The Three Faces of the American Wine Dilemma

February 25, 2025 By Mike Veseth in economic crisis, Unified Wine & Grape Symposium, wine, wine markets 8 Comments

We live in a time when problems we face are complicated but many of the answers proposed to address them are very simple. I am suspicious of simple answers to complicated questions, both in general (this was the theme of my 2005 book Globaloney) and when it comes to the American wine industry.

Draining America’s Wine Lake

Wine Economist readers already know about the American wine industry’s general over-supply problem. Despite several short harvests in a row in California, wine inventories remain very high and prices are falling. As Jeff Bitter pointed out at the Unified Wine & Grape Symposium last month, many thousands of acres of wine grape vines have been removed and more grubbing up is necessary before supply has been downsized to balance with demand. Similar adjustments are taking place throughout the world of wine.

I was interested to learn from Jeff that California’s Central Valley is perhaps closer to equilibrium than, say, the Central Coast. This is in part because growers in the valley can more effectively switch to alternative crops, which cushions the blow of vine removal. Indeed, many large growers already farm multiple types of crops, so the switch is a change of ratio and proportion, not a move into a new line of business.

Some growers would like to “furlough” their vineyards, to pause production until the market has stabilized. But, at least in some areas, this is made difficult because of water use regulations. Water rights can be withdrawn if the land is not actively farmed for several years. So in some areas, where alternative crops are not feasible and water rights are tightly controlled, vineyard removals or furloughs are hard to manage. No wonder there are reports of some vineyards simply abandoned! (I have also heard of one vineyard that was offered at a zero-dollar lease to anyone who would keep production going and, therefore, keep water rights safe.)

Unemployment: Cyclical, Structural, Frictional

The wine market situation is complicated in other ways, too. Both Glenn Proctor and Danny Brager talked about the problem at the Unified in terms of structural versus cyclical adjustments and this got me to thinking about the way economists explain unemployment as the interaction of three forces. I will explain briefly since I think these concepts apply to wine, too.

Cyclical unemployment is caused by cycles in the economy. Workers lose their jobs as firms scale back during a recession, for example, and gain them back (or get other jobs) when economic growth returns. Macroeconomic stimulus (tax cuts, interest rate reductions) are tools of choice to address cyclical unemployment.

Structural unemployment is joblessness due to changes in the essential structure of the economy. Changing patterns of trade, environmental shifts, and technological change are some of the causes of structural unemployment. Some newspaper employees, for example, suffer structural unemployment as demand shifts from physical to digital platforms for information, entertainment, and advertising. One of the concerns about artificial intelligence technology is that it might contribute to structural unemployment.

It is significant that policies designed to address cyclical unemployment such as interest rate cuts will do little to correct (and could even accelerate) structural unemployment problems.

Finally there is frictional unemployment, which is joblessness caused by inefficiencies in the labor market, as happens when there are jobs available in one city and jobless workers in another city, but information inefficiencies, high transaction costs, and other barriers prevent them from productive connection. The current housing market, with higher mortgage interest rates and historically high prices, is one source of frictional unemployment, for example. Job market policies tailored to either address cyclical or structural unemployment problems may have little impact on frictional unemployment. There aren’t many easy answers to complicated questions.

The American Wine Dilemma

These concepts apply to the wine industry in America and other countries today. The wine market has long been subject to medium-term (7- to 10-year) cycles, for example, although “wild card” events such as the COVID pandemic have distorted the pattern. Some wine industry folks have never seen the bottom of the wine cycle before. The fact that the previous “boom” part of the cycle was characterized by a ratchet-up of wine prices (premiumization) makes the down cycle more difficult to predict.

There are also structural changes at work. Demographic transition (baby boomer rise and fall) is part of the situation, but so is the structural shift in attitudes and behavior towards beverage alcohol generally. There also seems to be a structural shift in consumer preferences away from red wines toward white wines. It is hard to predict how and when these structural forces might run their course and when or whether they might reverse.

Finally, there are frictional concerns that take many forms around the world, but here in the United States are perhaps most apparent in wine distribution and retailing. Wine distribution pipelines have narrowed in recent years. I have written that every industry organizes itself around its most important inefficiency (or “bottleneck,” if you know what I mean). Distribution is wine’s bottleneck, not growing grapes or making wine. The fact that this bottleneck has narrowed is significant and could well reshape the industry broadly.

The Age of Uncertainty

If you are looking for a simple answer to the dilemma of American wine, you are not going to find it here. The point, as stated above, is that complicated questions seldom have simple answers. Complexity leads to uncertainty because each of the cyclical, structural, and frictional forces is difficult to predict and their dynamic interaction is sometimes best modeled by chaos theory

So, as I wrote here a few weeks ago, we have entered the Age of Uncertainty. In economics, uncertainty equals risk and risk discourages investment, innovation, and growth. Not what the wine industry needs at this moment. But understanding uncertainty and risk is better than charging ahead in ignorance.

The Wine Economist 1000

February 18, 2025 By Mike Veseth in Shameless Self-Promotion, wine 10 Comments

The Wine Economist first appeared on May 29, 2007, with a report called “Bottling the 2005 at Fielding Hills Winery,” which compared the volunteer bottling line to Adam Smith’s famous pin factory. Incredibly, The Wine Economist is still publishing its weekly newsletter after all these years and last week’s post was the 1000th in the series.

The Wine Economist has averaged about 1000 words per column or 50,000 words per year, which is roughly equivalent to about two full-length books every three years.

The book comparison is relevant because we have often used the weekly columns to work out ideas that eventually reappeared in the five wine business books that we have written over this time span.

The original idea was simply to take advantage of the blog format to work out ideas in public and get feedback from a broad group including consumers, industry professionals, and other academics. This worked better than I might have expected.

It would be fair to say that I didn’t know what I was doing when I started down this path. For example, I used to say that The Wine Economist wasn’t a blog because its articles are too long and it only appears about once a week. Hardly what you’d expect from a traditional web-log (a.k.a. blog). But then it received the Gourmand International award for Best Wine Blog, so I guess that is what it is.

In the same way, I used to say that I am not a wine writer, just an economist who writes about the wine business. But then one of my books received the Gourmand international award for Best Wine Writing. I don’t know what to say.

Looking ahead, there is a lot of work left to be done and Sue and I are looking forward to more adventures and the opportunity to meet and get to know interesting people. The wine world is always growing, shifting, changing. We are excited to see where the next 100, 500, or maybe 1000 Wine Economist articles take us.

Cheers to our readers. And thanks!

American Wine 2025: Field Notes from the Unified Symposium

February 11, 2025 By Mike Veseth in Unified Wine & Grape Symposium, wine, wine markets 1 Comment

Sue and I recently attended the Unified Wine & Grape Symposium in Sacramento, California, North America’s largest wine industry gathering. Attendance was about 10,000 for the meetings, seminars, and the massive trade show. The event is simply too big to summarize, so we jotted down field notes instead to give you a sense of the action. Here, in no particular order, are some of our observations.

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Wine industry trends. White is the new red. Stable sales are the new growth. Wine sales are down in terms of both volume and value. The number of wineries in the U.S. actually fell. Most of the decrease was in the category of “virtual wineries,” which sell wine that is actually made by other companies under contract (a surprisingly common practice).

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Tough times for the nurseries that supply grape plants. One vendor said that if the best year was 100, the current status is about 20. Vineyard acreage in California and elsewhere continues to fall with more removals to come. This is part of a global trend.

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The luncheon speaker was Alecia Moore, better known by her professional name Pink (later that week she performed along with other artists including Stevie Wonder, Billie Eilish, Lady Gaga, and others at the FireAid benefit concert). What’s her wine connection? As she put it, she is a “celebrity winemaker,” but not a marketing play as is sometimes the case. Her Two Wolves vineyard and winery in Santa Barbara County is a serious operation and significant commitment. Many in the audience were inspired by her story and obvious enthusiasm.

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Heard on the floor of the trade show from a first-timer: “How do you take it all in? There’s so much!” Answer: A piece at a time.

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The Unified is an opportunity for those in the wine industry to meet with friends and colleagues. Lots of hugging, hand-shaking, back-slapping, high-fiving. Wine is a people business and this is the place to make and maintain personal and business relationships.

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Bottle weight. Producers are opting for lower-weight bottles, and looking to source them domestically. Shipping costs and schedules — and their uncertainties — are big factors. Heavier bottles are harder to move around. So, shipping and schlepping. Some producers are opting for lighter-weight bottles to maintain a price point. Question: Do consumers (still) think that bottle weight indicates wine quality?

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Multilingual wine. The Unified is designed for the California wine industry, but it is an international event. Languages heard: American English, Canadian English, Australian English, British English, Spanish, Italian, French. No doubt there were even more. There are several Spanish-language sessions.

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The locavore paradox. Many restaurants highlight their locavore credentials. Farm to table. Locally sourced meat and produce. Think global, eat local. But how many feature local wines? Aren’t wines the ultimate product of place? Shouldn’t they have a place on the locavore table?

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There is not much wine actually consumed during the day at the Unified (the nights are a different matter) because it is a business meeting and trade fair, not a consumer-tasting event. We had wine at the keynote luncheon and there were tastings sponsored by regional wine associations on the trade show floor on Wednesday afternoon. This year we focused on New Mexico’s wine industry, which is celebrating its tradition of fine sparkling wines by hosting the first Global Sparkling Wine Summit this summer. Great wine. Learned a lot.

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Sauvignon Blanc. Each year the organizers choose a particular wine grape variety to showcase and this time around it was Sauvignon Blanc. Aromatic white wines are popular right now and Sauvignon Blanc is doing well. The audience heard from several winemakers and tasted wines from California and Washington State.

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Sue never gets tired of walking the trade show floor. So many interesting people, products, and services. It is the American wine industry, deconstructed, and brought together in one very large room.

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New York Times wine critic Eric Asimov moderated a session on the challenge of telling wine’s story in the context of strong headwinds such as the WHO’s finding that no level of alcohol consumption is safe. But is this a challenge or an opportunity? Maybe the wine industry needed a nudge to get its act together and make the case for wine and not just individual wine brands or regions.

Cru Cerrati and Ruchè: Piemonte Wine’s Past, Present, & Future

February 4, 2025 By Mike Veseth in Italian wine, wine, wine markets Leave a comment

What do you remember about the hit 1985 film “Back to the Future”? Doc? Marty? The “Chuck Berry” scene? How could you forget that time-traveling DeLorean sports car?

I don’t know if anyone thinks much about the film’s deeper messages anymore, but the idea that the future is somehow buried in the past is a theme that has long been of interest. It shows up in wine in various guises. Here are two “Back to the Future” stories from the Piemonte region of Northern Italy.

The Return of Cerrati in the Land of Barolo

The Rossi Cairo family has been making wine, especially Gavi DOCG, at their biodynamic farm, La Raia, since 2002. They began a “Back to the Future” journey in 2015 when they expanded their vision to Tenuta Cucco in the prime Serralunga region where the Nebbiolo grape and Barolo wine are firmly rooted.

Tenuta Cucco presented the Rossi Cairo family an opportunity and a challenge in the form of the Cerrati vineyard. Cru Cerrati was well known and respected in the past, receiving special note in Renato Ratti’s Map of Barolo in 1971, for example, and even in the 1990 Slow Food wine atlas of the Langhe, but its glory faded over the years until Piero Rossi Cairo, working with La Raia winemaker Clara Milani, determined to convert the project to organic viticulture and to revive the vineyard and the reputation of the Cerrati zone.

Sue and I enjoyed the opportunity to taste the wines and participate in a Zoom call with Piero Rossi Cairo and Clara Milani. About 80 percent of Tenuta Cucco’s production is exported; the United States is the biggest single market.

The two estate vineyards total about 20 hectares and total production is about 70,000 bottles (6000 cases) each year including white wines (Chardonnay), a traditional method sparkling Pinot Nero, Rosé, and, of course, the reds. The Barolo DOCG Serralunga d’Alba, a blend of grapes from the two vineyards, is the main focus with production of 25,000 to 40,000 bottles depending on the year. Only about 2400 bottles of single-vineyard Barolo wines from Cerrati and Bricco Voghera are produced each year. And 5000 to 8000 bottles of a fresh and fruity Langhe DOCG Nebbiolo are made.

The “no wood” Langhe Nebbiolo was simply delicious, with beautiful color, light body, soft tannins, intense aroma, and complex fruit flavors. If you are looking for a “Baby Barolo,” this isn’t it. But who wouldn’t enjoy a wine like this with cheese and salami or a light pasta? And the Serralunga d’Alba was delicious, too, a great culinary wine because of its medium body and nice acidity. The single-vineyard products are philosopher wines, to be appreciated at a relaxed pace. We haven’t decided which one we like best, but are very much enjoying the opportunity to study them.

Ruchè Renaissance

Wines made from the Ruchè grape variety are full of contradictions. Wine Grapes tells us that “Varietal wines tend to be headily scented, often with aromas of roses. They can be spicy and the tannins so marked that the wines can sometimes leave a bitter aftertaste.” Roses, spicy, bitter — not something you find every day.

Sue and I first stumbled on Ruchè back in 2011 when we attended a food and wine festival in Moncalvo, near Asti. As I wrote then, “I had never heard of Ruchè and honestly didn’t know what it might be until I happened upon the stand of the Castagnole Monferrato group. They were cooking with Ruchè, marinating fruit in Ruchè and selling it by the glass — they were obviously very proud of their local wine. I had to try it and it was great. Suddenly I saw Ruchè everywhere (a common experience with a new discovery) and enjoyed a bottle at dinner in Asti that night.”

Ruchè very nearly disappeared at one point as attention focused on market-friendly grapes such as Barbera and Nebbiolo. As Ian D’Agata explains in the chapter on Ruchè Italy’s Native Wine Grape Terroirs, Don Giacomo Cauda, Castagnole Monferato’s town priest, was obsessed with Ruchè, studied it, collected specimens from scattered small plots, and promoted Ruchè as the region’s signature wine. Ruchè di Castagnole Monferrato received DOC recognition in 1987 and was elevated to DOCG in 2010, putting it up among the elite of the Italian wine world. A long climb from near-extinction to the summit in just 50 years.

But DOCG recognition does not automatically translate into sales. Almost everyone around Castagnole Monferrato probably drinks Ruché, but almost no one does anywhere else. Selling an unfamiliar wine like Ruché requires creativity and determination. So we were intrigued to learn that a local importer, Mallard Libations in Woodinville, Washington) has taken up the challenge so that those who know Ruché will have an opportunity to enjoy it and hopefully help spread the word.

We’ve started our new Ruchè research with the Ferraris Agricola Ruchè di Castagnoble Monferrato Riserva DOCG, which featured medium body, a memorable nose, and more depth than I remember from the wines we enjoyed in Italy. This single-vineyard wine deserves its “Riserva” designation. It is one of five different Ruchè wines that Ferraris produces. We are especially looking forward to trying the flagship Opera Prima Riserva.

Ferraris Agricola takes Ruchè and its history very seriously. Luca Ferraris, a.k.a. “Mr. Ruchè,” has created a Ruchè Museum that chronicles Ruchè’s history and celebrates its rebirth. We have added it to our “must-see” list for our next trip to Piemonte.

Discovering new wines or wine regions is always interesting. Re-discovering (and perhaps even rescuing) over-looked wines and regions is even more satisfying. Innovation, we are told, is especially important in today’s wine market environment. Back to the future can be part of that process.