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BMO Financial Group

July 06, 2011 10:00 ET

BMO Wine Report: Are Canadian Producers Poised to Uncork Another Vintage Decade Of Growth?

- Output has grown 7.6 per cent a year compared to 1 per cent for the overall beverage sector

- Canadian wine producers hold one-third of domestic market, but New World competitors are making inroads

- Industry has more work to do to promote its product in domestic and foreign markets

TORONTO, ONTARIO--(Marketwire - July 6, 2011) - The Canadian wine industry has grown at a relatively fast pace, particularly since the late 1990s. However, there are definite challenges ahead for the industry to maintain its domestic market share against foreign competition and also grow in global markets, according to a new report from BMO Capital Markets Economics.

Wineries output – measured by real GDP – has grown at an average annual rate of 7.6 per cent since 1998, much faster than the overall beverage sector (1 per cent). The industry's expansion contrasts with a declining output trend for the manufacturing sector as a whole during the same timespan.

"After a period of sluggish growth through much of the 1990s, wine industry activity quickened substantially," said Kenrick Jordan, Senior Economist, BMO Capital Markets. "The acceleration reflects a shift from native grape species to wine-quality grapes; the creation of the Vintners Quality Alliance (VQA) standard to enhance quality; expanded efforts to promote Canadian wine; and industry consolidation in the 1990s."

"Despite some market challenges, Canadian wineries continue to produce fine wines exhibiting unique and desirable characteristics that begin in Canadian vineyards with high quality fruit," said David Rinneard, National Manager, Agriculture, BMO Bank of Montreal. "Going forward we anticipate that Canadian wineries will continue to reassert their position in Canada and showcase their quality products in other parts of the world. As other nations' diets expand, we have every reason to believe that Canadian wineries will be successful in making a place at the international table," added Rinneard.

In its report, BMO Economics noted that the industry's heavy reliance on the domestic market has increased in the last decade while export intensity has declined from 15 per cent in 2001 to 4 per cent in 2010. Furthermore, domestic market share for Canadian wineries slipped to about one-third in 2010 as producers ceded ground in the face of intense competition from imports.

"The appreciation in value of the loonie has helped foster import growth from 'New World' producers such as Australia and Argentina, as well as from more traditional sources," said Mr. Jordan. While imports from 'New World' producers are making inroads in the Canadian market, France – the largest supplier of imports to Canada – appears to be feeling it most as it has seen its share slip."

Mr. Jordan concluded that to enhance its prospects, the Canadian wine industry must focus on gaining market share at home and abroad. "Raising consumer awareness of the quality of its products will be critical in this regard. While exports will continue to play a limited role, fast-growth markets, where incomes are rising quickly and consumption is low, should be targeted."

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