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Is China causing a global wine shortage?

Thursday, 31 Oct 2013 | 5:11 AM ET
The world is running out of wine!
Thursday, 31 Oct 2013 | 7:31 PM ET
According to a report, there is a rising risk of a global wine shortage, which could lead to higher prices and increased demand for exports.

Coupled with a drop in global production to its lowest level in 40 years, China's growing thirst for wine is contributing to the risk of a global shortage, a report from Morgan Stanley has found.

According to the report, increasing consumption levels in both China and the U.S. combined with declines in European production in 2012 following poor harvests in France, Italy and Spain, has raised the risk of a global shortage, which could lead to higher prices and increased demand for exports.

"Data suggests there may be insufficient supply to meet demand in coming years, as current vintages are released," the report said.

(Read more: 'Red obsession': How China is transforming the bordeaux market)

Wang Zhao | AFP | Getty Images

Morgan Stanley noted that in 2012 there were only 1 million excess cases, a sharp fall from 600 million in 2004 when wine production peaked. Furthermore, the report found that after adjusting to allow for non-wine uses (such as making vermouth), demand for wine actually exceeded supply by 300 million cases in 2012, the deepest shortfall in over 40 years.

This shortage is expected to be exacerbated as demand from the U.S., the world's second largest consumer of wine after France, and China, the fifth largest importer, grows.

China's appetite for wine is set to boom over the next couple of years as households become wealthier. Wine consumption in China has doubled twice over the past five years and is expected to double again by 2016 to 400 million cases, matching U.S. consumption levels.

Meanwhile, global production levels haven't kept pace, and have been on a downward trend since the early 2000s. Europe, which makes 60 percent of the world's wine, has seen the steepest decline of 24 percent since 2004.

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However, according to Michael Daymond-King, fine wine consultant at global wine merchant the Bordeaux Index, the report overplays concerns about a global shortage in the wine market.

(Read more: Move over Bordeaux:French premium winemakers eye China vintage)

"The [Morgan Stanley] report focuses more on the cheaper end of the wine market, priced under $20 per bottle. There are certainly less of these cheaper wines being produced in Europe, but I doubt whether it will impact prices, because there is still enough volumes coming from Australia, Chile, Argentina and New Zealand," he said.

In terms of rising demand from China, Daymond-King agreed that appetite is booming, but said in his view strong production levels within the country will compensate for much of the increased demand. Meanwhile, growing consumption levels of wine in the U.S. would be easily met by supplies from Australia, he added.

(Read more: Aglass of Meow-lot? Japan launches wine for cats)

"People forget that China is a big consumer of wine but also a big maker of wine," he said.

But the Morgan Stanley report said that although China produces 180 million cases annually, it won't be able to produce enough wine to meet domestic demand and will therefore have to import the difference.

China currently imports 20 percent of its total consumption, mainly from France.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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