Wine Economics: Coming Full Circle

My new book, Wine Wars, will be officially released next month; it tells the story of the battle for the future of wine (the Curse of the Blue Nun, the Miracle of Two Buck Chuck and the Revenge of the Terroirists) starting  in Napa Valley, where my interest in wine economics began, and ending  back in the same place 30 years later. Here’s a brief excerpt from the book.

Back on the Silverado Trail

People often ask me how I became a wine economist, an economist who studies the global wine markets. The answer is rooted in a particular time and place. Sue and I were still newlyweds, taking a low-budget vacation in the Napa Valley back in the day when that was still possible. We were headed north on the Silverado Trail late on our last day, pointed toward our economy motel in Santa Rosa, when we decided to stop for one last tasting.

The winery name was very familiar and I had high hopes for our tasting. If I had known more about wine back then I would have recognized this as one of the wineries that kicked French butt in the 1976 Judgment of Paris wine tasting. We pulled off the road and went in to find just the winemaker and a cellar rat at work. No fancy tasting room back then, just boards and barrels to form a makeshift bar. They stopped what they were doing and brought out a couple of glasses. If I knew more about wine back then, I would have been in awe of the guy pouring the wine, but I was pretty much in the dark. So we tasted and talked.

I started asking my amateur questions about the wine, but pretty soon the conversation turned around. The winemaker found out that I was an economics professor. Suddenly he was very interested in talking with me. What’s going to happen to interest rates? Inflation? Tax reform? He had a lot of concerns about the economy because his prestigious winery was also a business and what was happening out there in the financial markets (especially to interest rates and bank credit, as I remember) had a big impact on what he could or would do in the cellar. Wineries, especially those that specialize in fine red wines, have a lot of financial issues.

Besides the initial investment in vineyards, winery facility, equipment, and so forth, there is also the fact that each year’s production ages for two or three years, quietly soaking up implicit or explicit interest cost as it waits to be released from barrel to bottle to marketplace. The wine changes as it ages, but the economy changes, too. It’s impossible to know at crush what things will be like when the first bottle is sold. As Bill Hatcher (of Oregon’s A to Z Wineworks) likes to say, from an economic standpoint the only person who is crazier than a winemaker is his or her banker.

Wine economics is a serious concern. Few winemakers are completely insulated from the business side and sometimes the economy can have a huge effect on what winemakers get to make (if they have the resources to stick with their vision) or have to make (if they don’t).

And so a famous winemaker taught me to think about wine in economic terms and to consider that supply and demand sometimes matter as much as climate and soil when it comes to what’s in my wineglass. I should have known. Fully a third of the ferociously difficult Master of Wine exam (the MW designation that appears after the names of many famous wine experts) deals with business and economic issues.

Coming full circle — returning to the Stags Leap District and to that same cellar 30 years later –  gave me a strong appreciation for how wine has changed in the past and will likely continue to evolve in the future. I hope I have captured that understanding in Wine Wars.

Adam Smith’s Winery

I came full circle in another sense last weekend, when Sue and I crossed the Cascades to work on the bottling line at the Fielding Hills Winery in East Wenatchee. Mike and Karen Wade use the great fruit from their Riverbend Vineyard in the Wahluke Slope AVA to make wine at their small production facility perched high on a hill overlooking the Columbia River.

The very first Wine Economist blog post was an account of my initial visit to the Wade’s winery and the fun Dave Seago and I had helping out on the bottle line that year. I was struck by the productivity of the bottle crew (particularly since some of us were “quality testing” the wine as we worked) and I compared it to Adam Smith’s famous pin factory example of the benefits of the division of labor. (It is a little known fact that Adam Smith is both the Father of Economics and also the Father of Wine Economics.)

Arriving at the winery on Friday, I was very pleased to discover that the Wades were celebrating their tenth year of handcrafted production with a T-shirt that actually listed the twelve bottle line work stations.  The twelve tasks are:

  1. Bottleunboxer
  2. Sparger
  3. Fillerdeupper
  4. Corker
  5. Wiperista
  6. Foilplacer
  7. Foilmeister
  8. Wiper
  9. Labelista
  10. Boxfillerupper
  11. Tape Gunslinger
  12. Palletizerist

Adam Smith could not have organized the assembly line any better (or come up with more creative titles).

Mike and Karen’s daughter Robin was one of my university students and they have been very generous with their time, teaching me how the wine business works in practice to supplement my theoretical background. So I was pleased to join the volunteer bottling crew again this year, 243 blog posts after that first visit.  The Smithian division of labor allowed us to bottle 291 cases (that’s 3492 individual bottles) of Cabernet Franc between 9 a.m. and 4 p.m., when we finally ran out of wine to bottle.

The Wine Economist has come along way from that first post and the Wades and Fielding Hills have come a long way, too, from their first tiny vintage ten years ago. Although production levels are still relatively small (about 1200 cases this year, up from 800 when I first visited), their reputation is large and growing.

When Paul Gregutt surveyed Washington’s 600+ wineries for the second edition of his authoritative book Washington Wines & Wineries he awarded five stars to just twenty wineries. Fielding Hills made the five star list, as it did in Gregutt’s first edition, joining much larger producers like Chateau Ste. Michelle and famous wineries like Betz Family, Leonetti, Woodward Canyon and Quilceda Creek. Nice company to be in.

Coming full circle. It’s what winegrowers do — the conclusion of each vintage is also the start of the next. I guess it’s what wine economists do, too.  It is a good feeling to circle back and start out again!

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Photos by expert Foilplacer and master Boxfillerupper Sue Veseth.

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5 responses

  1. As a banker to wine makers I resemble that remark professor! It is about coming full circle especially with the smaller wineries. The product they sell is indeed wine but even moreso it’s the experience of buying wine from the winemaker. This is a non-quantifiable portion of your wine tour purchase so why is wine less expensive at the vineyard usually? It seems to come back to the fact that people are now beginning to value the relationships that come with good wine as well as wine as a commodity. Coming back to the beginning is always a good gut check. Are you doing what you are doing for the right reasons or because it just kind of fell into place?

    Mike – thanks for your help and keep up the good work. Try bagging wine sometime – that’s an intriguing process too!

  2. Mike, you may also wish to try “kegging” wine, as Holden Sapp is trying to launch that business.

    • Good idea, Lowell. I’m working on a future post about Holden’s project. And congratulations to you for your Distinguished Alumni award. No one deserves it more!

  3. Nice thoughtful piece. The notion of coming full circle is one that appeals to me. The problem in the wine industry is when one sees the cycles recurring – perhaps one might think of it as a case of when one comes full circle too many times one risks getting dizzy! Keep up your good work.

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