Geography and Demography:
Capital: Rome
Area: 301 338 km²
Population: 57,715 625
Administration: 8111 districts

Politics:
Regime: Parliamentary Democracy
President of the Republic: Giorgio Napolitano
Prime Minister: Romano Prodi

Economy:
Currency: Euro €
Principal economic activities: tourism, industry, agriculture
GNP: $US 1.5 trillion = € 1.18 trillion (2005)
GNP per capita: $US 25 000 = € 19 700 (2005)
Unemployment: 9 % (2005)

Italy is one of the biggest and oldest wine producers in the world.

It has been producing diverse and characteristic wine for over 4000 years, with a reputation for some of the best wines in the world.

The first people to bring vines to Italy were the Ancient Greeks who, following the Phoenicians, exported their famous wines across the Ionian sea for consumption amongst their empire in Italy, as with much of the rest of Europe at this time. The Ancient Greeks named Italy “Oenotria”, which translates as “the domaine of wine”, due to its sun drenched hillsides and mistral winds which encouraged the growth of high quality grapes. After the Etruscans, the Romans developed their wine growing techniques and distributed wine across their empire, exporting the art of wine-growing in the process. The Romans did a lot for the production of wine, especially in Italy, but following the collapse of the Roman Empire, wine production in Europe collapsed as well.

During the middle ages, Italian wine-making was carried out by catholic monks who used it for mass. As a result, Italian wines became more refined and also more diverse. New wine-making techniques during the 18th and 19th centuries heralded great advances in Italian wines but a devastating phylloxera epidemic at the end of the 19th century destroyed most of the vineyards across Europe.

During the 20th century, Italian wine-makers began to produce large volumes of wine. As a result, Italian wine gained a reputation for being low in price and in quality. In order to combat these perceptions the Italian government introduced the category of “Denominazione di Origine Controllate” (DOC) during the sixties. This amounted to a series of strict rules designed to distinguish superior wines from the more average bottles. Following this, during the eighties, a new level named “Denominazione di Origine Controllata e Garantita” (DOCG) was created above the DOC level. Today there are four denominations: DOCG, DOC, Indicazione Geografica Typica (ICG, similar to vin de pays) and finally, Vino da Tavola (vin de table). During recent years, the Italian wine industry has struggled to make progress in the increasingly competitive international wine markets, especially against the new world brands.

During 2006, following recurrent problems with over-production, over 300 million hectolitres of French and Italian wine were distilled into ethanol or alcohol. These problems have followed poor years in 2002, 2003 and 2005 due to small harvests and poor weather. Nevertheless, despite these problems Italy remains the second biggest producer of wine in the world behind France. The story of Italian wine continues.

According to the USDA Foreign Agriculture Service (USA), during 2005 Italy had 764 000 hectares of vineyards, 4000 hectares less than the previous year. Indeed, the total area in 2005 was a half of what it was at the beginning of the eighties. 82% of the DOC/DOCG areas are located in the north of the country, centred around the regions of Piedmont, Tuscany and Venice (source: Conseil Général de la Dordogne). In many ways Italy is an ideal country for wine vine-growing. Between the fresh mountain climate of the north and the hot and dry areas in the south, there is a variety of soils and climates across the country, as well as the hillsides and slopes which stretch from north to south. This diversity allows an equal variety in the grape varieties that are used, making Italy the country with the widest range of grape varieties in the world. There are 457 different varieties planted in Italian terroirs, a little more red than white. The wine producing regions are representative of politico-administrative regions of which there are twenty. The four regions that are best known are: Veneto, Apuila, Sicily and Emilia Romagna, these regions are responsible for more than a half of total production. The majority of this production is made up by vino da tavola and ICG which make up 77% of total production.

Production by denomination

(Source: Conseil Général de la Dordogne)

Italian production figures have shown a steady decrease since the eighties. This reflects a growth in world competition, notably from the new world wines. The Common Agricultural Policy (CAP) allows “crisis distillation” alongside normal distillation quotas. In the past three years 2 million hectolitres of wine has been distilled under crisis distillation each year. In 2005 the Italian government asked the EU to increase their quota to 6 million hectolitres, but the commission declined. It sems as though the Italian wine producers will have to either find new markets, or reduce their production.

Evolution of Italian wine production

(Source: USDA Foreign Agricultural Service)

Behind France, Italy is the second largest wine market, in volume, in the world. Despite this position, Italian wine consumption has declined in the past fifteen years.

Evolution of Italian wine consumption versus non-alcoholic drinks

(Source: USDA Foreign Agricultural Service)

In 2004, per capita consumption was at 48.3 litres, the first time that the figures had dropped below 50 litres. This decrease is a reflection of an increasing national preference for non-alcoholic drinks.

The decline in consumption and knowledge of wine is notable among young people. In 2003 the ministry of agriculture developed a marketing campaign in order to address this decline. Although overall consumption figures have decreased, at the same time, consumption of high-quality wines has increased. Therefore, it is the vinos da tavola which are in decline, with an overall decrease of 19.8 million hectolitres between 1993 and 2003, whilst consumption of DOC/DOCG wines has increased by 9.6 million hectolitres during the same period (source: Conseil Général de la Dordogne).

In addition, champagne has also shown an increase in popularity during recent years. In 2003, champagne imports represented 7.7% of total wine imports in Italy, this is in contrast with 3.9% in the UK, 3.2% in Germany and 1.2% in Belgium.

Consumption by wine colour

(Source: Conseil Général de la Dordogne)

Italian consumers generally prefer red wine over white, 55.6% and 37.2% respectively. The majority of this consumption in volume is in the household at 63%, yet in terms of value this only represents 26% (source: Conseil Général de la Dordogne). This is a reflection of an Italian preference to eat meals in the home, though this is a tendency which is changing (source: USDA). According to a study by “Wine News”, price is the most important factor for Italian wine buyers.

Consumption by price

(Source: Conseil Général de la Dordogne)

The average price of wine dropped during 2004/05. There are several reasons for this:

- Growing production and constant overproduction
- Decreasing consumption
- Greater competition

However, it is too early to definitively tell if Italian wine prices are in decline. Indeed, with production slowly going down, some have predicted that the prices will go up whilst the producers look for higher quality wines and more exclusive markets
(source: Forbes).

Biggest wine exporting countries by volume share of the market in 2005

(Source: Wikipedia)

Italy and France are the two biggest exporters in the world.

According to the year and the size of the harvests, either Italy or France is the biggest exporter in volume. The US is the biggest importer of Italian wines in value whilst Germany is the biggest in terms of volume. The Italian wine industry is concerned at the competition in price and in quality that the new world wines present. Nevertheless, during the first five months of 2006, total export volumes grew by 7%, this rate of increase was a record.

Italian wine exports by volume and value

(Source: Conseil Général de la Dordogne)

The USA: the largest market

According to Forbes.com, during 2005, 1.82 million hectolitres or 243 million bottles, were exported to the US from Italy, representing 31% of the American market and a growth of 10.5% on the previous year. The estimates for exports to the US during the first five months of 2006 predicted a rate of growth of more than 9%. If these estimations are correct, Italy will be the biggest wine exporter in the world in 2006. Moreover, the rate of growth in value is higher than the rate of growth in volume. In short, it seems as though Italian wines are becoming more expensive, perhaps a reflection of changing perceptions with regard to Italian wines?

New Clients?

Alongside exports to the US and other countries, new markets are emerging, notably in China, India and Russia. Exports to China grew by 115% during 2005, by 70% in India and by 50.7% in Russia (source: winecountry.it). Such growth rates support the notion that Italian wines have found new avenues of distribution. In order to pursue such emergent markets, the Italian ministry for agriculture will distribute funds during the next few years. According to the USDA these will total 5 million euros for wine producers alone. Nevertheless, consumption in India and China, for example, remains modest and we can explain the figures for Russia by the fact that Russian imports of Georgian wines dropped in 2006 following a diplomatic dispute. Italian wines are still seen as a status symbol however, in the eyes of foreigners.

In 2004 Italy was the twelfth largest importer of wine in the world
(source: Conseil Général de la Dordogne).

Spain is the biggest supplier of wines to Italy in volume, whilst France is the most important in value due to its expensive champagnes.

Italian wine imports by volume 2002-2004

(Source: USDA Foreign Agricultural Service)

Italian wine imports by value 2002-2004

(Source: USDA Foreign Agricultural Service)

Foreign wine imports is a recent trend in the Italian wine market. According to the USDA, the two principle reasons for this are as follows:
- Large imports of cheap Spanish wines in bulk
- A big increase in imports of bulk wine from the US due to relatively cheap costs for transport, customs duties and bottling.

Italy, along with France, is one of seven founding members of the OIV (Office international de la vigne et du vin) in 1924, and ratified the new convention which substituted it in 2003 by l’Organisation Internationale de la vigne et du vin. Italy is also a member of the European Union and as such, respects European rules developed in the OCM vitivinicoles (Organisation Commune de Marché).

The four production categories of Italian wines (DOCG, DOC, ICG and vino da tavola) resemble a pyramid structure with vino da tavola at the bottom, and DOCG wines at the top. However, the segmentation of the market sometimes differs from this concept. Certain prestigious wines remain under the ICG classification whilst the difference between DOC and DOCG wines is not always perceptible.

The northern regions, such as Piedmont or Venice, are well represented by these classifications whilst the large production regions such Sicily or Pouilles suffer from a weaker representation. The category of IGT has become known as a source of innovation. More flexible with regards to usage and less restricted by historical factors pertaining to the tradition of a terroir and its production, the ICG category offers entrepreneurs the possibility to develop innovative techniques whilst benefiting specific tastes within the Italian wine sector. A number of vine-growers from the north, having bought vineyards in the south, initially destined to produce vino da tavola, have developed within the IGT category, new products often associated with the peculiarities of a local grape variety to a particular brewing process. Such products include, for example, associating traditional grapes with “international” varieties such as Cabernet Sauvignon or Syrah.

As with all wine producing countries, Italy , and Italian wine producers face major challenges. These are the result of an industry which is today, truly global in its scope; Italian producers know that overproduction cannot continue and that repeated crisis distillation is not viable. In fact, the EU is currently in the process of proposing new reforms for the European wine market under the CAP designed to revolutionise production and restrict the increasing trend for overproduction. Although global consumption is on the rise, production outstrips demand. Today, Europe imports just as much wine as it exports, an inescapable truth; The Italian wine industry, as with those across the globe, must become more efficient if it wants to survive as one of the best in the world.