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The Global Wine Shortage Hoax

by Mike Rothschild

November 4, 2013

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Donate Peak oil. Peak coal. Peak...chardonnay? For a few days earlier this week, it looked like we might be on the verge of a global wine shortage the likes of which had never been seen. Credible news sources began reporting on October 28th that thanks to bad weather, poor harvests and increased demand from China, worldwide consumption of wine would outstrip production by up to 300 million cases - meaning wine was about to get a lot more scarce. Wine lovers would need to start hoarding their pinot the way a doomsday prepper hordes gold and beans, and Two Buck Chuck would vanish from your local Trader Joes. Mass viticultural chaos was about to ensue.

Then, as quickly as the “panic” started, it ended. The initial report of a shortage was dismissed as hype, and we were told by equally reputable news outlets that there was no shortage and never was going to be one. Rarely does something go from major story to completely false in just a few days, so it’s worth taking a look at the evolution of the “wine shortage” fiasco, how it started and why it ended.

As so many myths, urban legends, conspiracy theories and other chunks of nonsense do, the wine shortage story began with one source. In this case, it was an investment report from Morgan Stanley Research by Australia-based analysts Tom Keirath and Crystal Wang. According to the Wall Street Journal’s MarketWatch blog, the report (which doesn’t appear to be publicly available) made the startling case that:
[T]he global wine industry was slowing moving from balance to shortage. The analysts pointed out that global wine demand exceeded supply by 300 million cases in 2012, and production that year fell to its lowest levels in more than 40 years. With that setting the backdrop, they suggested a few investment plays.
The piece was well cited and had ample charts and graphs to back up its central thesis. Morgan Stanley generally carries more weight than many of the other “research” sources we end up citing around here, and it’s no surprise that the story instantly went viral. It was initially picked up by the blog Quartz by writer Roberto Ferdman. In turn, Ferdman’s post was snapped up by legit news outlets the world over, including CNN, Huffington Post, Time, The Atlantic, Yahoo and even the BBC. Most sites added clickbait headlines like “A Great Global Wine Shortage Is Here"and It May Only Get Worse” and “Lushes Beware! Global Wine Shortage Looms.” Social media buzzed about the gravity of the wine situation, and what could be done about it.

But there was one small problem with the Morgan Stanley piece " it wasn’t actually true.

The charts Morgan Stanley used to prove the point of their piece were essentially cooked. The key chart, showing consumption outracing production, was falsified by the “consumption” line having 300 million cases added to it, which is Morgan Stanley’s estimate of how much wine is used for “non-wine” uses, such as vinegar and brandy. In fact, the numbers Morgan Stanley used for their estimates, provided by the Organisation Internationale de la Vigne et du Vin, the international governing body for winemaking and grape production, don’t project a decrease in wine production, they project a fairly substantial increase. Morgan Stanley simply didn’t include the OIV’s 2013 projection in their chart, a second way in which their data was cooked.

Reuters finance blogger Felix Salmon unpacked the entire incident and the mathematics of why the wine shortage story was false using a series of charts provided by the OIV. This information shows a far different conclusion than the one put forth by Morgan Stanley " that a current minor wine shortage is actually ending, and rising temperatures around the world are opening up more land with potential to hold vineyards. He also exposed a motive for Morgan Stanley’s creative accounting " creating demand for Australian wine. As Salmon writes:
[T]he investment thesis is not, particularly, based on the existence of any present or future wine shortage; it’s simply trying to present the idea that demand for Australian wine exports is likely to rise, and to justify the fact that a company called Treasury Wine Estates is the bank’s “top Australian consumer pick”.
Soon, news outlets were reporting that the idea of a global wine shortage not only was overblown, it never existed. And if the legitimate reporters who had disseminated the story had bothered to “do their research” they would have known that.

So why didn’t they? Why did a story that never had any truth to it and was essentially a naked attempt to shill investment advice become so popular so quickly? For the same reason scare pieces about GMO’s, vaccines, moral panics and nuclear power go viral " reporters love bold, scary headlines, and people unthinkingly get sucked in by them. And because debunkings of nonsense are always far less popular than nonsense itself. “Everything’s actually okay” is a much less entertaining and interesting story than “the world is about to end.”

But sometimes everything actually is okay. And that’s the case in the world of wine. The matter would seem to be settled, and even Roberto Ferdman, the writer who took the Morgan Stanley story into the mainstream, seemed to agree when he tweeted a few days ago: “@felixsalmon argues against my wine shortage piece"rather adeptly, I might add.”

And I think we can all drink to that.

by Mike Rothschild

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