TORONTO – Canada’s wine industry has far outpaced overall growth in the beverage sector over the past decade, but is still losing market share at home and abroad, says a new report from BMO Capital Markets Economics.
Canadian wine production has grown by 7.6 per cent a year since 1998, compared with just one per cent for the overall beverage sector.
But BMO said the market share for Canadian wineries slipped to about one-third of the domestic market in 2010 in the face of intense pressure from imports.
The appreciation of the loonie and constraints on red wine production in Canada have helped spur imports from so-called "New World" producers such as Australia and Argentina as well as traditional wine powers.
The main imports are from France, Italy, the United States and Australia. But new competitors have caused France’s leading share of the Canadian import market to slip.
Industry activity should strengthen with improving market conditions over the next few years, the report said.
While production has picked up since early last year, demand will likely be constrained by cautious consumers and the loonie’s strength.
BMO senior economist Kenrick Jordan said raising consumer awareness of the quality of the Canadian products will be critical to fighting the headwinds to growing market share.
"While exports will continue to play a limited role, fast-growth markets, where incomes are rising quickly and consumption is low, should be targeted."
BMO said the "export intensity" of Canadian producers – the percentage of product exported – declined to four per cent in 2010 from 15 per cent in 2001.
The U.S. is the largest foreign market for Canadian wines. It took more than 40 per cent of all exports in 2010, followed by China with about 20 per cent.
Sales to the United States have increased at a brisk rate, which contrasts with a downward trend in total wine exports by Canada.
The industry should focus on reducing production constraints by growing grape varieties more suitable to Canadian climate and on technologies that reduce the adverse effects of climate, said the report.
Windmills could be used, for example, to prevent cold air from settling over vineyards and Icewine from grapes frozen naturally on the vine should continue to be developed as a niche product.
Acceleration of Canada’s wine industry following sluggish growth over much of the 1990s has reflected a shift to wine-quality grapes from native species.
Other factors include the creation of the Vintners Quality Alliance (VQA) standard, expanded efforts to promote Canadian wine and industry consolidation.
Largely focused in Ontario, B.C. and Quebec, Canada’s wine industry is small, accounting for only 0.3 per cent of the manufacturing sector and 0.03 per cent of the overall economy.
It also remains the smallest beverage segment with $897 million of sales last year.
The industry is fragmented, with most operations being small. Only a few wineries have 200 or more workers, which would make them medium or large by international standards.
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