Wines & Vines

August 2014 Closures Issue

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38 W i n e s & V i n e s A U G U s T 2 0 1 4 T he wine and spirits industry did not wait for globalization and the growing power of China to discover the charms of fake and illicit bottles. These days, however, the prob- lem of counterfeit wine is emerging with renewed intensity for the sector. The counterfeiters (often from Asia) really do exist, and some of their products are a potential hazard for public health. The first installment in this two-part series offers information about which wineries counterfeiters like to target, what materials wineries can protect and the types of anti-counterfeiting technologies that are available. Counterfeiting in the wine market Illicit markets are traditionally difficult to analyze, but the case with alcohol is particularly revealing: There are no in- ternational statistics regarding customs seizures of illegal alcohol. Regional statis- tics are also often difficult to obtain, but the World Customs Organization (WCO) seems to be working to improve its docu- mentation of such seizures. Since wine is generally included in the "food and beverage" category in most countries (particularly the United States and France), the regions concerned may not segment seizure information in order to evaluate high-end wines specifically. Plus, since counterfeit wines and spirits can be manufactured locally and for local consumption (such as in China and Russia, for example), not all counterfeit specimens come under the purview of customs officials. For these reasons, statistics and analyses circulating on the phenomenon are based on estimates. This is the case with China, the focal country in counterfeit wine traf- ficking, where the corruption aspect also needs to be taken into account, and where statistics are often open to question. A sensitive definition Rather than use the umbrella term of "counterfeiting," London-based market intelligence firm Euromonitor Interna- tional distinguishes the sectors of this il- licit market: • Counterfeiting and illegal brands: il- legal alcohol sold as a lawful brand, or branded bottles emptied and refilled with cheap alcohol. Illegal alcohol manufacture (branded or unbranded). • Contraband: illegal importation of alcoholic beverages or raw materials such as ethanol. • Illegal craft production: illegal craft production of alcoholic beverages for commercial purposes. • Substitution: alcohol that is not in- tended for human consumption (e.g. pharmaceutical alcohol) redirected to the alcoholic drinks market. • Tax leakage: legal alcoholic beverages produced locally, on which no taxes are paid. The Organisation for Economic Co-oper- ation and Development considers that an illicit trade in alcohol is based on three premises: • Counterfeiting of products. • Products that generate a fiscal loss. • Products that are unfit for consumption. The Chinese case: a growing burden on the wine market Even though 120 countries produce wine, only about 15 countries play a significant role in the globalization of wine. The emergence of China on the international wine scene—as a producer, importer and consumer—has been accelerating for sev- eral years. In 2011 the country's vineyard acreage was the fourth largest in the world, accord- ing to San Francisco, Calif.-based Wine In- stitute, and plantings continue to increase. Meanwhile, International Wine & Spirit Research estimates that Chinese wine con- sumption will reach 715 million cases per year by 2016, and a recent study by Vin- expo shows that China and Hong Kong have become the world's second-largest market for the most expensive wines. (Nearly 50% of China's imported wines are from France, which enjoys a strong brand image among Chinese consumers.) Key issues involved in counterfeiting According to César Compadre, a re- porter for the French daily newspaper Sud-Ouest, China has only featured prominently on the counterfeit wine market for the past four to five years, but it is of central significance for this illicit trade, where counterfeit alcohol is destined mainly for the local market. For French exports to China, the main Protecting Your Wine Stop counterfeiters from selling cheap imitations of your premium brand By Eric Przyswa, Consultant and researcher at Mines ParisTech Highlights • Demand for premium wine has fueled growth of the counterfeit wine trade, with underground networks developing to resell empty bottles for refill. • While the majority of counterfeiting attempts are happening in Asia (mainly China), authorities have broken up counterfeit operations of wine intended for U.S consumers. • This first installment in a two-part series outlines the various types of anti-counterfeiting technologies. The second installment will discuss what to look for when choosing a fraud- prevention system. Wine consumPTion in cHina '04 '05 '06 '07 '08 '09 '10 '11 Million Liters 1,400 1,200 1,000 800 600 400 200 0 n Imported Wine n Domestic Wine rAbobAnk t e c h n o l o g y

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