Challenging times for France's wine producers

The French wine industry has had a difficult year with producers struggling against rising costs and falling revenues. Like businesses in so many markets in Europe, rising energy costs, wages and raw material prices have pushed up the production costs of French wine producers.

The problem of rising costs has been compounded by changes in demand in the wine market. The red wine sector of the French market has been particularly hard hit with demand falling significantly over the last few years as consumers switch to substitutes such as beer and soft drinks. The decline in demand has led to a fall in the price of French wine. Last year the price of red wine produced in Bordeaux fell by 22 per cent.

French wine is sold across the world and there has been a decline in alcohol consumption in many of its major markets. For example, alcohol sales across Europe fell 4 per cent in 2022 and over the last 20 years, alcohol sales have fallen by just over 20 per cent in Europe.

With declining demand and increasing costs producers in the French wine market face falling profits. This is where the French government has stepped in. France is a country that protects its agricultural producers and whilst wine is an alcoholic drink (demerit good) the French government is still prepared to step into the market to support wine producers.

To deal with the problem of falling wine prices the French government has decided to intervene in the market by spending €200 buying up surplus wine production and stopping the wine price from falling.  Whilst there is not a formal minimum price set, the policy acts in a similar way to a price floor.  The purchased wine will be destroyed and the alcohol from the wine used to manufacture perfume, hand sanitiser and cleaning fluids.

The intervention wine buying policy is on top of another measure the French government announced earlier in the year where wine producers were being paid €6000 per hectare by the state to dig up vines and reduce the industry’s productive capacity. There have been 1,000 applications from French wine producers to be part of the scheme starting in autumn.

There is a long-term challenge to wine production because of climate change. Drier summers and higher temperatures are making it more difficult to produce wine and it also alters the taste of the wine produced. Higher summer temperatures in France also contribute to changing consumer tastes with buyers switching from red wine to more refreshing drinks.

Some possible points to discuss with a class

1. Why is the demand for French red wine falling?

2. Why are the costs of French wine producers increasing?

3. How does government intervention buying in the French wine market help French wine producers?

4. How is climate change affecting the French wine market?

5. Is it right for the government to support an industry that sells alcohol - a demerit good?