Wine Sustainability: Trade-off, Trilemma or Synergy? It’s Complicated!

milanSue and I are in Milan this week at the International Congress on Sustainability during the 26th edition of SIMEI – International Enological and Bottling Equipment Exhibition.  This event is sponsored by the Unione Italiana Vini, an association of Italian wine producers whose 500 members account for 70% of the nation’s wine.

I will be leading a discussion of the economic elements of sustainability in wine on Tuesday and then taking part in a panel that looks at the role of sensory analysis in sustainability on Wednesday.

One of the themes of the conference is that sustainability is not simply an ethical matter but also a key to wine quality and wine market success. I am looking forward to meeting the international group of speakers and participants.

I was asked to prepare a quick “ice breaker” presentation to jump-start the discussion of the economic aspects of sustainability in wine and I thought I would share its outline with you here. I begin with the conventional wisdom of the “triple bottom line” analysis: sustainability must take into account the natural, social and business environments. The question is how are these three related. The answer is “it’s complicated.”

Some people see these simply as discrete goals and focus on trade-offs. Others see sustainability as a trilemma — pick two and the third is eliminated. I can understand this logic, but I think it is possible to design for sustainability and I will try to direct the discussion towards strategies for synergy and success.

I plan to get the ball rolling by talking about the case of Durbanville Hills winery in South Africa, a success story in terms of both wine quality and sustainability. Durbanville Hills isn’t sustainable by accident but rather results from the combination of effective leadership, a progressive organizational design and strong institutional commitment by all stakeholders. Inspiring! I hope the participants will contribute other success stories that will collectively point the way forward.

The key, of course, is to bridge the gap between theory and practice. and to identify the key pressure points. Sustainability is important in wine both for the success of the industry and as a beacon to other sectors. Wine, with its strong social and cultural connections and its deep agricultural roots, presents a clear example of how complex thinking about sustainability pays off.

Ciao a tutti — hope to see you in Milan!

Wine Sustainability & Sensory Analysis Congresses at SIMEI 2015

milan1I am pleased to report that I will be speaking at two international wine congresses in Milan, Italy next month.

I’ll be speaking at  the International Congress on Sustainability “SUSTAINABILITY AS A TRIBUTE TO WINE QUALITY” on 3rd November 2015  and “DISCOVER THE SENSORY FACTORS” on 4th November 2015 during the 26th edition of SIMEI – International Enological and Bottling Equipment Exhibition in Milan, Italy. This event is sponsored by the Unione Italiana Vini, an association of Italian wine producers whose 500 members account for 70% of the nation’s wine.

The congresses feature innovative and interactive programs and an impressive group of speakers and participants. I am very pleased to take part! Here is a description taken from the conference website.

“For the 2015 edition of SIMEI – International Enological and Bottling Equipment Exhibition – the WORLD LEADER in wine technology and the only international biennial exhibition which presents at the same time machinery, equipment and products for production, bottling and packaging  of all drinks, Unione Italiana Vini has confirmed its commitment in the organization of global hot topics congresses.”

milan2“The Congress will develop two different but strictly connected topics and will involve the most authoritative international experts of the scientific community. Prominent personalities have already been invited to participate in two complementary Steering Committees, chaired by two recognized international icons, the likes of Ettore Capri (Opera Research Centre- Università Cattolica del Sacro Cuore) and Anita Oberholster (Enology Department of Viticulture and Enology- UC Davis).
“Stakeholders from the wine chain will fully be involved: farmers, service providers, operators of sustainability programs, retailers and the trade in general, consumers will be called to participate in an event that will exploit modern techniques of interactive participation.”
“That is the natural sequel of the International Congress that was held during Simei 2013 (SUSTAINABLE VITICULTURE AND WINE PRODUCTION: STEPS AHEAD TOWARD A GLOBAL AND LOCAL cross-fertilization).”
Here are two videos that explain the international congresses and another that shows what SIMEI is all about.

Wine Uncorked: The Rise of Big [Really Big] Box Wine

This is the fourth in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week’s topic is how wine is becoming increasing “uncorked” and what this implies.

If you take the “uncorked” metaphor and add it to the “box wine” reference in the title, you might reasonably assume that I’m going to talk about alternative wine packaging — boxes, bags, 1-liter tetrapak containers and so on. That would sure make sense.

But you’re wrong. The box I’m talking about is big [really big] as in 20 foot ocean shipping containers holding maybe 25,000 liters of bulk wine in a “flexitank” bag.

Welcome to the New World of international wine trade — the ultimate ‘uncorked’ experience!

The Incredible Bulk

I’ve known about Big Box wine for a while — my 2009 post on “Wine’s Future: It’s in the Bag [in the Box]” is one of the most-read articles in Wine Economist history. But I didn’t realize how big the big box wine trade had become until I received a Rabobank  report titled “The Incredible Bulk: The Rise in Global Bulk Wine Trade” earlier this year.

Rabobank’s report focuses on New World wine trade since 2001 and the change in the composition of wine shipments (in terms of bottled versus bulk) is dramatic. Bulk wine (the big box stuff) accounted for about 22% of New World wine exports in 2001 (the remaining 78% was shipped in bottle). By 2010 the bulk share increased to over 40% while the bottle share fell to less than 60%. That’s a near doubling of the bulk wine share of New World wine trade in less than a decade, an amazing shift that is all but invisible to consumers.

Big Green Wine

What drives the shift from bottle to bulk in New World wine trade? The short answer is Big Green, but green in two ways. Green, first, in the environmental sense. Bottled wine is both heavier and bulkier than bulk wine (glass accounts for more than 40% of a standard bottle’s total filled  weight). All else being equal (a big assumption in wine economics) shipping wine in bulk and bottling closer to the final consumer should lower the wine’s carbon footprint.

Tesco, the world’s largest wine retailer,  is reported to be particularly aggressive on this front with bulk wine imports being bottled in screw cap-topped lightweight glass for its high volume private label brands. (Click here to read about their very green “furnace glass” wine bottles!)

Cost is another green (as in greenback) factor and there are savings here as well. Rabobank estimates that bulk shipping yields an average cost savings of $2.25 per standard 9-liter case (they estimate total annual savings of $142,300,000 in 2010 compared with the 2001 level of bulk shipments).  This is a very substantial saving for commodity wines of the type that often appear in private label brand portfolios.

The movement towards increased bulk wine exports started in the Age of Abundance, when surplus wine flooded the markets and it was important to move it as cheaply and efficiently as possible. Those days are now in the past; rising costs and tight margins are likely to make that $2.25 per case saving even more attractive to producers now, especially as they scour the world for supplies of wine (did someone say “Moscato?”) to supplement scarce domestic juice.

Subtracting Value Added

For vertically integrated international wine producers, the decision to ship in bulk and bottle in the domestic market is mainly about these cost savings.  They pay less to ship the wine and pay lower import excise, too, since the wine enters the country at the lower bulk value rather than a higher bottled value.

But more is at stake, as the Rabobank report notes, for wine makers who sell to third party importers. In this case bulk shipping results in a new division of value added in the supply chain, with less in the producing country and more further down the line. The impact is thus complicated: bulk wine shipment subtracts some value added in the producing country, although the lower overall cost encourages exports.

There are also relative price effects to consider. Bulk shipping increases the relative price of traditional bottled wine imports relative to bulk products, a difference that may be magnified as wholesale costs differentials are passed along through the supply chain.

Economic Impact: The Box

The standard 20-foot shipping container (a.k.a. “The Box”) revolutionized international trade when it became widely adopted. It changed everything (OK, maybe not everything) because it was so much more secure and efficient than the previuosly standard “break bulk” shipping system. One of the things it changed was the scale of international transactions because the greatest economies were realized by those who could reliably fill ocean containers.

I don’t think the rise of “uncorked” big box bulk wine shipments is going to change everything in the same way the ocean container did, but I do think the effects will be significant. I’ll talk about this more in my next post where I consider how the world of tight, fat and uncoked wine is likely to unfold.

What’s Red, White & Green? Wine Packaging Greens Up

What’s red and white and green all over? Wine, naturally. And naturally Oregon wineries are in the green forefront — a fact that was reinforced at a recent Wine Wars book talk.

The Difference Between Water and Wine

Forty-eight  alumni came out on a beautiful August evening to attend an event at the Boedecker Cellars winery near downtown Portland.  That’s a testament to the old saying “Water keeps people apart, wine brings them together.” Urban wineries are a growing trend and Steward Boedecker and Athena Pappas have located theirs in a cool 1950s building across the street from the Pyramid Ales brewery. (Stewart is a Puget Sound alumnus, so Boedecker is on my growing list of  alumni wineries.)

Because I was asked to talk about Wine Wars with particular attention to Chapter 14’s topic, wine and the environment, I titled my presentation “What’s Red and White and Green All Over.” Portland is a good place to give a talk like this because it is so close to the wine country and its citizens are so environmentally minded. Green wine is big in these parts.

Green wine is made in the vineyard, of course (the organic or biodynamic viticulture choice), and part of it is made in the cellar (especially regarding water use and re-use, which is a significant issue almost everywhere). I’ve seen estimates that it can take as much as 120 liters of water to produce a single glass of wine if you follow the product chain from start to finish. Wow! That’s a big environmental factor.

And finally there’s green wine packaging.

Weighing the packaging options: Jen, Allison, Mike and Brad.

The Weigh In

With the help of two volunteers, Jen and Brad, I demonstrated some green and no-so-green wine packaging options.  The differences in size, weight and perceived quality were astonishing. Here is the tale of the scale.

  • Standard 750ml bottle filled 1320 grams
  • Standard bottle empty 578 grams
  • Prestige bottle empty 844 grams (46% heavier than standard bottle)
  • Eco bottle empty 476 grams (82% of the weight of standard bottle)
  • Ultra-eco bottle empty 444 grams (the blue bottle in the photo — 77% of standard bottle weight)
  • PET bottle empty 56 grams (the yellow bottle in the photo — less than 10% of the standard bottle weight)
  • Tetra-Pak 1 liter container empty 40 grams (less than 8% of standard bottle weight)

The Tetra-Pak is more efficiently produced and recycled and saves over 90 percent of shipping weight compared with the standard bottle, an amazing saving of resources all along the product chain.

I predict that much of the wine we drink every day will eventually be delivered in eco-containers. Just as many consumers seem to have gotten over their prejudice against screw caps, I think we’ll come to accept eco-packaging as an appropriate delivery system for the ordinary everyday wines that make up more than half of all wine sales.

Animated winemakers: Athena Pappas and Stewart Boedecker

Fine Wine versus Vin du Jour

But what about fine wine? Well before my visit to Boedecker my answer was that the eco packaging choices were pretty limited – lightweight glass was about all I could recommend since the most extreme eco choices (Tetra-Pak, for example), are not appropriate for medium- or long-term storage. They are for vins du jour – the wines you buy at 3pm and open at 5pm (which make up the bulk of total wine sales, of course).

But Stewart surprised me by explaining that he had found some innovative ways to cut Boedecker’s environmental footprint without sacrificing the quality of the delivered product.

How about re-using wine bottles the way we used to collect and reuse soda bottles? The idea of recycled wine bottles is very appealing, but the practical problems of collecting used bottles, cleaning, sorting and distributing them are hard to overcome. But Stewart told me about a California firm (I think he was talking about Wine Bottle Renew) that has tackled this project with success, using high tech scanners to sort the bottles (a key and previously prohibitively labor intensive process).

The money and resources saved by not having to melt down and recast the glass are considerable, Stewart said, and the delivered glass is both cheaper than new, it is also actually cleaner (an obvious concern).  He’s sold on recycled bottles and it is easy to see why – a trend to follow for sure.

Riding the Keg Wine Wave

Boedecker is also riding the keg wine wave, which is another eco-packaging movement. Wineries deliver 20-25-liter kegs to restaurants and other “on-premises” establishments to fill “wine by the glass” orders with no waste. It makes a lot of sense to eliminate as much of the packaging as possible for wine that will move so quickly from barrel to glass.

But keg wine is currently mostly a local phenomenon because of the logistics of recycling and reusing the kegs, which is the key to the whole enterprise. So I was surprised to learn that Stewart was selling Boedecker wine kegs in New York City.  They ship the wine in bulk to New York where a local partner handles the keg operation.

What a great idea! It opens up a distant market, is good for the environment and is good for the wine, too.  Kym Anderson recently explained to me that shipping in bulk versus shipping in bottles can actually result in better wine because the liquid mass of the wine (up to 25,000 liters in the case of ocean container shipments) is more temperature stable than cases of wine in bottles. Cheaper, greener, better quality — a winemaking trifecta!

Bulk shipping and local “bottling” into kegs is kind of a return to U.S. wine market practices in the 1930s, where California winemakers would ship bulk wine across the country in railroad tank cars. Local bottlers would market the wine, usually under their own brands rather than the name of the wine producer. This practice ended in World War II when the Army commandeered the tank cars and wineries were forced to bottle (and brand) themselves and ship cases of wine in box cars.

Will keg wine take off and take us back to the future of wine? Stay tuned.


Thanks to Stewart and Athena for hosting the alumni event at their winery. Thanks as well to Brad Boyl, Rainier Aliment, Renee Kurdzos and Allison Cannady-Smith for all they did to make this event a success.

The Forbes Interview: Wineries that “Get It”

Forbes Asia published “The Future of Wine,” a  three page excerpt from Chapter 15 (“The China Syndrome”) of Wine Wars last month. A follow up interview appeared this week on Karl Shmavonian‘s blog “Horse Feathers” under the heading “An Economist Shares His Thoughts on Wine.” (You can read the excerpt and the interview by clicking on the links provided.)

It was fun to answer Karl’s questions. Karl’s focus is Asia, so I wasn’t surprised that he had questions about Chinese wines, the Chinese-Bordeaux wine market and even the prospects for South African wine in India and … Sub-Saharan Africa!

One question really made me think. Who “gets it” in the wine world?  Here’s the question and my brief answer copied from “Horse Feathers.”

Name a few wineries that “get it” from a business standpoint.

I think Chateau Ste Michelle gets it here in Washington State. Ste Michelle Wine Estates has a “string of pearls” operating philosophy that allows each of their winery brands (including Columbia Crest, for example, and Stag’s Leap Wine Cellars) a good deal of independence while benefiting from the economies of distribution, etc. Even the large production facilities like the white wine facility in Woodinville contain mini-wineries that allow the winemakers to do small scale projects while also producing hundreds of thousands of cases of the mainline products.  Chateau Ste Michelle balances the big and the small without losing their terroirist souls. Boisset and Frog’s Leap (both in California) are examples of two totally different companies that both get it. In particular, they both get the environmental problem, although they approach it in very different ways.

Reading this, you probably wonder what I mean by “getting it” and why I picked these three wineries as examples? Here’s the story.

What does it mean “to “get it?”

“Getting it” in this context means understanding the tensions that are at the core of the wine market (and that I analyze in Wine Wars).  Globalization and wine market expansion generally have brought a world of wines to our doorstep. This embarrassment of riches is both blessing and curse. It’s a blessing because of the opportunity to sample wines from all around the world. It is a curse because of the difficulty of choosing. Too much choice can be intimidating, especially in the case of wine, which has so many other intimidating factors associated with it.

Anyone who can simplify the choice and gain the consumer’s trust stands to benefit in this complex market environment. Brands have therefore become increasingly important, both private brands like Mondavi and Mouton Cadet and more general types of brands like Brand Marlborough Sauvignon Blanc and Brand Argentina Malbec. Consumers understand the wines associated with these brands and so are more confident in making purchases. (Just having a strong brand is not enough, however, as the roller-coaster story of Brand Australia Shiraz demonstrates).

The risk with brands, however, is that they can sometimes go too far in their effort to simplify (the Shiraz problem). It is important that branded wines not sacrifice the qualities that make wine special. Wine that is just another packaged good has lost its “terroirist” soul — the winemakers just don’t “get it.”

The Terroirist Revenge

So Wine Wars argues that the future of wine will be determined by the battle between the market forces that will push wine into the world and the “revenge of the terroirists” that will push back. Because I am an optimist (I have “grape expectations”), I think the future is bright. But this requires that wineries “get it.” So, Karl asked me, who does?

Well, a lot of wineries get it, to be honest, but in the short time available I only mentioned three of them. Boisset gets it, for example. It’s a good example of a “global” wine business, with strong brands in both the Old World (France) and New World (California). But there is a strong terroirist element to Boisset that keeps it honest, both in terms of the desire for wine to express a sense of place and also a concern for the environment. Boisset has been especially active in packaging innovations, for example, that aim to reduce the carbon footprint of wine. That’s one way to “get it.”

Frog’s Leap gets it in a different way. It is an example of a producer that has developed a strong brand without dumbing down its wines or selling its soul. Frog’s Leap is such a strong brand in Japan, for example, that it was the featured winery in the Japanese re-make of Sideways. But Frog’s Leap proves that branding doesn’t have to sacrifice quality or reduce wines to a least-common-denominator status. Frog’s Leap stands for something, both in terms of wine and with respect to the environment (dry farming, sustainable methods). They show that it is possible to “get it” this way, too.

Global-Local Nexus

Chateau Ste Michelle is my third example. They are the largest wine producer in Washington State and the largest producer of Riesling wine in the world. The parent company, Ste Michelle Wine Estates, usually ranks about #7 among U.S. wine producers. The Chateau as it is known here in Washington knows about globalization (its wines can be found all around the world) and brands, too, but it hasn’t sacrificed its soul in the process. In fact, I think you could argue that it has tried to use the forces of globalization and brands very constructively — through international partnerships with Germany’s Dr. Loosen and Italy’s Antinori family, for example.

The Chateau collaborates with the Antinori on two projects: Col Solare (an ambitious winery in the Red Mountain AVA) and as partners in the Stag’s Leap Wine Cellars in Napa Valley. Working together, they leverage powerful brands and bring together international expertise, but the goal is to produce distinctly local wines.

The partnership with Germany’s Dr. Loosen has created Eroica, one of America’s most distinctive Riesling wines, and a series of Riesling Rendezvous conferences, which bring together terroirists from across the nation and around the world to share their expertise and plot strategies to promote Riesling without sacrificing quality. The Chateau really “gets it,” but in its own unique way.

The future of wine? A big question. Not everyone will “get it” but I’m betting that enough will to justify my grape expectations.

Wine’s Future: It’s in the Bag (in the Box)

One of my favorite globalization books is The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson. It is the story of how the invention of the standard shipping container (those 20-foot steel boxes you see on ships, rail cars and truck beds) made international trade much cheaper, more efficient and more secure. Now it looks like another kind of box is about to shake up the wine world.

Cheap and Nasty

I’m talking about box wines or bag-in-box (BIB) wines (the Australians call them cask wines) that feature an airtight wine-filled plastic bladder inside a cardboard box. You use a built-in spigot to get to the wine. They can be found on the bottom shelf of the wine wall and behind the bar and out of sight at your local restaurant. They come in several sizes — 3 liter and 5 liter containers are the most common.

Box wines have a bad reputation. They first appeared in the 1970s and were filled with generic bulk wines.  They were one step down from the popular 1.5 liter “magnum” bottles of  “Burgundy,” “Chabils” and the notorious “Rhine” wine. Box wine was cheap, nasty stuff that acquired a frequently deserved bad reputation.

[Re]-Thinking Inside the Box

It’s time to reconsider box wine. Screw caps had a bad reputation, too, until quite recently. We associated them with low grade swill until fine wines appeared under screw cap (the New Zealand producers were in the vanguard) and we began to appreciate that that screw caps have many advantages. Now screw caps are actually associated with quality for some types of wine, especially youthful whites, and no one expects to pay less or get less because of the screw-top closure.

The technology of box wine is very solid. The airtight bladder is a neutral container that is well suited to holding wine for relatively short periods of time. (Don’t cellar box wine — consume within a year of production — check out the “drink by” date on the box.) The bladder and spigot do in fact protect the wine from oxygen in the short run, so it will last longer once opened (especially if the box is stored in the fridge) than similar leftover wine in bottles.

Bladders are so good at the particular thing that they do that they have become an industry standard technology for bulk  imported wines, which are shipped in huge bladders inside steel shipping containers (big bag in big box) and then bottled in the import market. So you may already be drinking box wine and not know it.

The Box Also Rises

The most recent Nielsen retail wine sales figures (reported in the October 2009 issues of Wine Business Monthly) suggest that box wine sales are growing. Wine sold in 3, 4 and 5 liter containers (most of it is box wine, I think) accounts for just under 10 percent of US supermarket wine sales, according to the Nielsen data (compared to 65% for standard bottles with the remainder in 1.5 liter and other formats). Sales are rising in this category, with 3 liter packages up 8.7% in the last year on a dollar basis, for example, and 5 liter packages are up 9.3% by value.

The total market for box wines rises if we include on-premises sales. Recent data (see previous posts) indicate that box wines (served to customers in carafes and by the glass) are strong sellers in casual dining establishments.

The rise of box wine is part of the trading down effect, clearly, since most box wines fall into the two price categories that are experiencing the highest growth. Sales of wines that are less than $3 per 750ml bottle equivalent have risen 7.1 percent according to Nielsen and by 10% for wines between $3 and  $5.99. Supermarket sales of $20+ wines, on the other hand, have fallen by 3.4%.

Nasty, Brutish and Short?

Does this mean that Americans have traded down all the way to the bottom, back to the nasty box wines of the 1970s? The answer, incredibly, is no. Or at least not necessarily, according to the October 15 issue of Wine Spectator.  You can’t miss this issue on the newsstand — it features a cover story on “500 Values for $20 or Less” and includes a set of box wine reviews that make interesting reading.

Wine Spectator purchased 39 box wines in packages that ranged from 1 liter to 5 liters. Twenty seven wines were rated as “good” (a score of 80-84) and ten “very good” (85-89). The names of the 2 wines that scored below 80 were not reported.

The top box wine, going by the rating numbers, is a white: Wine Cube California Chardonnay, which sells in Target Stores for $17 per 3 liter box, which is $4.25 per standard bottle equivalent. It earned a very respectable 88 points. Wine Cube is a partnership between Target and Trinchero, the maker of a wide range of wines including Sutter Home.

The best red wine (at 87 points) is the Black Box Cabernet Sauvignon Paso Robles 2006, which costs $20 for 3 liters or $5 per standard bottle equivalent. Black Box is a widely distributed Constellation Brands product.

Good and Cheap?

Some box wine, apparently, is both pretty good and pretty cheap. Perhaps just to show that they really do rate wines blind, Wine Spectator gave a pretty good 84-point score to a non-vintage Carlo Rossi Cabernet Sauvignon California “Reserve” wine. Five liters for $13, in case you are interested,  That’s $1.97 per standard bottle equivalent.

How can decent wine be this cheap? One answer, of course, is that you can choose to make the wine itself less expensive by economizing in the cellar in many ways (less oak or none at all for red wines, for example). But to a considerable degree the box itself is responsible for the savings.

The bag in box container costs less than $1, according to the Wine Spectator article, which automatically saves $4 to $8 compared with a similar quantity of wine in standard glass bottles and the box they come in. Shipping costs are also less since the boxes weigh much less than glass bottles for the same quantity of wine and are less likely to be damaged in transit.  There are environmental benefits too, especially in areas where glass bottle recycling is problematic because the sour economy has undermined the market for recycled glass.

Is box wine the future of wine? No. The wine market is too complex to be dominated by any single trend. But with better wine in better boxes (and with consumers embracing a more relaxed idea of wine) box wine deserves to play a bigger role in the future of wine. Another triumph for The Box!


November 1, 2009: I was recently interviewed about box wines by Simon Morton of Radio New Zealand’s  This Way Up . Click on the link to listen to the interview.

Cooperatives and the Fair Trade Wine Paradox

Fair Trade Communion Wine from Chile

My first taste of Fair Trade Wine was  very satisfying, as I explained in this space a few weeks ago. The New Direction Malbec that Sam’s Club has been selling for about $10 makes a strong first impression (it was named the world’s best Fair Trade red wine in a British competition) and makes me optimistic about this class of “ethical consumption” goods.

[The image at right is the label of a Fair Trade sacramental wine from Chile that is marketed to Catholic churches for Communion use– can you get more “ethical consumption” than that?  Nice idea — but 15% alcohol? Wow! Better keep an eye on those altar boys.]

Leigh Barrick, a student in the wine and society class I taught last semester, wrote a paper arguing that Fair Trade wine may be an especially good candidate for success because  many wine consumers are actually interested in the details of production and not just the final product.   If you don’t know or don’t care about who made what’s in your glass and how then ethical issues such as how much small growers are paid or how the environment is affected are difficult to motivate.

Wine is one of the few products we buy where we can frequently find the answers to who/what/when/where/how and why right on the label or on the promotional “shelf-talker.”  Wine is good, I tell my friends, but wine and a story is much better and a Fair Trade or sustainability story makes the wine experience more satisfying for many people.

A Fly in the Ointment

But Fair Trade is not a panacea.  Leigh argued, based upon her prior research into Fair Trade coffee programs, that there are many hurdles in the path of Fair Trade wine’s success.  One issue that I have been thinking about recently is the role that grower cooperatives play in Fair Trade programs.

Cooperatives have a generally poor reputation in the wine industry.  When I think of cooperatives the first thing that comes to my mind are those famously bad wines from poorly run cooperatives in the South of France.  You know the ones I’m talking about, the cooperatives where growers are paid by the ton pretty much regardless of the quality of the grapes they bring in.   The resulting wines are often thin, acid and tannic. These cooperatives  are a classic example of the Prisoners’ Dilemma, where collective interest and individual interests are at cross purposes.

The collective interest of the cooperative members is of course to produce good quality wine at a competitive price so that their “brand” (which may be just the village or region AOC classification) has some value and they can earn a decent living.  If the vineyards were owned and run by a single owner, with a specific interest in the brand, chances are that yields would be lower and quality would be the focus.

But, given that they are paid by the ton, each individual winegrower has a strong incentive to maximize yield. Quality generally suffers.  Any individual grower who sacrificed quantity for quality would get lower income without  significantly affecting the quality of the wine, since all the grapes dumped in the same press in a worse-case-scenario cooperative. As each grower responds logically to individual incentives, wine quality falls and the collective interest suffers. Europe’s lake of unsellable plonk is often blamed on the poor wines that this fouled-up incentive structure spews out.

Wait — It Get’s Worse

This image of wine cooperatives is enough to make you lose hope for Fair Trade wines, since they are typically made using arrangements centered on grower cooperatives (which act to distribute the higher payments and coordinate the communal investments that are the whole point of Fair Trade programs).  If you need grower cooperatives to make Fair Trade wine work, and if cooperatives make lousy wine because of their incentive structures, then the future of Fair Trade wine looks pretty grim.

The story gets worse when you look at French wine history.  French wine cooperatives were created to be Fair Trade organizations (although no one thought to call them that). As France industrialized and urbanized a hundred years ago, wine market power shifted from the growers, who owned the vineyards,  to the distributors and negoçiants, who controlled access to the big markets.

Negoçiants had what economists call monopsony power.  A monopolist is the only seller of a product and so can drive price up.  A monopsonist is the only buyer and so can push price down.  If the big negoçiant wouldn’t buy your just-picked grapes you were sunk, so growers were coerced (or felt coerced) into selling their grapes or wine for rock bottom prices. The negoçiants held the power because they could always buy grapes from your neighbor or the growers in the next village, but you had few options. Putting all your grapes back in the cart and shopping around for higher prices from another buyer in another town was not a very attractive alternative to taking whatever the negoçiant was willing to pay.

Will History Repeat?

Grower cooperatives were created to give growers protection from this cut-throat competition and to allow them to capture a larger share of the value of their production by banding together to negotiate a fairer collective price.  This sounds a lot like the motivation behind today’s Fair Trade groups. And it worked, too, according to the evidence I’ve seen, at least for a while.  But then the Prisoners’ Dilemma problem appeared and quality went down the drain.  Or at least that’s how the story is usually told.

Will today’s Fair Trade cooperatives suffer the same fate as their antecedents in the South of France and elsewhere in Europe?  Perhaps.  But there is reason to think the Fair Trade wine story might have a happier ending.  Watch for my next post on this topic.


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