World Cup 2014: Prime Time for Brazilian Wine?

Faces, the official World Cup Brazilian wine. Click on the image to view a FIFA video about the wine.

The World Cup — FIFA’s celebration of global soccer — kicks off  on Thursday in  São Paulo with host Brazil vs Croatia and will end on July 13 in Rio with the final match at the famous Maracanã stadium, which was originally constructed for the first Post-WWII World Cup in 1950.

That game is likely to be the most-watched single event in world history — talk about prime time!

Soccer is a fast game full of twists and turns and it is notoriously difficult to predict how a big tournament like this will end, but based on history, which I admit does not always repeat itself, I will hazard three observations.

And the Winner Will Be …

First, the winner is likely to be from the western hemisphere, not Europe, Asia , Oceania or Africa.  Only twice has a team from outside the host country’s half of the globe won the big prize: Brazil in Sweden in 1958 and Brazil in South Korea-Japan in 2002. Good news for Brazil, Argentina, Uruguay, Columbia, Mexico, the USA and the other teams from that part of the world.

Second, the winner is likely to be Brazil based on the fact that they have won more World Cups (5) than Italy (4) or Germany (3). Among Western Hemisphere powers Argentina and Uruguay have won two each. That Brazil is also the host country improves its odds, according to my soccer-mad friends, although it is important to remember they lost the final at home to Uruguay in 1950 — a result that made young Pelé’s father cry and inspired the later successful efforts.

Finally, the 2014 World Cup champion is likely to be a significant wine country. Every previous winner of the Cup from Uruguay in 1932 to Spain 2010 plays in the world wine league, even 1966 winner England, which makes up for its modest but growing current wine product by being a key export market for the world’s wine.  Is that too much of a stretch? I hope not — otherwise the Netherlands, another big export market,  might as well give up now!

Is Brazil an important wine country? If so, then it would seem to be the strongest possible favorite to win the cup, as a report from the analysts at Goldman Sachs suggests. Wine is alive and well in Brazil. No wonder they are using the occasion of the World Cup to promote their industry (click on the image above to see a FIFA video) much as South Africa did (see video below) when they hosted the 2010 tournament.

Brazil’s total wine output does not rival France, Italy and Spain, the globe’s top producers (and World Cup winners, too) but they are not at the bottom of the league table, either. Data for 2009 put Brazil’s wine production at 340 ML, less than Argentina (1214 ML) or Greece (425) but ahead of Austria (235 ML), New Zealand (205 ML), Uruguay (62 ML) and Croatia (75 ML).  Huge Brazil is not covered with vines, but it is clear that enough of it is to make it a significant wine producer.

My friends in Portugal and Argentina see Brazil as a significant export market, too, based on various combinations of language, history, culture and proximity that facilitate sales of their wine. And they are not alone is seeing Brazil’s potential. OIV data for 2013 put Brazil’s total wine consumption at 348 ML, above Chile but less than South Africa.

1532 and All That

While you might think of Brazil as a land of beaches and jungles, it is a very geographically diverse country with several major vineyard areas. The principal winegrowing region is the state of Rio Grande do Sul on the warm edge of the world wine-growing zone (roughly 30 – 50 degrees of latitude north and south). Serra Gaucha has more than 90,000 acres planted to vine.

Wine in Brazil goes way back. The Portuguese planted grapes around São Paulo in 1532 and Jesuit priests established vineyards in Rio Grande do Sul in 1626. But it took a wave of immigrants from Italy in the late 19th century to firmly plant the vine in Brazil.  The migrants came from Italy’s northeast – Trentino and the Veneto – and were drawn to the climate and hilly terrain of the Rio Grande do Sul. They brought winegrowing knowledge and a taste for the wines of their homeland, especially sparkling wines (think Spumante and Prosecco). Their influence persists today.

Champagne-maker Möet & Chandon saw Brazil’s potential, especially for sparklers,  as far back as 1973, when it was making its big globalization push into the U.S., Australia and Argentina. They invested in sparkling wine production in Brazil figuring that if anyone was going to sell domestic “Champagne” to fizz happy Brazilians it should be the Champenoise themselves. Möet & Chandon were soon joined by other wine/drinks multinationals including Seagrams, Bacardi, Heublein, Domecq and Martini & Rossi, so the international presence in Brazil is quite strong.

New World Order

Wine production 100 years ago was focused on quantity instead of quality, as it was in most of the world, and that meant American hybrid grapes rather than European-style vitis vinifera varietals because of climate concerns. Market problems led to the establishment of large cooperatives in the 1920s and 1930s, as growers, many with tiny vineyards, struggled for market power. As in Northern Italy, these cooperatives are still important today as the wine industry moves up the quality ladder.

One of these cooperatives grew so large that it became more or less the Riunite of Brazil. Cooperative Vitinicola Aurora was receiving grapes from more than 1500 family growers at its peak in the mid-1990s and producing (and exporting) very large quantities of wine.

team

Many Faces, One Heart

I haven’t tasted Faces, the official Brazilian wine of the 2014 World Cup, which is made by Lidio Carraro Boutique Winery, but I like its style. The wine brand picks up the twin themes of unity and diversity that are important to a sports team and so very important in Brazil’s history. Many Faces, One Heart — it is a fine message, don’t  you think?

The white wine is a blend of Chardonnay, Muscat and Riesling Italico, which should be a pleasant summer sipper. The red wine spares no effort to make the soccer connection — it is a blend of eleven different red grape varieties, one for each of the players on a soccer team.

Eleven players. Eleven grape varieties. In the same manner as the Brazilian national football team, the FACES wine label will represent Brazil as the OFFICIAL LICENSED WINE OF 2014 FIFA WORLD CUP™,  reflecting the national terroir with a team of grapes from different grape-growing regions, representing colors, aromas and flavors of our territory. Merlot, Cabernet Sauvignon, Teroldego, Touriga Nacional, Tannat, Ancellotta, Nebbiolo, Tempranillo, Pinot Noir, Malbec and Alicante Bouschet are the selected grape varieties for the FACES red wine range. These varieties hail from every corner of the Serra Gaucha, including the Vale dos Vinhedos – the most traditional area for grape growing and wine-making in Brazil and also other locations in the Southern part of Rio Grande do Sul state.

If you scroll down on the Faces website you can find an interactive element that allows you to fill each position on the team from goalkeeper to striker with your choice of the appropriate grape variety. Apparently I am not a very good wine/soccer manager. I put Tannat in goal, but the winery says that Malbec is better there. But I did better with my choices at forward, according to the website.

Keep your eyes open for these wines and others from Brazil, which may be available more widely available during the World Cup. A quick internet search suggests that Faces wines have arrived in parts of Canada and the UK and probably here in the US, too. I’ll bet the Brazilians are hoping that you will toast their team’s victory with a glass of Brazilian wine! Cheers! (Or should I say Goooooooooooooool!?)

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Some parts of this column appeared in my previous survey of wine in the BRIC nations. Here is the Goldman Sachs odds sheet for the World Cup as reported in the Wall Street Journal. GS calculates that Brazil has a 48.5 chance of winning its 6th World Cup.

 

Argentinean Wine: A SWOT Analysis

The first thing we did when Sue and I arrived in Mendoza was to walk to the offices of Área del Vino, the group that publishes Vinos y Viñas magazine, the WineSur website and provides economic and strategic analysis to the wine industry here. We met with Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur. They got our visit off to a flying start.

Our discussion was wide ranging. Gonzalo is working on new media projects to expand the market for Argentinean wine and reach a new generation of consumers. Javier was just back from Hong Kong and China and keen to discuss the potential new markets there. Both were happy to talk about controversial questions, such will the Malbec boom be sustained and whether Torrontés really is The Next Big Thing.

Their analysis has been very useful to me as I have met with wine-makers, winery owners and managers. Based on all these discussions I have prepared this SWOT analysis, which represents my current thinking about Argentinean wine today. This is a work in progress (and necessarily very brief), so I welcome comments that correct my thinking or re-direct my analysis.

Strengths

Argentina has many strengths. The most important may be that it has a “hot” brand, its signature Malbec. When wine enthusiasts think of Argentina they think of Malbec and vice versa — a strong identity that many wine regions envy.

But, as I will explain in future posts, Argentina is not just Malbec (or even just Malbec and Torrontés as some writers propose).  Quality extends across a broad spectrum of wine varieties, styles and price points, which is a very good thing.

Weaknesses

That said, the industry is very dependent upon exports of Malbec to three main markets, the United States, Brazil and Canada.  There would be trouble if Malbec exports to these markets were to falter due to either a decline in demand to a shift to some other “hot” variety.

The domestic market for wine is very substantial, but it is still dominated by low-price basic wines — another weakness. The Argentinean industry would be much stronger if a larger domestic market for quality wines could be developed.

Water is also an issue here as it is in many wine regions. Not an issue today, Javier told me, but for the future. And of course the future is fast approaching.

Threats

There are a number of very serious economic threats that cloud the short term outlook. Domestic inflation is high in Argentina. The government estimate is about 10%, but I failed to find anyone who thinks that it is less than 25%.  Production costs are rising rapidly– labor, grapes and other inputs are increasingly expensive. Land prices for new vineyard projects seem to be growing exponentially.

Revenues are not increasing at the same rate, with the result that margins are being squeezed.  In fact, the pressure is on to cut prices in the competitive U.S. market. It is not clear how long the current combination of rising costs and falling revenues (or soft revenue growth) can be sustained.

I visited several wineries that were clearly focused on increasing efficiency in an attempt to claw back margin without sacrificing quality.  But I also heard rumors of wineries that were taking the perhaps desperate move to source lower cost grapes from other regions to stay in business. The concern was that quality would suffer and The Brand undermined.

Opportunities

There are many opportunities and they fall into two categories: new wines and new markets. By new wines I mean a movement to expand Brand Argentina beyond value Malbec, both into the higher reaches of the wine wall and into other varietals. I’ll be writing more about this in future posts.

I’ve already written about the new markets. As I listened to Javier discuss the great potential in countries like Brazil, with large and growing populations and fast economic growth I knew just what he was talking about: The BRICs (and the New BRICs). Javier believes that the BRIC-like markets  are the key to the next stage of Argentina’s export growth. Because geography still matters in both wine and economics, Brazil is a particularly attractive target, but both Hong Kong and China are high on the list.

Argentina’s China card is that its wines could fill an open market niche. Not cheap bulk wines like those from Chile and Australia. And not overpriced prestige labels like those from France. Quality Malbec from Argentina would be more affordable (and in most cases better) than the French and of course much better than the bulk wines. Distinctive, too, on several dimensions.

But China’s a tough market to break into, as I have said before.  China will require patience and good luck as well as good wine.

The new market with the greatest potential for Argentinean wines may be Argentina itself.  Nearly everyone I talked with said that the best thing that could happen would be for the domestic market for quality wine to expand, making the industry less dependent on exports and less vulnerable to inflation and exchange rate changes.

Bottom Line Analysis

So what’s the bottom line? Well, of course, I believe that the long run opportunities are important, but it seems to me that the short term threats are on everyone’s mind right now, in particular, the inflation-exchange rate squeeze. If inflation continues at high rates and the U.S. dollar – peso exchange rate stays stuck at about 4 pesos per dollar, some producers here will be squeezed out of the U.S. market. Perhaps they can sell to Brazil or on the domestic market, but the prospects are not good if everyone tries to shift focus at once.

What is keeping the exchange rate stuck at an over-valued level? Politics and fear, I suppose. There’s a presidential election in the fall and everything here has taken on a political significance, so it is no wonder that holding the line on the exchange rate (and denying that an inflation problem exists) would be political, too.

And then there is the fear.  Argentina has experienced inflation-devaluation vicious cycles in the past. Inflation leads to a falling currency, which adds to inflation pressures, which forces the currency down even more. Etc, etc.  There’s a worry here that lowering the exchange rate would set the cycle off once again and nobody wants that.

Fear and politics are powerful forces. Argentinean wine, for all its strengths and opportunities, is caught in the squeeze.

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Thanks to Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur for meeting with us in Mendoza and to everyone who has talked with us about wine economics in Argentina during our stay here.  Watch for future posts that examine particular elements of the Argentina wine story in more detail.

The Final BRIC: South African Wine

This series of posts has taken Goldman Sachs executive Jim O’Neil’s list of BRIC and New BRIC nations and examined them from the particular perspective of wine. All of the BRICs (Brazil, Russia, India and China) and New BRICs (South Korea, Mexico, Indonesia and Turkey) produce wine. They have glorious pasts, tempting futures, and face certain present challenges linking the two.

In a sense (but I don’t want to push this too far), the challenges and opportunities that these countries face in terms of wine reflect their overall national situation. In vino veritas? Yes, I think so, but not just in the usual sense. Read the individual posts and you will see what I mean.

The Undiscovered BRIC

So now I turn at last to the overlooked BRIC: South Africa. With a relatively modest population (less than 50 million), it was probably too small to qualify for O’Neil’s signature group in terms of market size. But South Africa punches above its weight in many fields and has great symbolic importance, too, which is one reason it was chosen to hold the 2010 soccer World Cup.

If South Africa is too small to be a BRIC in gross domestic product terms, it towers over many of the other countries with respect to wine. South Africa was listed at #8 on the world wine league table for 2007 according to OIV statistics, with 9.7 million hectoliters of wine production, just behind Germany and head of Australia and Chile. Among the BRICs only China produces more wine (12 million hl, #6 on the list), although it isn’t clear that all Chinese wine is actually wine or really made in China.

Like many of the BRICs, South Africa has a deep wine past and a sunny future — it’s the present that’s problematic. The first wine was pressed on April 6, 1652. The famous Groot Constantia wine estate was established outside of Cape Town in 1682. By the 18th century its eponymous Muscat-based sticky was one of the three most sought-after wines in the world (Tokaji from Hungary and Cotnari from Romania completed the tasty trio).

South Africa’s wine history has been filled with peaks and valleys, both the usual ones for wine producers  and some that are country-specific. Phylloxeria, persistent over-production, and difficulty breaking out of the fortified wine cycle to produce quality dry table wines are familiar stories.  Apartheid — the notorious South African exception —  damaged the industry by effectively shutting off export markets and distorting domestic demand.

South Africa’s  fast emergence in the world of wine in the last 20 years  has been exception in a good way. South Africa surpassed France (France!) in U.K. wine sales in early 2010.

Good News / Bad News

I would like to say that South Africa is poised to beat all the BRICs and assume a place at top of the wine wall, but I hesitate just a bit. Part of it is due to the exchange rate. South Africa has a reputation for good value wines and it is suffering just now from a case of the Dutch disease. The Rand’s value has increased by more than 40% in the last two years (higher gold prices are part of the story) and the higher exchange rate has cut South Africa’s competitive advantage.

But there are lots of disturbing factors.  If you search the Decanter.com website for “South Africa” you get lots of good news (booming sales, distinctive varietals, demand so high there have been grape shortages) and bad news, too (burnt rubber aromas, persistent grape surpluses, Pinotage image problems). U.S. sales of South African wines have actually fallen by about 10 percent in the past year according to Nielsen data published in the most recent issue of Wine Business Monthly.

Perhaps it would be the same with a news search for any wine region — lots of good, bad and ugly news to go around — but coming off the Apartheid era of dreadful news, South Africa needs more than a bit of sunshine just now.

So I am left a bit uncertain, honestly. Optimistic but realistic, too.

And I think this is my opinion of the BRICs and New BRICs generally. The wines and the countries that produce them will succeed, no doubt, but not without a struggle, if only  because the times we live in are so uncertain. Mother nature and human nature are both very fickle and wine cannot help  but reflect them both.

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The video up top shows how South African winemakers used the occasion of the World Cup to try to market their wines abroad. A good idea, but I think there was a better one that they missed.  These days South Africa is trying to use wine as part of their program of Black Economic Empowerment by promoting black owned wineries and vineyards. It’s still in the early stages, but I like the idea. Given this, it seems to me that Invictus is a better image for South African wine than Bend It Like Beckham.

Everything Old is New Again: Wine in Mexico & Turkey

This is the seventh  in a series of articles on wine in the BRICs and the New BRICs. Today we examine Mexico & Turkey.

Old Old and Old New

What in the world do Turkey and Mexico have in common? It is easy to generate a list of differences ranging from geography to history, language, and religion. Jim O’Neil probably included them on his list of the New BRICs because they both have relatively large populations (107 million in Mexico, 75 million in Turkey) and so substantial market potential as their middle classes expands

From a wine standpoint, Mexico and Turkey are linked by the term “oldest.” Turkey may be the oldest Old World wine producer, with evidence of wine production going back more than 6000 years. You cannot get much more “Old World” wine than Turkey, even if most people in the Old World never give Turkish wine a second thought.

Mexico is the oldest wine producer in the New World. Spanish soldiers and priests brought wine grapes with them,  The first evidence of wine production dates from 1521 (I see a 500 year anniversary celebration on the horizon). Conquistador Cortés ordered that new settlers plant grape vines (1000 vines for every 100 persons, according to the Oxford Companion to Wine), thus spreading Spain’s wine culture throughout the New World empire. Wine production in Mexico grew so successful that King Felipe II of Spain order a stop to new production in 1699 in an effort to protect Spain’s domestic wine industry.

Red and White vs Raki and Brandy

It is ironic that we don’t associate wine production with these two countries today given their deep historical roots. Turkey? It’s a Muslim country, of course, so we don’t think of alcohol or, if we do, it is raki, the fiery anise flavored drink. Mexico brings images of tequila (and wasting away in Margaritaville), beer, and perhaps Mexican brandy, the national liquor. Casa Pedro Domecq’s Presidente brand is said to be the best selling brandy in the world. Domecq is now part of the French drinks group Pernod Ricard.

Both Mexico and Turkey are important grape and wine producing nations today. Mexico produced a little over 1 million hectoliters of wine in 2007 according to OIV data — about  as about as much as New Zealand made in 2005 before its recent boom. Turkey is the world’s sixth largest table grape producer, surpassing Italy in this area, but only a small fraction of its output is made into wine. Turkey makes roughly the same amount of wine (213,000 hl) as Israel (218,000 hl).

Wine production in Mexico has fallen by almost 50% since the 1980s according to the OIV records while Turkey’s production levels have been more stable. Both Turkey and Mexico have the potential to rise up in the world wine rankings, but they each face particular challenges.

The Taste of Turkish Wine

Turkish wines can be stunningly good. Jancis Robinson’s tasting notes (from a 2009 research trip) find many peaks among wines make from international grape varieties. A Corvus Corpus 2004 received a rating of 17/20, for example. “This right bank style wine is really quite rich and full, verging on overripe. Extremely opulent and velvety.” A Robert Parker kinda wine, she said.

Ron and Mary Thomas, my senior Turkish wine correspondents, reported similar success on their 2010 tasting trip. “We found the wines of Turkey to be ubiquitous, great values, and extremely enjoyable,” they write. Among the reds they found the Syrah  wines hard to beat — some of the best Syrahs they have tasted anywhere — high praise. But the highest peak came from an unexpected source.

Our greatest discovery was the varietal called Emir.  We found it from several different producers in each area of Turkey where we stayed, most of the producers (or the fruit) located in the area we first stayed (Cappadocia—central Turkey).  This stony, flinty land produced this wonderful grape that is unlike anything I’ve tasted.  Think about a cross between a flinty sauvignon blanc from the Loire and a very dry viognier.  It had a light golden color and a very crisp finish.  Some lemony-apple notes, wonderful minerality, and pleasing to sip while it stood up well to fish and the ever-present smoky-roasted aubergine (which I had at every meal in Turkey).  This was a favorite wine we would drink anytime.  We found the same bottles to cost anywhere from about 15 Turkish Lire in the winery, to 30-90 in a restaurant (depending on the scale of the restaurant).  That’s a range of about $10 USD to $65.  We sometimes did not find it on the wine list, and started asking for it:  in all cases but one, they found a bottle in the back and presented it to us, and no matter who produced it, it was great.  It went beautifully with the bronzino in Ephesus and Istanbul, and was perfect with the stuffed zucchini flowers in Cappadocia.  Emir is king.

Indeed. And that’s part of Turkey’s problem. As the Oldest of the Old World countries, it has perhaps the richest treasury of native grape varieties. But who has heard of them, of King Emir and his court? Very few, I think, and this is problematic in a world where so many consumers are already confused by wine and have trouble mastering the basics.

The domestic market for wine in Turkey is relatively small and its international exports are limited. Belgium is its largest international customer according to a government report (Belgium?) followed by Northern Cyprus, Germany, Britain, the USA and Japan. A local search for Turkish wine uncovered a few bottles at a Mediterranean restaurant and not much else.  As the report says, there is much work to do for Turkey to realize its great wine potential.

More Than Margaritaville

“Baja — the New California?” was the title of Jancis Robinson’s review of Mexican wine after her visit to Baja California in 2010. “I am excited about the potential for wine in Mexico,” she said. And indeed some of her tasting notes are enough to make anyone excited. Here’s what she had to say about Union de Productores Textura 1 2007 (a blend of Tempranillo, Zinfandel and Grenache): “Deep crimson. Very sweet and dusty and ripe berried. Very Mexican. Very rich. Sweet spicy then nice dry finish. There’s a real beginning, middle and end to this wine. Good refreshing stuff on the finish.”

Very Mexican! I like that. Not a me-too wine. Not all the wines are big or sweet, of course, which is just as well. Lots of variety. Lots to look for and to like.

The biggest challenge? Climate, according to Jancis. Not enough rain. And, while I’m sure she is right in the long run, I think that infrastructure is probably an even bigger short term problem.

People who taste the wines of Mexico at wineries rave about their quality. But then when they order them in restaurants in the cities they are sometimes puzzled. Is this the wine I liked so well? I wonder what’s happened to it, they ask?

The answer, in many cases, is that Mexico’s transportation system of poor roads and long rides in hot trucks has baked the freshness out of the wine and left just a  hollow shell behind. Mexico can produce excellent wines, but it must also find ways to get them to market in good condition. This is a wine problem but of course it is much more than that.  It is a symptom of a general challenge to Mexico’s continued development.

Lego Wine: Wine in the [Newest] BRICs

This is the sixth in a series of articles on wine in the BRICs Brazil, Russia, India and China.

2011 is the 10th anniversary of the BRICs. Jim O’Neil of Goldman Sachs announced back in 2001  that the future belonged to four big economies that were poised to move out of the “emerging market” category: Brazil, Russia, India and China.  I’ve spent the last few weeks examining wine in each of these important markets and so, with China just finished, it seems like it is time to sum up.

But Wait … There’s More!

But just when I thought I was done with the BRICs it turns out that there are more of them! According to the Financial Times, O’Neil  has decided to expand the list to include Mexico, South Korea, Indonesia and Turkey. I think for now people are calling them “the new BRICs” since MSKIT, MITSK, SKIMT or even TIMSK lacks the cool symplicity of  BRIC (rhymes with NIC for newly industrialized country, sounds like “brick,” an important building block).

Maybe they should call them the LEGO countries — they come in lots of styles and colors and you can put them together pretty much any way you like. You see, the New BRICs are a not a very coherent concept. They seem sort of cobbled together — like a kid’s LEGO project.

None of the countries on O’Neil’s list are obvious candidates for the new BRICs team. Everyone wanted to know why Mexico wasn’t included in O’Neil’s grouping ten years ago, for example. It seemed like an obvious oversight. But Mexico these days, with its shocking drug crime, is an even less friendly business environment than before. No one would ask why Mexico was left off the list today.

Turkey is a founding member of the OECD (a.k.a. “the rich countries’ club). Its inclusion on a list like this seems a bit of an afterthought however welcome the attention might be to Turkish business leaders and government officials.

I need to think about Indonesia and ask why O’Neil might have chosen that country and not Malaysia (or the Philippines or Vietnam). Maybe he needed to buy a vowel. (Or, to be fair, perhaps he knows something about Indonesia’s economic prospects that  I don’t, which seems likely.)

South Korea makes no sense — it is one of the original four Asia Tigers NICs (along with Taiwan, Hong Kong and Singapore), a group that predates the BRICs and outranks them in terms of economic stature.  South Korea was an economic powerhouse long before the BRICs were born.

Members Only?

O’Neil’s New BRICs are strange bedfellows, but that is not the end of the story.

The original BRIC nations have decided that they are more than a figment of an investment banker’s imagination; they actually  work together on various global issues.  And they recently decided to expand their membership. Apparently they didn’t consult O’Neil because their invitation list didn’t include any of the MSKIT countries.

According to Reuters, the BRICs have invited South Africa to join their club.

China, South Africa’s largest trading partner, has invited South African President Jacob Zuma to attend a summit of BRIC leaders that Beijing will host [in 2011] , Nkoana-Mashabe said. “China believed that South Africa’s accession would promote the development of BRICS and enhance cooperation among emerging market economies,” she said.

The BRIC countries have sought greater clout for their grouping, holding a summit in Russia in 2009. “BRIC” is a term invented in 2001 by Jim O’Neill, the chairman of Goldman Sachs Asset Management.  South Africa applied to join BRIC at the G20 meeting of the world’s leading economies in Seoul in November, Russian President Dmitry Medvedev said at the meeting.

Not Your Father’s Bali Hai

So what can be said about wine in the LEGOs … er, new BRIC nations? Well, it is a very mixed bag from the wine market perspective.  All five of the Legos produce wine. I’ll look at two of them here, saving the three largest producers for future posts.

Indonesia, the world’s most populous Muslim country,  is an unlikely wine producer. And indeed, production is limited to relatively small amounts on the island of Bali, according to the Oxford Companion to Wine, which reported three wineries as of 2005. Hatten Wines (founded in 1994) is the largest and is a pretty ambitious project according to their website, with more than 40 employees at the winery, distribution center and 14.5 ha vineyard.

Since Bali is so close the equator, tropical viticultural practices apply — pergola-trained vines to cope with humidity, vinifera and hybrid grape varieties and three crops a year (harvest every 120 days according to the website). A recently released Shiraz breaks new ground for tropical winemaking.

I found one tasting note on CellarTracker — written by a tourist happy to find a local alternative to expensive imported wines. He scored the Hatten AGA White 86 points. “The wine was very aromatic, with banana, honey, lemon, pineapple, and hints of peach and grass on the nose. On the palate, the wine showed banana, honey, lemon, kiwi and citrus. It was slightly off-dry, with medium-level acidity. The wine was much better than we expected. It lacked the structure to earn high-end scores, but it was extremely delicious and drank very well in the tropical climate. In addition, it paired extremely well with Indonesian cuisine.”  The review continues …

A little fun fact: we had multiple bottles of this wine in different restaurants and the bottles showed some variation. Two bottles in two different restaurants were identical, having the most accented banana flavours and earning the highest scores (87). In another restaurant, we had two bottles on two different days – these bottles were identical, but different from the two bottles we had in other restaurants (less banana-driven, with more pronounced citrus flavours, higher acidity an some heat on the back-end (earning the lowest scores – 85)). The other bottles we had in different restaurants kind of fell between those four bottles (86). The bottom line is that all bottles showed basically the same profile, but with subtle difference. I guess that is the fun part of having multiple harvests each year.

Mixing Drinks in South Korea

South Korea is better known for producing table grapes than wine grapes.The first wines were made in 1901 by missionary Father Antonio Combert for the members of his Korean Catholic Church.  Contemporary production dates to 1977 when the drinks company DooSan Baekwha began production of Majuang wines, which dominates the domestic wine market.  As in China, Korean wine is often a mix of domestic and imported products. None of the tasting notes I found on the Internet was very detailed.

DooSan had 140 ha of vineyards in 2005 and, while my research turned up substantial vine acreage beyond this, most of the fruit goes to the fresh grape market. Wine grape production is also limited by climate concerns — although Korea is at about the same latitude as Napa Valley, its winters are famously harsh.

My guess is that Korea will be more important as a consumer of wine, domestic but especially imported, than as a producer. Perhaps Korean-born Jeannie Cho Lee, the first Asian Master of Wine, will lead the way. Indications are that wine sales have increased rapidly in recently years, so things are looking up.

South Korea imposes trade barriers on imported wine and this has become a bargaining chip in its free trade area (FTA)  negotiations with wine exporting countries and regions. First Chile and then the European Union have  signed agreements with Korea and now have free access to this market. The Korean-U.S. agreement awaits completion. I’m sure U.S. winemakers would like to have equal access to this growing market.

The wines from South Korea and Bali are very interesting — I hope I have a chance to try them eventually — but they are unlikely to be serious contenders in the world wine league tables in the near future.  That’s not the case for the other LEGOs (new BRICSs): Mexico, Turkey and South Africa., the subject of my next blog post.

The BRICs: Two Faces of Chinese Wine

This is the fifth in a series of articles on wine in the BRICs Brazil, Russia, India and China. Today I discuss the cultural contradictions of wine in China. Coming soon: wine in the New BRICs.

Wine, Fake Wine and Chinese Wine

China’s rise in the the world of wine is having many surprising effects. One of the most unexpected is this: apparently the most valuable bottle is my tiny cellar is an empty one — this jeroboam (double magnum) of 1994 Chateau Pêtrus. It is a souvenir of a particularly decadent party thrown by friends to celebrate their son’s graduation from college. Somehow I ended up with custody of the empty bottle.

Bottles like this are in high demand in China, according to recent news reports. Chinese entrepreneurs will reportedly pay up to £300 for an empty trophy wine bottle (especially Lafite), to be refilled with a lesser vintage wine and sold to gullible consumers or collectors. Provenance is important and condition matters:

“The bottles need to be in the best condition possible,” said another dealer, called Mr Ye, at a Shanghai company. “It is very important. And I only want genuine bottles, no fakes,” he added.

No fakes! I love it.

This sort of wine fraud is noteworthy just now because of all the attention that is focused on wine in China, but it there’s really nothing exceptional about this kind of scam. The story of The Billionaire’s Vinegar and its after-shocks suggest that fake wines are as common as fake Dalí prints — more common, actually, if you take Gallo’s embarrassing accidental purchase of bogus Pinot Noir into consideration.


But the story gets worse. A few weeks ago Chinese authorities raided 30 wineries in the Hebei region near Beijing (sometimes called “China’s Bordeaux)) for making chemical-laced fake wines.

CCTV’s footage showed a local sales manager admitting that some wines made in the coastal city of Qinhuangdao contained only 20 percent of fermented grape juice, with the rest being composed of sugar water mixed with chemicals, including coloring agents and flavorings.

Huang Weidong, a leading expert on the wine industry from the China Alcoholic Drinks Industry Association, said that the additives could cause headaches and irregularities in the rhythm of the heart, as well as cancer.

Solving the Puzzle

I’ve written about wine in China more than any of the other BRIC nations (follow the links in the next few paragraphs to read the posts), but fraud has only come up once before, in my report on Canadian Ice Wine.  China is a major market for this glorious elixir and some reports suggest that as much as a third of the stuff sold in China is bogus.

My reports on wine in China have been quite varied, covering a number of different topics. For example, China is on the verge of becoming a dominant force in global auction market for wine. I noted the change when Hong Kong dropped their punitive tariffs in an attempt to attract the auction houses and again in my report on last year’s Bordeaux en primeur circus.

In terms of the domestic market, I examined the factors that seem to be holding Chinese wine back in terms of quality and found that the biggest problems are in the vineyards, where China’s fragmented agriculture presents a roadblock. The best wines, like Grace Vineyards, come from wineries that have found ways to solve this puzzle.

Everyone wants to break into the Chinese market, including the Australiansespecially given their current problems — the Portuguese and some of my American friends, but the French have a (perhaps unfair) advantage.  The image of the great first growths casts a long shadow at present, although I expect that Chinese wine consumers will get smart soon. They are so savvy in everything else that I think they will develop a more sophisticated idea of wine pretty fast.

I note, for what it is worth, that President Obama made a point to serve some really excellent American wines to Chinese President Hu at the recent White House state dinner in his honor.  The Quilceda Creek Cab can compete with fine French wines and I’ll bet the Poet’s Leap dessert wine was a hit, too.

The Two Faces of Chinese Wine

So what do I think about Chinese wine today? Well, I am still concerned about the quality of the grapes themselves and the  supply chain that delivers them to the wineries, which I believe are the biggest roadblocks to development, not the fraud that is the focus today. But, that aside, I find myself surprisingly optimistic.

China gets a whole chapter my forthcoming book on the Wine Wars (you can now pre-order it on Amazon.com!). It starts with my first rather revolting taste of Chinese wine and ends, many pages later, with another tasting, this time of one of China’s most notable wines.  Here’s an excerpt from the final draft:

Our Grace Vineyards Cabernet Franc was a solid effort, we thought, but nothing special– a bit light compared American wines of this type. Writing in The Wine Economist, I noted a distinctive “green” taste I associate with wine made from under-ripe Cab Franc grapes. A problem in the vineyard, I speculated. Maybe the climate’s just too contrary to fully ripen these grapes.

A day later one of my readers lobbed in a counterargument.[i] Maybe, he said, that green flavor is intentional. He had heard that this particular flavor is familiar to Chinese consumers and that some Chinese wineries harvest grapes a bit earlier in order to achieve it. It wasn’t a flaw in the wine, he suggested, but a feature. Something that makes it Chinese wine, not a Chinese imitation of someone else’s wine. It’s the Chinese market terroir, if you will. Maybe the thinness that the critics note is another reflection of local taste?

That got me to thinking. Maybe we were judging Chinese wines by the wrong standards. What matters most? How I feel about the wines (and how they compare to international standards) or how the Chinese consumers look at them? Interesting question.  So I hit the books.

A little research turned up more evidence that the judgments of Western critics might be unfair to Chinese wines. Jeannie Cho Lee, Korea’s first Master of Wine, argues that Asian food and wine traditions prime consumers to think about wine differently and to appreciate different qualities in it.[ii] Why don’t Chinese wine drinkers appreciate that a crisp Pinot Gris pairs nicely with their cuisine? Well, Ms. Lee explains, many Asian cultures do not consume beverages (apart from savory soups) with their meals – they drink them before and after. White wines are generally chilled, of course, and most Asia drinks are warm or room temperature. And the sweetness of a Pinot Gris can seem unrefined to palates that are used to more complex sweet-sour flavor profiles.

Why such a fascination with Bordeaux? It could be the tannins, Ms. Lee argues, which are appealing to wine drinkers from cultures with a tradition of consuming very tannic teas. Even the basic flavor reference points are different, she explains. Westerners think of Pinot Noir in terms of raspberries and strawberries, for example, but the Asian descriptors would be yangmei (bayberries), dried wolfberries and dried bonito flakes! An Asian description of Sauvignon Blanc would start with pandan leaves and longan and move on to mangosteen – not a familiar flavor or aroma vocabulary for me. But I can relate a bit better to her description of Riesling: Thai white blossoms, lemongrass and green mangoes.

Hmmm. So maybe it’s time to rethink Chinese wine.

Wouldn’t it be great if the most important qualities of Chinese wines – the ones that Westerners reject — turn out to have been lost in translation and that a true indigenous Chinese wine culture evolved, one that reflects China’s history, cuisine and palate. I hope so because it would support my theory of the future of wine. Suffering just now from the excesses of globalization and Two Buck Chuck, China needs to unlock its inner terroirist soul!


[i] Thanks to Bob Calvert for this insight.

[ii] Jeannie Cho Lee, “Language of Taste,” Decanter (July 2009), pp. 78-79.

The BRICs: Suprising Wines of India

This is the fourth in a series of articles on wine in the BRICs Brazil, Russia, India and China.  (Note: According to today’s Financial Times, Jim O’Neil, who coined the term BRICs has decided to expand the list to include Mexico, South Korea, Indonesia and Turkey. Hmmm. I will be expanding the Wine BRIC list myself in an upcoming post!)

India’s wine markets are full of surprises for anyone who hasn’t been following them closely in recent years. The only previous Wine Economist post on wine in India dealt with that country’s misguided tariff policies that I argued stifle the wine industry in an attempt to protect it (a view I still hold).

Because most people don’t associate wine with India, you might think that wine is quite new in India — and it is as you will see below, but it is also very old. Like the other BRIC nations, wine in India is going through a dramatic transition today, but one that is quite distinct because of India’s unique history, politics and culture.

The Roots of Indian Wine

Persian conquerors brought grape vines to India nearly 2500 years ago; wine consumption is first mentioned in a text on statecraft written about 300 b.c.  Wine was a beverage for elites, not the masses (who apparently wanted stronger stuff), and lived a shadowy existence that continues today due to concerns about alcohol consumption. The influence of British colonizers contributed to the growth of Indian wine production in the 19th century, before the scourge of phylloxera hit India’s vineyards in the 1890s with predictable results.

Table grapes are a major crop in India and wine grapes are grown in several regions, generally at altitudes of 200m – 800m, although vineyards at 1000m exist in Kashmir. Growing conditions are surprisingly good using viticultural practices that take humidity and rainfall patterns into account (harvest must be complete before the monsoon). Two crops per year are common.

Since independence in 1947, wine has been caught in a crossfire in India. On one hand, it is a heavily controlled substance.  Article 47 of the constitution makes it a function of the state to discourage alcohol consumption (Gandhi and some other early leaders were teetotalers), so wine imports are highly taxed and advertising is forbidden. Individual state governments within India tax and regulate wine sales much as in the United States, creating a distributional crazy quilt. At the same time, however, some state governments promote viticulture and wine making as an economic development tool. It’s a push and shove situation for wine.

The surprising state of wine in India today reflects this condition. On one hand wine (especially imported wine) is highly taxed and the national market fragmented by uncoordinated state regulator regimes. At the same time, pro-development government policies seem to have led to an over-expansion of supply by encouraging new vineyard plantings.  Wine consumption is growing rapidly as India’s expanding middle class embraces the fruit of the vine, but for the moment at least there’s a shakeout taking place among producers who find themselves out ahead of demand.

A Tale of Three Winemakers

The contemporary history of Indian wine can be told through the three most important wineries, Chateau Indage, Grover Vineyards and Sula Vineyards.

Chateau Indage is generally credited with starting the quality wine industry in India in the 1980s.  Bombay investor Sham Chougule sought to produce sparkling wines, mainly for export (40% foreign sales today). Piper-Heidsieck, the French Champagne house, provided technical expertise for site selection, grape variety choice and wine making. The result was India’s most famous wine, Omar Khayyam, a sparkling wine praised by Jancis Robinson among others. Chateau Indage was until recently India’s largest wine producer, offering two sparking wines, a pair of reds (Cabernet Sauvignon blended with indigenous varietals) and two white wines. Chateau Indage today is expanding globally, having acquired wineries in Australia and a distributor in the UK.

Grover Vineyards came next, a collaboration between Kanwal Gover  and French wine maker George Vasselle. Their ambitious goal was to bring Bordeaux to Bangalore — to make French-style wines in India using only French varieties. This they have achieved to a very considerable extent. With the help of flying winemaker Michel Rolland, Grover’s signature red wine La Réserve has gained an international reputation.

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Sula Vineyards recently overtook Chateau Indage to become India’s #1 wine producer. Sula is the project of Rajeev Samat, who left home to study at Stanford and work in Silicon Valley before returning to manage the family enterprises. His Tuscan-inspired winery and associated vineyards in Nashik, a few hours drive from Mumbai, is part of an elaborate economic development plan that includes vineyards, wine production and wine tourism.

Having introduced a value range to complement its premium wines in 2008, Sula is expanding rapidly on all front (see the video above for more information), adding 1000 acres of new vines to supplement their current 1200 acres.  A new winery is in the works to handle the increased tonnage. Sula now has more than 300 employees and a 70% market share, making it the Big Dog in Indian wine.

Sula is a big part of the movement to make Indian wine part of the mainstream middle class lifestyle using all the techniques of modern marketing. It is worth taking a detour to visit the Sula website to see how they tell their story and position their products. Like its colorful label (and Rajeev Samat, its enthusiastic owner), Sula combines Indian roots and international influences.

SWOT Analysis

The Indian wine market has obvious potential that has attracted investors to the domestic industry and international firms seeking markets for their products. The U.S.  Wine Institute commissioned a 2008 report on the Indian wine industry (the link takes you to a pdf of the report) that makes good reading. Only a very small percentage of India’s total population has the right combination of religious views, legal age, location in states where alcohol can legally be sold, disposable income and exposure to wine to be considered potential customers, according to the report. However this tiny percentage amounts to 24 million people, a considerable and growing market!

The study’s SWOT analysis provides an effective summary of the situation.

Strengths

  • Indian wine consumption has grown 25-30% annually over a 5year period.
  • Good climate for grape growing
  • Urban population is increasing.
  • Youth are craving an alternative to hard liquors and developing a more refined taste.
  • Wine is becoming more acceptable to women and youth.

Weaknesses

  • Wine remains an elite taste.
  • Wine is difficult to store in India due to lack of cellars and refrigeration.
  • Less than 50 percent of the population is legally old enough to drink (25 yrs. old).
  • 400 million persons are 18 years old or younger.
  • Poor awareness of wine and infrastructure.

Opportunities

  • 100 million persons will be legally allowed to drink alcohol (25 yrs. old) in the next 5 years.
  • Supermarkets are emerging to support wine distribution infrastructure.
  • Domestic market with increasing disposable income.
  • Growing tourism industry.

Threats

  • The Indian constitution discourages alcohol consumption.
  • Wine viewed as a “sin” by some.
  • Indians still prefer whisky.
  • Advertising for alcoholic beverages is banned.
  • Domestic wine production is coddled by state governments.

While there are many challenges to the development of the Indian wine industry, I suspect that the biggest obstacle will be reforming government policies that fragment the market and create counter-productive domestic incentives and barriers to foreign competition. After that, serious infrastructure limitations must still be addressed.

It is pretty clear that good wine can be made in India and that a large and growing potential consumer market exists. A lot of work remains to realize India’s grape potential (sorry about the pun!).

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