The BRICs: Two Faces of Chinese Wine

January 28, 2011 By Mike Veseth in BRICs, China wine, emerging wine regions, wine fraud, Wine Wars 5 Comments

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 Australians — especially 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.

Wine Myths (and Reality)

January 25, 2011 By Mike Veseth in book reviews, Masters of Wine, wine education, wine markets, wine research, wine science 4 Comments

Benjamin Lewin MW, Wine Myths and Reality. Vendage Press, 2010.

They say that you shouldn’t judge a book by its cover (or a wine by its label?), but does weight offer any clue to quality? Some winemakers apparently think so — they put their best wines (or at least their most expensive ones) in the heaviest imaginable bottles to give them physical heft to match their presumed sensory impact.

If you take Benjamin Lewin’s latest book as a sample of one, intellectual heft and physical weight are pretty highly correlated, too. At 634 pages and 1.9 kg this is indeed a weighty tome — and a very valuable one for anyone really interested in wine.

Wine: Myths and Reality is a great book for people (like me) with a geeky interest in wine. I like it so much, in fact, that I am going to make it required reading for the students in my university class, The Idea of Wine. They may not appreciate having to carry it around in their backpacks, but I guarantee they will thank me when they sit down to read it.

DIY Master of Wine?

I was tempted to title this post “Dr. Lewin’s DIY MW.” As I was reading the book I couldn’t help thinking about the Master of Wine exams and how closely the book seems to follow the syllabus. (I found a copy of the 2008/09 syllabus on the MW website — click here to view the pdf file). I am sure that reading Dr. Lewin’s book isn’t adequate to pass the MW exam, but I think it gives you a sense of the depth of knowledge that Masters of Wine are expected to master.

The Master of Wine was invented to help educate and prepare wine professionals — people who make their living in the wine business as buyers, sellers, advisors, writers and critics. The exam’s structure reflects the need to understand not just wine but its entire commodity chain.

The first two papers deal with the production of wine.

Paper 1 will examine candidates’ knowledge and understanding of ‘Characteristics of the vine and wine’ up to and including ‘alcoholic and malolactic fermentation’.

Paper 2 will examine candidates’ knowledge and understanding of ‘Wine maturation, blending and bottling’ up to and including ‘quality assurance and quality control’.

The first half of Dr. Lewin’s book does a rather masterful job of covering the material for the this part of the exam. Clear, organized, detailed, interesting and provocative — just what the doctor (or aspiring MW) ordered.

Getting Down to Business

The third MW theory paper is on wine business, which makes sense since so many MWs are in “the trade.”

Theory Paper 3: The Business of Wine. The purpose of this unit is to assess candidates’ current knowledge and understanding of financial, commercial and marketing aspects of the international wine industry. Candidates should demonstrate the ability to apply their knowledge to a range of business situations including marketing and investment strategies, financial decision making, supplier – customer relationships and strategies for identifying and meeting consumer demand. Candidates will require a broad background knowledge of wine industry structures around the world and how these relate to one another.

I have argued in the past that the Masters of Wine program was been very important to the development of the global wine market by its efforts to create a highly trained group of industry leaders. Reading Dr. Lewin’s book you can understand why. Dr. Lewin is not quite as comprehensive in this part of his book, which is understandable since this material will be of less interest to a general audience, but his analysis of global wine market trends and issues is still very interesting and useful.

The fourth MW essay is on “contemporary issues” and I think Dr. Lewin does a great job of raising and analyzing important issues throughout the book. As someone who writes and uses textbooks all the time, I appreciate that Dr. Lewin provides us with his opinions (not playing the old “on one one hand, on the other hand” game), but he does so carefully, citing evidence after having outlined the issues clearly.

The final third of Dr. Lewin’s book is a world tour — an introduction to the regions, the wines and the relevant controversies, with special focus on Burgundy and Bordeaux, which is understandable given their place in the world of wine and especially because of Dr. Lewin’s particular interests and expertise.

Breaking with Tradition

I was initially surprised by the organization of the regional wine survey chapters. Traditionally the Old World comes first and the New World trails along behind. Dr. Lewin reverses the order. Why? I believe that it has to do with the theme of the book. The title, Wine Myths and Reality gives a strong hint of the book’s over-arching argument.

The myth is that Old World wines are unmanipulated natural products and that New World wines are highly processed industrial ouput. Dr. Lewin argues throughout the book that all wine is manipulated — how could it be otherwise? Left to itself, wine is just a stop on the liquid road to vinegar.

It is hardly surprising that Benjamin Lewin would take this stand on wine. He is a renowned cell biologist who understands better than most the role of science in wine. To dismiss “manipulation” is to ignore wine science, which seems like a foolish, ignorant attitude.

Embracing Dr. Lewin’s argument raises the true question — what do we want wine to be and how best can we achieve this goal? Everyone manipulates (or else makes spoiled wine) — the question is how, how much, why and to what effect? Telling the story of the New World first puts this argument in context and highlights the real issues effectively.

This is a very fine wine book — one of the best I’ve read — and certainly worth a place on your bookshelf — even if you have to reinforce it to bear the extra weight!

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This book’s color illustrations — maps, photos and graphs — are simply excellent. I think one reason the book weighs so much is that it is printed on special high gloss paper to make these illustrations unusually clear and useful.

The BRICs: Suprising Wines of India

January 17, 2011 By Mike Veseth in BRICs, India, wine markets 3 Comments

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!).

Liquid Assets: Fine Wine versus Crude Oil

January 11, 2011 By Mike Veseth in Supply and Demand, wine investment, wine markets, wine price 2 Comments

So … which do you prefer? Great Bordeaux or bulk crude oil?

The answer depends on your perspective, I think. For drinking there is no choice — red wine trumps black gold. No doubt about it.

Demand and Supply Always Apply

But how about if you look at the choice from an investment perspective? The surprising answer is that it makes little difference. The prices of fine wine and crude oil have been highly correlated in recent years. Or at least that is the conclusion of two economists at the International Monetary Fund, Serhan Cevik and Tahsin Saadi Sedik, as reported in their recently published paper “A Barrel of Oil or a Bottle of Wine: How Do Global Growth Dynamics Affect Commodity Markets?” (click on the link to download a pdf of their working paper).

The graph shown above indicates that price indices for crude oil and investment-grade wine are highly correlated. Wine follows the twists and turns of oil prices, although it is somewhat less volatile in terms of peaks and troughs. The conclusions are more or less the same if real data are used instead of nominal measures. Who would have guessed?

How is Oil Like Wine?

What do oil and fine wine have in common? Darn little, from the drinking standpoint, but quite a lot in terms of supply and demand. Both commodities have relatively inelastic supplies, according to the study authors (although for very different reasons, as you may imagine), so that changes in demand account for the majority of price movement effects.

The authors find that the same macroeconomic factors that push up the global demand for oil are associated with rising auction prices for the fine wines in the Liv-Ex index. Certainly in recent years it must be true that China’s fast growth has impacted the relatively narrow investment wine market and the much broader global commodities markets in the same way, albeit for different specific reasons.

Shifting Center of Gravity

So what? Well, the study tells us a number of interesting things. First, it indicates that economists at the IMF have not entirely lost their sense of humor– a good thing, I suppose, since they are part of the glue that holds the global financial system together (hey Mr. Euro, I’m talkin’ ’bout you!). It is comforting to know that they think about the real world and are not limited by the formal constraints of their charts, graphs and equations.

Second, as the Financial Times points out, it shows that adding wine to an investment portfolio does not necessarily usefully diversify it if oil is also in the mix. You might not have guessed this correlation, but there it is. Always good to do research and not rely upon common sense or intuition.

Finally (and here you need to actually read the paper by following the link above), the authors note an important shift in the global economic center of gravity. Whereas only a few years ago the changes in both oil and wine prices would have been explained by U.S. and Western European economic variable, now it is the emerging markets that have the most clout. The driving forces of world commodity markets have new postal codes. You don’t need to read tea leaves to get the new address — wine and oil both point the way!

Vertical (Not Necessarily Sideways)

January 10, 2011 By Mike Veseth in book reviews, Pinot Noir, popular culture, Sideways, wine festivals, wine markets 11 Comments

I’ve been reading Vertical, Rex Pickett’s sequel to his novel Sideways, which was the basis for the 2004 film Sideways that changed the world of wine. The rise of Pinot Noir in recent years and the slump in Merlot sales is often attributed to the Sideways Effect.

I didn’t read Vertical for pleasure (I’m more of a non-fiction kinda guy) or to evaluate it as a work of literature (my colleagues over in the English department will breathe a sigh of relief). I wanted to see if Pickett would do it again – create a scene or storyline with the potential to connect with wine enthusiasts and change the way they think about wine.

Dump Buckets & Dunk Tanks

What sort of scene would that be? Well Sideways the film had a number of memorable moments. (I’ll focus on the film Sideways here rather than the novel since I think people are more familiar with the film.) Some are famous for being outrageous, like the scene where Miles has just received bad news about his book project and self-medicates his depression with wine – tipping a dump-bucket full of secondhand wine over his head and face, soaking his clothes and getting a lifetime ban from that particular tasting room. Yuck! If you’ve seen the movie I guarantee you remember the sequence.

Vertical has its share of outrageous scenes, including a reprise of the dump bucket experience. There are several other scenes with a high Yuck! Factor including one where we learn what happens when you take too many Viagra pills all at once and another, set at the International Pinot Noir Celebration in McMinnville, Oregon, that features a dunk tank filled with Charles Shaw Merlot and two over-sexed (there’s a lot of sex in this book), matronly wine lovers determined to get “sideways” with Miles.
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Getting Personal About Wine

I loved the dump bucket in the Sideways film, but that’s not the scene that created the Sideways Effect. It was this one, of Miles and Maya on the back porch, talking while Jack and Stephanie were getting “sideways” in the bedroom.

Miles and Maya are chatting about wine and why they love it and about Pinot in particular, but they are really talking about themselves, don’t you think? They are really talking about who they are and who they want to be and the words they use to talk about wine express something deeper that goes to what it means to be a human being.

Who doesn’t sometimes feel fragile, like Miles, and need a little TLC? Who wouldn’t want to grow and change, as Maya suggests in the concluding part of the scene (not shown in this brief excerpt), even if it means eventual decline?

Who indeed? It seems to me that almost anyone can identify with the longings expressed here indirectly through wine. And so the Sideways Effect was born as some people projected their longings onto Pinot Noir and others just went along for the ride.

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It’s Not About the Wine

Did I find a similar game-changing scene in Vertical? Well, no. There are some scenes that make you stop and think, that make you reflect a bit on life, but most of them come late in the book, after a whole lot of sex, drugs and Pinot Noir, and they don’t really have very much to do with wine. I would give away the plot of the book if I told you more, so I will draw a line here.

A Vertical movie, if they make one, will certainly be feature a lot of wine (especially Willamette Valley Pinot Noir), but I don’t think there will be a Vertical Effect on the wine markets to rival the Sideways Effect.

But why did I think there would be? After all, Sideways wasn’t really about wine, it was about people and relationships — as you can plainly see from the movie trailer I’ve inserted here. Sideways just happened to strike a chord with wine lovers. Pickett builds on that chord in Vertical, as any sequel author does, but it’s not and never really was really about the wine.

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By the way, there is a Japanese version of the film Sideways — have you seen it? It’s set in Napa Valley, not Santa Barbara. Frog’s Leap and Newton are the featured wineries and Cabernet Sauvignon, not Pinot Noir, is the wine obsession.

To the best of my knowledge this film did not produce a Sideways Effect in Japan. Why not? Well, for one thing it focused on wines that were already well-known and popular in Japan, so it was using the wine to sell the film not using the film to change the way people think about wine.

Besides, I think, the Japanese version is even less about the wine and lacks that critical back porch scene. They did keep the dump bucket, however, as you can see in the trailer that I’ve inserted above.

The BRICs: Russian Wine Market Report

January 5, 2011 By Mike Veseth in BRICs, health, Russia wine market, wine fraud, wine markets 5 Comments

This is the third in a series on wine in the BRICs – Brazil, Russia, India and China.

Just Say Nyet!

The BRIC nations used to be characterized as “emerging” or “transition” economies and in the case of Russian wine these terms still apply, but in a complicated way. Russia is an important wine country (the vineyards are down south, on the Black and Caspian Seas); it produced about 7.3 million hl of wine in 2007 according to OIV statistics, which puts it just behind Chile and ahead of Portugal in the world wine league table. But the domestic industry today is just a shadow of what it was 30 years ago.

Gorbachev’s 1980s anti-alcohol campaign (which included propaganda posters like this one) targeted wine along with spirits and both production and consumption of wine declined dramatically. The Global Wine Statistical Compendium indicates that per capita wine consumption in Russia more than doubled from 6.2 liters in the early 1960s to about 15 liters in 1970s (consumption of other forms of alcohol also rose — wine makes up less than 10% of Russia’s total alcohol intake) then fell dramatically as Gorby’s program gained traction.

The Gorbachev crackdown and continuing anti-alcohol efforts pushed wine consumption down to just 3.7 liters per capita by the late 1990s. It has risen since then, up to about 7 liters per capita today. Wine is only now reemerging and is still stained by its association with spirits and alcoholism.

Good Russian Wines Exist …

I have not visited Russia nor sampled any of the wines on offer there, but the reports I’ve read make it sound like I am not missing too much. There is fine wine in Russia, including some excellent domestic products as you will see below, but the good stuff is mainly imported and very expensive. And the bad stuff is really really bad.

In fact I think the theme for this post should be that classic spaghetti western, The Good, The Bad and The Ugly. The good wines are certainly there. Jancis Robinson’s tasting notes from her 2009 visit to Russia include some tempting wines. A Myskhako Organic Red Cabernet 2008 from Kuban, Russia’s warmest wine producing region, received 16+ points out of 20 with the descriptive note, “Sweet and very wild and direct. Different! Very lively. Really wild tasting. Explosive.” Sounds like something I’d like to try.

A Fanagoria Tsimlansky Black 2007 Kuban (16 points) is “Dusty, bone dry, rather interesting flavours with good round tannins and acidity and plenty of fruit weight on the palate. Very dry finish with good confidence.” I’ll have a glass of that, please!

Along with the Bad …

Bad wines, and there are many of them, reflect Russia’s sorry wine history. It seems like every country has experienced the stage where wines are simple, sweet alcohol, sometimes to cover up faults and disguise poor wine making. These bad wines still figure prominently in Russia.

Wine for the masses sells for less than $1 a liter in many cases and it seems to be sourced in bulk from whoever offers the least cost supply. Imported bulk wines from countries as varied as Spain, Ukraine, France, Argentina, Bulgaria and Brazil are shipped to factories near Moscow and St. Petersburg where they are mixed with sugar (to appeal to local tastes) and water ( to bring the alcohol level down to 10.5 percent), packaged and sent to market.

Traditionally much of the wine came from Moldova and Georgia, but these countries are on the Russian government’s political black list and Moldovan wines are currently banned, causing great hardship for a country that is very dependent upon wine for export earnings. Low quality is the official excuse — a Russian health official says of Moldovan wine “it should be used to paint fences” – but it is hard to see how Moldovan wines can be worse than the sugar water wines I just described. I think it’s politics.

But Then it Gets Ugly

The ugly wines are frauds — not even made from grapes in some cases. This video report suggests that perhaps 30% of the bottled wine on offer in Russia is counterfeit. This is bad for consumers, of course, but particularly bad for legitimate producers whose reputations suffer from unhappy experiences with fake wine.

Thinking of trying to sell your wines in Russia? Despite all that I’ve said, many people see great potential in the Russian market. Some are just interested in the “bad wine” bulk market, but others have grander plans. Russia is a BRIC, after all, one of the fastest growing major economies in the world. Russia will host the 2014 Winter Olympics and the 2018 soccer World Cup; this international exposure may accelerate changing domestic tastes. It is a major market for Champagne, with more than a million bottles purchased annually.

The Future of Wine in Russia

As Russia’s middle class expands, a larger market for quality wines can be expected to emerge. So it is not surprising that winemakers are testing the waters and negotiating joint ventures of various sorts.

There are reasons to be cautious, however. Alcoholism is still a major concern in Russia and the expanding wine sector will have to swim against a prohibitionist tide. Tastes and social attitudes will change as better quality becomes available, but the transformation will not happen overnight.

And then there’s the “oil patch” problem. Petroleum is a major driver of the Russian economy and this introduces an element of economic instability. Exporters will need to be able to ride out falling oil price effects in order to benefit from high price periods.

Finally, there is the Russian legal and administrative systems, which make it difficult to bring wines into the country and to assure payment. The fact that some in the Russian government would prefer that the wines stay away – because of the alcoholism problem – probably contributes to this problem.

It is easy to be very pessimistic about wine in Russia given its current state and recent history, but I believe that cautious optimism is warranted for the long run. There are many cases of countries that have opened up their wine markets with positive results and perhaps Russia will follow this path. In the meantime, it looks like a difficult project.

Best of the Blogs?

January 4, 2011 By Mike Veseth in Shameless Self-Promotion 2 Comments

The Connoisseur’s Guide to California Wines has named The Wine Economist “Best of the Blogs” for this week. Thanks to publisher Charles Olken for this unexpected recognition. Mr. Olken writes that

[The] website proclaims itself to be what you get when you cross the Wine Spectator with The Economist, and while it is perhaps a little easier to grasp than The Economist, it is clearly a lot deeper than any kind of analysis you are likely to read in the Spectator. In short, his blog, The Wine Economist is a smart and easy read, and it is just what a thoughtful wine blog ought to be. It explains, it challenges, it expands our understandings of the wine world. … Clearly, this is a thinking person’s wine blog with much that will draw you in. And it is this week’s Best of the Blogs.

I especially appreciate this because Mr. Olken is not just a respected wine critic, he is a self-confessed recovering practitioner of the dismal science and, as he says, “the economist in me never seems to let go.” Economics never let’s go of me, either. And that’s a good thing!

There’s a [Wine] App for That!

January 1, 2011 By Mike Veseth in Constellation Brands, history, popular culture, technology, Tesco, wine education, wine research 9 Comments

Happy New Year! I’ve just finished reading final papers from The Idea of Wine class I teach at the University of Puget Sound. This semester several students probed the intersecting worlds of wine and technology. Here, for your consideration, are quick summaries of five papers that explore variations on this very contemporary theme.

There’s an App for That!

Anna wrote about wine Apps. Apps are creatures of the 21st century — application programs that run on smart phones, iPads and similar electronic devices. There are thousands of Apps (the iTunes App Store and Android Market are full of them) and so it is no surprise that there are wine Apps, too.

Anna discovered five basic types of Apps, which she classified as wine journals, wine glossaries, wine-food pairing programs, electronic sommeliers that provide recommendations from lists of wines and wine quizzes and games. SmartCellar is an example of a sommelier-type App — restaurants can use SmartCellar-equipped iPads instead of printed wine lists to help their guests make well-informed wine choices.

Project Genome, a Constellation Brands study, identified six distinctive groups of wine buyers ranging from Overwhelmed to Enthusiast. Anna matched wine Apps with buyer profiles and concluded that there is something for everyone. But are any of them perfect?

No. Anna imaged the perfect wine App for her — given her particular interest in wine today. No single existing App would satisfy all her needs, she concluded, but there soon will be given the pace at which new Apps appear.

QR — the New Face of Wine?

Jack wrote abut QR (Quick Response) codes. QR codes work on the same principle as Universal Product Codes, but whereas UPC codes can store 12 characters of information, QR codes hold much more. You scan a QR using an App on your smart phone and the App uses the embedded information to direct its display. QR codes are everywhere these days, especially in advertisements. Jack reports that some new graves in Japan feature QR codes that, when scanned, show photos of the deceased. QR codes at Japanese tourist sites provide detailed visitor information.

Jack found several applications of QR codes to wine, but he thought that the potential of this technology is not yet fully exploited. QR codes in advertisements or wine labels are a way to give the consumer more information. More advanced technology — already in use in other consumer goods markets — would allow QR Apps to connect with local retailers or to interface with online communities like CellarTracker.

“The more you think about it, the more it’s clear that QR codes have the potential to change everything about wine shopping,” Jack concluded. “They are free, easy to make and will soon have an army of smartphone users” to exploit them. Japan has been using them for 16 years, he said. Time for wine makers and buyers in the U.S. to catch up.

Wine and Social Media

Alyssa and David wrote very different papers about wine and social media. Social media refers to electronic communities that link people in flexible arrangements and allow them to interact and to share information of various sorts. Alyssa examined Facebook, Twitter and the blogosphere to find the potential of each to forge durable wine-based interest groups.

David’s paper explored the role of the Internet (and social media) in building or sustaining consumer communities using a very creative approach — comparing wine with beer. Beer has long been marketed as a group thing — a bunch of people get together and have a good time over a few beers. Wine’s marketing is not as consistently focused, David asserted, and the community element not so clearly developed.

This has an effect on how beer and wine build communities on the web. Beer brings community to the Internet, according to David, but wine tries to draw community from the web — an interesting point. “Every day, more and more people are being brought to wine through the Internet,” he concludes, “and lovers of wine are finally finding the community they’ve always wanted.”

Napa Valley versus Silicon Valley

Finally, Ben’s paper looked for linkages between Northern California’s two famous valleys. Not Napa and Sonoma (although that would be an interesting paper) but Napa and Silicon. What can we learn about wine, Ben asked, by looking at microchips? Quite a lot, he discovered.

Ben compared Annalee Saxenian’s account of the development of Silicon Valley in her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128 with James Lapsley’s history of the Napa Valley wine industry, Bottled Poetry: Napa Winemaking from Prohibition to the Modern Era. He found rather interesting parallels between the two seemingly separate spheres of California life and concluded that Saxenian’s model of high tech regional development explains Napa’s evolution very well.

Going further, however, Ben asserts that both valleys reflect a certain regional spirit. “That this culture of creative destruction permeates as diverse of industries as IT and winemaking demonstrates the influence that a regional consciousness can have over all manners of activities that will within its physical purview.”

“In this sense,” he concludes, “Napa is a genuine reflection of its terroir … Wine is a microcosm of our collective ties to our environment and the various techniques and technologies used to elucidate a certain character from a wine are ultimately efforts at understanding and strengthening this relationship. And in that pause given to us by that perfect glass of wine, we cannot help but feel closer to the world around us.”

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Sorry, I cannot distribute these papers directly, but if you are interested I will try to connect you with the student authors.