Is sustainable winegrowing sustainable? Yes. But there are headwinds and challenges to overcome before this expanding movement will achieve its full potential. Here’s my report.
Sustainability is a powerful movement in northeast Italy where Sue and I participated in a program sponsored by the Consorzio Collio. I spoke on a roundtable panel on sustainable winegrowing’s many sides. One of the other speakers had recently converted his family vineyards to organic viticulture and he talked about the experience and his commitment to sustainable winegrowing.
A hand went up. Now that you are spending less on chemicals and so forth, a journalist asked, will be you passing along the cost savings to consumers?
Wow — I didn’t see that question coming. Implicit in the query was the assumption that organic or sustainable wines should be cheaper than other wines, not simply better for the environment. Most winegrowers, however, hope that sustainable practices will be rewarded in the market place — that consumers will be willing to pay higher prices for sustainably-produced wines, not demand a discount. Environmental sustainability needs to be economically sustainable to survive.
Survey Says …
I would like to say that wines that are certified as sustainable or organic or biodynamic do command a price premium, but I don’t have the data to support this broad conclusion. Wine is a complicated product category and it isn’t easy to compare sustainably-produced wines with similar wines made using conventional practices in order to extract the existence and size of a general price differential (more about this below).
Much of the research on this subject, therefore, has involved surveys that ask consumers how much they hypothetically would be willing to pay for sustainablly-produced wines compared to others.
A good example of this research is a study that Sonoma State Professor Liz Thach MW reported in 2017, which is the source of the graph above. The survey sample of 301 wine consumers, which was weighted towards women (74%) and Millennials (65%), found a generally strong willingness to pay more for wines with sustainable certifications.
Recently Lullie Halstead, CEO of Wine Intelligence, presented the results of a larger study of U.S. wine drinkers that both reinforced a strong willingness to pay and uncovered significant generational diversity among Gen Z, Millennial, Gen X, and Baby Boom consumers. Millennials in the study, for example, were more than twice as likely as Baby Boomers to say they would be willing to pay a $5+ sustainability premium while 43 percent of Boomers said they wouldn’t pay any extra at all.
The study suggests that consumers would be willing to pay about $3 more per bottle for a sustainably-produced wine. What do you think? How much more would you be willing to pay?
Walking it Back to the Vineyard
Since it is hard to determine if sustainable wine actually receives a price premium in the market, I decided to work backwards. If sustainable wine sells for an average $3 premium, then sustainably-grown grapes should sell for a premium, too. How much? The Law of 100 holds that in general if grapes cost $1000 per ton more, then the wine has to sell for at least $10 more per bottle ($1000/100) to pay the bills. It’s a back of the envelope sort of calculation — a long way from rocket science, but useful here.
Working backwards, the Law of 100 rule of thumb suggests that a $3 higher bottle price should translate into a maximum of $300 per ton grape price premium. That could be a substantial incentive for winegrowers to farm sustainably depending on the region.
What is the sustainable premium for wine grapes? Once again it is hard to generalize because there are all sorts of special cases in grape contracts. But I consulted two well-connected California colleagues and the answers they provided were very consistent. In general, sustainably-farmed wine grapes receive a premium of $15-$25 (average of about $20) per ton. That’s a lot less than I was expecting. It implies a very small potential bottle price premium — nothing like the $3 survey result.
Some contracts provide a premium up to 7.5 percent, I’m told, which can be valuable depending on the underlying grape price and yield. In many cases, however, the premium is exactly zero. Grape buyers specify sustainably-farmed fruit, but are not willing to pay extra for it. Bottom line: growers generally farm sustainably because these are sound practices, not (yet) for the money.
Why is the Sustainability Premium So Low?
Why is the sustainable grape premium so low? One answer is that premiums are low because it is a buyers’ market for some grape categories these days. With surplus grape supplies and wine in tanks from previous vintages, buyers don’t pay more because they don’t have to. That is bad news for growers in the short run but better news in the long run because the supply-demand imbalance is likely to adjust over time and perhaps improved prices will follow.
A second answer is that the grape premium is low because the premium for sustainable wines is low — much lower than the $3 per bottle estimate. How can this be? Are the survey-takers fibbing? Well, sometimes people do give “aspirational” answers to survey questions. But there’s another answer. Consumers may be willing to pay more for sustainable wines, but they can’t tell for sure which ones they are.
Organic and biodynamic are very clearly defined wine terms (although consumers may not fully understand them — especially biodynamic), but sustainable does not have a single meaning or certification standard. Most of the regions we visit have their own sustainability certification programs, each tailored to local conditions. So the term sustainable shows up a lot and doesn’t always mean the same thing. This is one reason why it is hard to calculate the price premium for sustainable wines.
My colleague Danny Brager tells me that his team at the Nielsen Company tries to track sustainable wines (by their measure they account for about 2.1 percent of the table wine market by value, growing at a fast 8.1 percent rate), but the lack of a clear definition means that anything that has “sustainable” on the label gets counted. That’s probably as good as most consumers can do because they don’t fully understand the difference between certified and non-certified wines or the variations among certification programs themselves. But it makes deeper analysis difficult.
Why Can’t Wine Be More Like Fish?
The term sustainable is popular in part because of this ambiguity. I found one wine that boasted “Sustainably Dry Farmed” on the front label. On the back label I learned that this meant that the vines were actually irrigated (which seems like the opposite of dry farming to me) … but only as necessary to sustain the vines themselves. The fluid nature of the term “sustainable” makes all the difference.
Does that mean a one-size-fits-all certification program? No. I actually think that the fact that there are many regional sustainability programs is a good thing, even if it confuses consumers a bit, because it increases the proportion of the industry that adopts sustainable practices.
Sue points out that consumers support sustainable practices in other sectors when they understand them and appreciate their importance. Sustainable fisheries are important, for example, and many retailers and restaurants make a point of featuring sustainably-harvested seafood. The existence of different certification programs doesn’t seem to diminish the impact.
What? How? Why?
We meed to make sustainable wine as transparent and appealing as sustainable fish. Perhaps the key is to focus less on the what and how — what we are doing (certification) and how it is done — and more on the why. The why is pretty clear when it comes to sustainable fisheries. Maybe we can make the why of sustainable wine clearer, too.
Sustainability would be more sustainable from an economic standpoint if we could communicate better with wine buyers so that the sustainability premium is greater and trickles down to growers better than it does today. Sustainable sustainability? That’s a goal worth pursuing.
A trade off model like conjoint analysis would be the ideal research tool. These models offer bundled products as choices, making sustainability just one element in the offer e.g.brand, price point, sustainabke clauns, etc. When consumers are forced to make choices between such bundles then “politically correct” variables often show much less utility than things like price and brand. I am sure such modeling would show exactly what your research suggests – it really isn’t that important.
Our research has shown moderate but real influence, not high in the decision hierarchy but potentially important as a “tie-breaker” between two similar choices (a frequent situation in wine retail). The Wine Market Council did a well-controlled quantitative experiment that supports a modest but significant premium, which I describe in my comment below. I agree conjoint would be an excellent tool for this, although wine contains some tricky nuances for conjoint.
Everyone has a responsibilty to act in a sustainable way with everything we use and consume. The need for an agreed definition for wine – like fish – which is easily communicated seems eminently sensible to me.
As much as I respect Prof. Thach, a deeper look at her methodology dramatically limits the usability of her study. It seemed to dramatically over index Californians living in wine country. When doing my MBA, I read a data-driven report that seemed to show a price penalty for organic certification on the label, but a price premium for wines made with sustainable/organic/bioD methods. I will share a link when I find it. Larger studies that look at consumer behavior ‘in the wild’ are probably needed.
Okay I found the article. Eco-Labeling Strategies and Price-Premium: The Wine Industry Puzzle.
Abstract
Although there is increasing use of eco-labeling, conditions under which eco-labels can command price premiums are not fully understood. In this article, we demonstrate that the certification of environmental practices by a third party should be analyzed as a strategy distinct from—although related to—the disclosure of the eco-certification through a label posted on the product. By assessing eco-labeling and eco-certification strategies separately, researchers can identify benefits associated with the certification process, such as improved reputation in the industry or increased product quality, independently from those associated with the actual label. In the context of the wine industry, we show that eco-certification leads to a price premium while the use of the eco-label does not.
Link to full article.
https://journals.sagepub.com/doi/abs/10.1177/0007650310362254
It is a little old – 2010. FWIW
its tough enough to be an economist in the wine business, but it’s even harder for an economist to write about sustainable grape growing.
Here’s some more research for you. The Wine Market Council ran a pricing experiment last year, in which a large sample of frequent wine consumers were presented with a buying scenario describing a wine they liked and several of its attributes. One of the attributes was method of production, which was randomly assigned as sustainable, biodynamic, organic or no production method specified (i.e. the control). All other attributes were held constant.
They were asked, given the wine description, at what price would it be too expensive to consider buying and at what price they would consider the wine a bargain. The organic, sustainable and (to a lesser extent) biodynamic wines consistently achieved a $1-3 price premium at price levels consumers were willing to pay between $12 and $25 (the highest point on the scale). Details are available to Wine Market Council members at http://www.winemarketcouncil.com.
I personally would pay ZERO for “Organic” wine and might even want to pay less as my past experience with “Organic” wine has been less than optimal.
This price difference is also price sensitive, you aren’t going to be able to sell an “Organic 2 Buck Chuck” for $5 by using “Organic” grapes. On the other end I doubt Opus One will add $3 to a bottle because of “Organic” grapes
Be careful about applying experiences with organic wine to “wine made from organic grapes”, the former can’t add SO2 while the latter can. That said, you are correct on the low end – the sustainable/organic premium narrowed alot as the price “paid” declined below $12. The test wasn’t run with prices above $25.
Thought provoking stuff Mike.
As an importer of organic and bio–dynamic wines (amongst others) in the UK starting way back in 1985 I believe that clear, legally recognised definitions of terms such as organic, bio-dynamic, sustainable, natural etc are needed. That consumers buy products bearing these labels without understanding what they mean in any detail simply adds to the need for legal definition, so that they know it at least means something specific and can have confidence they are not being duped. Sustainable fishing is a simpler concept to grasp than sustainable wine, a very broad church term crying out for explanation.
As to cost and price, it is true that it is almost impossible to identify the specific cost of the sustainable element when comparing the costs of, for example, an organic versus a non-organic wine, even from the same grapes and region, because there are so many other factors affecting the sale price including yields, business efficiency, margins etc. Even harder to say whether one is worth more because of its “quality”.
Most of the organic producers I worked with, many of whom had converted from a chemical regime, said organic and bio-dynamic grapes were more expensive to produce because they were more labour intensive – people costing more than chemicals – and because in some years yields were lower due to loss of crop through pests or maladies that non-chemical methods could not prevent, or prevent in time.
Hi Mike
Great article – in Nouvelle Aquitaine (primarily Bordeaux and Bergerac) – a recent study showed 28% more costly to product organic over chemically farmed wine. That is due to a 20% average reduction in yield organic vs chemical and higher labour costs on organic.
I think it needs to be made clear that there is no international certification or law around the term sustainable.
The only label that is governed by EU law and is enforced (in the EU) is organic. To be biodynamic in the EU you have to already be certified organic so it is also a reliable label since its minimum is the EU organic law.
The plethora of other terms sustainable, HVE (high environmental value) in France etc are just confusing a consumer already confused by too many wine terms. They really mean relatively little. Under most sustainable and HVE labelling a farm can still use weedkiller and systemic pesticides. As a consumer looking for an ecological label I definitely don’t want that.
A French journalist recently called out a Bordeaux based coop for labelling a wine with lots of lovely green labels saying SO2 free and GMO free (all wine produced in the EU is GMO free so they were reallly sinking low on their green washing) – the wine had a level of systemic fungicide (that is classified cancer, nervous system disruption and endocrine disruption) that was over a thousand times what is allowed in our drinking water.
The wine industry has to be honest and clear about green labelling. Green washing like the Bordeaux coop did is legal but not just. Looking at green labels – like some of the references in the comments – just for marketing purposes is wrong. Ecological practices go far deeper than that. They are a philosophy and a committment to being a real land steward – to respecting the earth and thinking long term – not a marketing tool.