Unsold wine in tanks, wineries shutting down and vineyards being uprooted. It's not a pretty picture for India’s infant wine industry as it bears the twin-pronged brunt of global glut and domestic roadblocks. That was the backdrop against which India’s first National Wine Conference was held in New Delhi last week and, if anything, the meet underlined fears that the country’s wine sector is in a ‘make or break’ situation.

“Tell me what needs to be done, I am looking to you for a solution”, said India’s Minister for Food Processing, Subodh Kant Sahai, while appealing to stakeholders at the conference.

To his credit, the Minister has been instrumental in setting up the country’s grape processing board in an attempt to get the entire sector under one umbrella. Much hope was also sounded by the government and a few others at the meeting that this was all a temporary setback and that the Indian wine industry, represented by 69 wineries at present, has the potential to bounce back and move forward to greater glories, picking up from its 25% CAGR a year-and-a-half ago. 

At present, however, the industry is still struggling to get onto its feet after the triple whammies of the global recession, the Mumbai attacks and government tax hikes. But, it appears, more than anything else, that wrong assessment of the market, poor quality and zealous over-production abetted by irregular rainfall have hit hardest, leaving grape farmers with masses of unsold stocks as demand dipped way below expectations. Remember, also, that this is still a fledgling market, with only an estimated 1.5m cases sold in the last year, of which roughly 20% is imported.

Companies are on thin ice too. The collapse of Indage Vintners, one of the pioneers of wine making in India, is still reverberating through the market. For now, Indage, formerly known as Champagne India, has obtained a stay of liquidation after lenders earlier moved court to get back their dues. The other big guns in the domestic arena include Sula (which operates mainly at the affordable wine level), Grovers, Four Seasons (UB Group), Valle de Vin, Vintage, Zampa, Nine Hills, Indus, Vinsura and Flamingo.

The government, meanwhile, finds itself in a bind. Its primary loyalty, dictated by India’s agrarian economy, is to the farmers and safeguarding their interests. Many farmers in the country, particularly in the grape belts in the state of Maharashtra, are uprooting their vineyards or threatening to do so.

However, the government is urging the sector to recognise that the industry is going through a cyclical dip, typical to any perishable goods sector. “Instead of going under, we can learn from this phase. Such crises ultimately bring balance and correct the production base and market”, said Ashok Sinha, Secretary in the Food Processing Industries Ministry.
 
According to the grape board, by the year 2020 India has the potential to become a world player in wine. Undoubtedly, many Indian wines are of great quality. But then again, many aren’t. One of the problems is that the Indian consumer, who generally loves red wine, is not educated enough about wines and many producers are able to draw him in more by way of high-end packaging than of the quality of the liquid itself. As Maharashtra’s Industries’ Secretary, AM Khan, put it: “Pricing and lack of quality awareness have damaged the wine market. Even some reputed wineries are selling overpriced wine”. Wines sold in the market range anywhere from INR300 (US$6.65) per bottle at the lower end to INR1,500 in the premium segment of imported wines. A lot of Indian companies are targeting the INR300 to INR600 price range.

Currently, annual grape production in the country is estimated to be 1.8m metric tonnes from an area under cultivation of about 80,000 hectares. This has increased from around 60,000 hectares in 2006-07.

The states of Maharashtra, Karnataka and Andhra Pradesh contribute 93% of the total grape production in the country. Around 85% of the total production, irrespective of variety, is consumed fresh and, of the total grapes produced in the country, only around 1.5% is processed into wine.

Despite the current setbacks, it is expected that wine production may increase to 4mcases by 2015. As far as the consumption patterns are concerned, per capita annual consumption in India is a paltry 9ml of wine, compared to 9,000ml consumed in the US.

Amid all the confusion, figures continue to be bandied about. Earlier this March, Vinexpo came down to Delhi to inform the nation that India has become the 10th largest growth nation for wine consumption, in value and volume terms, for the period 2009-13.  According to the Vinexpo/IWSR 2010 study, there would be an increase of 1.475m nine-litre cases in Indian wine drinking up to 2013.

Other big factors which have negatively affected the business are the multiplicity of authorities, the absence of uniform excise procedures and taxation structures and the absence of standards, as was pointed out by representatives of wine producers at the conference.

According to Magandeep Singh, one of India’s leading sommeliers: “The Indian wine industry is plagued by extreme protectionism. By taxing foreign wines, the local wine-folk have so far been living in a cocoon of safety and ignorance, believing that their wine’s are good, or even remotely comparable to international wines at the same price from countries with a much higher purchasing power parity.”

Another key constraint is the unfavourable climate for the small wine producer. Subhash Arora of the Indian Wine Academy points out that “even before he sells his first bottle in Delhi, the small wine player has to pay an annual excise fee of INR500,000 and then an additional charge of INR50,000 per label”.

Many experts believe the way out is through a concerted effort by all stakeholders to shake the industry into uniformity, in which the government will play a major part. Among the measures the Grape Processing Board has outlined are the standardisation of wine labels and registration process, evolving a uniform tax structure and positioning wine separately from hard liquor. It also sees the need for a financing mechanism for the wine industry, keeping in view the concerns of wine grape growers and wine processors.

Meanwhile, armed with these solutions and with hope for a turnaround, the board heads for the London Wine Fair accompanied by eight leading Indian wine houses, as one top government official put it: “To let the world know that India also produces wine”.