine is traditional part of the Italian menu, and cannot be
treated differently than other key ingredients of the Italian diet. The
obvious implications in terms of tax revenues for the Italian government
make this proposal difficult to implement.

## CONSUMPTION

# 

Domestic wine consumption, which in 1975 was 104 liters per capita per
annum, has steadily declined and stabilized at about 50 liters.
According to a recent survey made by Assobirra (the Bier Producer
Association), however, the number of wine regular consumers (people who
drink wine practically every day) continues to decrease, while the
importance of periodic drinkers (persons who consume wine during
meetings with friends, the holidays, meals at restaurants, or particular
events is growing). Furthermore, as the table below shows, this new
consumption trend is favoring mainly non-alcoholic beverages (mineral
water and soft drinks), rather than beer and wine, in connection to both
changed life styles and health and dietetic concerns. The strong
increase of retail prices of wines, moreover, has in the most recent
years further pushed many traditional consumers to either buy cheaper
wines (with generic geographical indication rather than DOC/DOCG) or
switch to other beverages.

  ------------------- ----------- ----------- ----------- ----------- -----------
  **Per capita                                                        (liters)
  consumption of                                                      
  beverages in                                                        
  Italy**                                                             

  ** **               **1998**    **1999**    **2000**    **2001**    **2002**

  Bier                26.9        27.1        28.1        28.9        28.2

  Mineral water       144.2       148.1       165.0       172.0       182.9

  Soft drinks         57.0        58.0        54.9        56.1        65.6

  Cold tea            3.9         4.0         4.4         4.7         4.5

  Wine                52.0        51.5        51.0        50.0        51.0

  Fruit juices        9.6         10.1        10.8        11.2        10.9

  Spirits             1.4         1.3         1.2         1.1         0.9

  **Total**           **295.0**   **300.1**   **315.4**   **324.0**   **344.0**
  ------------------- ----------- ----------- ----------- ----------- -----------

## 

## 

## STOCKS 

# 

Wine ending stocks declined slightly in both 2002/03 and 2003/04, in
line with the very low production in those two years. Preliminary
expectations for 2004/05, on the contrary, indicate a substantial stock
expansion, due to both increased output and stagnant or declining demand
(both domestic and export). The extent of this possible stock increase
will depend on the actual volumes distilled, which are included in our
PSD table in the "domestic consumption, other" line.

# 

## INTERNATIONAL TRADE 

# 

Italian wine exports in 2003 dropped by 16 percent in volume but only 3
percent in value, because of the decline in bulk, cheaper table wine
shipments. These declined by 36 percent in volume and 19 percent in
value. As in the previous year, in 2003 the only wines whose exports
rose were bottled table wines (+3 percent in volume and +11 percent in
value). This situation reflects, basically, a further increased interest
from the foreign buyers for these kind of wines, cheaper than DOC/DOCG
wines, but in any case of good enough quality to attract a rising number
of foreign consumers. Sales of DOC/DOCG wines in 2003 dropped by 12
percent in volume and 10 percent in value, consequent to increased
competition in the world market. These wines, on the other hand,
represent only 30 percent of the total export quantity, although they
account for about half of total export value. Slight decreases are
reported also for exports of sparkling wines (-2 percent in volume) and
spumanti (-3 percent in volume), but with increases in value (+9 percent
and + 6 percent, respectively).

Considering export data by destination, the 2003 figures show as the
U.S. became, in terms of value, the leading market for Italian wines
(about 27 percent of the total figure), surpassing Germany for the first
time, while the U.K. is third. In terms of volume, Germany, despite the
strong decrease reported in 2003, remains the primary export market, but
the U.S., with over 2 MHL, overtook the U.K. and France. Exports to
France, in particular, mainly represented by bulk table wines, dropped
by 47 percent in 2003 (in volume), after the 26 percent drop reported in
2002, due again to the strong competition from cheap Spanish wine. The
very strong Euro compared to the U.S. dollar is affecting Italian
exports to the U.S., as is competition from other countries, primarily
Australia. Slight export decreases to the U.S. have been also reported
for both spumanti and sparkling wines (-4 percent each).

Italian wine exports are showing a slight improvement during 2004.
According to ICE, the value of Italian shipments in January-August 2004
rose by 5 percent from the same period of 2003, thanks mainly to the
increased export value to the U.K., Switzerland, Canada and some
northern European countries, while shipments to the U.S. are virtually
unchanged, in value terms. The main concerns of the Italian wine
industry are represented by the growing competition on the world market
from "new" wine producers, such as Australia, Chile, Argentina and South
Africa, able to offer good products at competitive prices. The strong
Euro, as well, is a limiting factor for exports outside the Euro area,
(mainly North America and Japan, but also the U.K.).

Wine imports into Italy (which account for a negligible share of the
total Italian wine market), usually are represented by prestige products
(e.g. Champagne, Port and Sherry) from other EU countries. In 2003,
however, imports rose by 76 percent in volume, reflecting mainly larger
arrivals of bulk table wines (+153 percent), which accounted for about
84 percent of the total, mainly coming from Spain and, at a lesser
extent, France.

Shipments from the United States, although very small when compared to
total Italian wine consumption, recovered substantially in 2003, after
the drop reported in the previous year. The official Italian figures
report imports of 2,778 hectoliters in 2003, a significant increase of
48 percent. In value terms, however, the same Italian sources indicate
that imports totaled 1,090,000 euros (\$1,233,000), or 6 percent less
than in 2002, mainly reflecting the cheaper dollar. According to ICE,
however, imports from the U.S. during January-August 2004 totaled 3.6
million Euro, or almost six times the same period of 2003. This
development confirms the reputation for good quality of U.S. wines in
the Italian market, not only, as in past years, in top restaurants and
hotels, but also with Italian consumers in general.

## FOREIGN MARKET DEVELOPMENT 

# 

The Italian Trade Commission (ICE), an agency of the Ministry of
Production Activities continues to remain the main public institution to
provide export and promotion assistance in foreign markets. Funds used
by ICE to promote Italian food and agricultural products, including
wines, are provided by the Ministries of Production Activities and
Agriculture, as well as the 20 Italian regions, which are in fact using
ICE as their main promotional means.

Currently there is no specific export promotion program for wine, which
is included in the general promotional programs of Italian foods and
beverages. The 2005 promotional plan of ICE is still under discussion
with the Italian Parliament, as part of the budget law. In general,
however, ICE' s yearly expenditures for foods and beverages are almost
30 million euros (\$ 40 million) of which 4.5 million euros are
allocated to the budget of the Ministry of Production Activities, 4.9
million euros for the budget of the Ministry of Agriculture (to be spent
for the most valuable Italian food products, like those having
recognized appellation of origin), and the remaining about 20 million
euros for the Italian regions. Out of the total, it is estimated that
about one fourth to third is spent to promote wine. The major events
include workshops, wine tastings, or point of sale promotions. The main
target countries are the U.S., U.K., Canada, Switzerland and Japan.
Focus is increasingly given to some growing markets, such as the Far
East (not only Japan, but also South Korea, Taiwan, Hong Kong,
Singapore, as well as China). The Ministry of Production Activities
allocation is spent almost entirely at fairs and shows, where the cost
of national pavilions is shared with private companies on differing
bases according to the market, with a higher private share in "mature"
markets (like western Europe and the U.S.), and a larger public share in
emerging markets (especially China and other far eastern markets). Other
activities include financing trade teams to Italy, especially reporters
from the food and beverage press (often co-sponsored by the local
industry), and organizing wine tastings. Private contributions to the
ICE programs sponsored directed by the federal administration total
about €8.7 million (\$11.5 million), while the contributions to the
activities sponsored by the regions are roughly estimated at €5 to 6
million.