Last week’s column about the Porto conference on Climate Change and Wine struck an optimistic note. Powered in part by the Porto Protocol the big international gathering showed that the wine industry is moving the needle on climate change, both in terms of mitigating the impacts and addressing causes.
Sue and I learned a lot from the experts who spoke on the science and technology aspects of climate change and wine, but of course it was the business side we were most interested in. If you have a little time, for example, I recommend watching the video of the session on “Consumer Expectations and Sensible Marketing” featuring Marks & Spencer’s Paul Willgoss, Antonio Amorim of Amorim Cork, and moderator Richard Halstead.
“Economy & Efficiency: Call to Action” was the title of the final session on the second day, which featured Stephen Rannekleiv of Rabobank, Robert Swaak of PriceWaterhouseCooers, and me as speaker/moderator. I led off the discussion, focusing on the need to rethink the relationship between economics and the environment and issuing a call to action.
Stephen was next up, showing how Rabobank has gone beyond its traditional role as an agricultural lender to creating platforms where innovative solutions can be tested and developoed. He followed up with a program on this subject on the popular Rabobank beverage industry podcast Liquid Assets.
Robert’s powerful talk covered several important points, but was especially effective in developing the notion that climate change introduces or magnifies a number of risks, which wine businesses need explicitly to take into account and act upon.
As I wrote in the run up to the conference, Sue and I were interested in the trade show that took place along side the sessions. We were hoping to see a showing of the products and services that vendors provide to firms that are committed to climate change action. What we found was different from our expectations. The trade show mainly gave conference sponsors (see graphic below) an opportunity to demonstrate their commitment to the cause.
We were a little disappointed, but I think we harbored unrealistic expectations. Vendors are more likely to put their efforts into meetings that attract thousands, not hundreds, of wine industry actors. The Unified Symposium in the U.S., for example. Or SIMEI in Milan. We will look closely when we are at these and similar events to see to what extent climate change is being integrated into the daily business of wine.
Sue and I were in Porto earlier this month for the global conference on climate change and wine. The event started with a day and a half of presentations and discussions directed at climate change solutions for the wine industry and then concluded with a half-day summit on climate change more generally.
The highlight of the summit was a presentation by Al Gore, the prominent climate change activist and former U.S. Vice President. Gore’s presentation was intense, focused, and inspiring. Sue called it a “stem-winder” of a speech — it really got the audience worked up.
The conference itself featured speakers from almost all corners of the wine world (Asia was the missing corner, with one non-wine speaker, Afroz Shah, a United Nations Champion of the Earth, from India, and Rajeev Samant, CEO of India’s Sula Vineyards, in the audience).
Herewith are some field notes from the eleven sessions. I recommend Richard Siddle’s report on the conference for additional detail and analysis. Videos of the presentations are being posted on the Climate Change Leadership YouTube.com page.
Ground Hog Day?
In a pre-conference column I wrote about the tragedy of the Groundhog Day syndrome — experts meet to talk about climate change, but it is mainly talk and nothing really gets done. The next meeting is pretty much like the last one, repeating with only minor variations, as the in the popular Bill Murray film.
The Porto gathering promised to break out of the Groundhog Day cycle and offer real solutions; I am happy to say that it generally delivered. Starting with Miguel Torres, we were offered concrete examples of determined companies and leaders who backed their talk with action.
One thing I learned is this: the basic outline for progress on climate change issues is fairly clear. Start with an environmental audit to establish a baseline, set specific quantitative goals to reduce emissions and improve efficiency, evaluate results, then repeat the process. Some of the achievements reported here were startling and show just how much can be accomplished once a serious commitment is made.
You could tell that many actors were still struggling a bit with exactly where to put priorities: Try to make progress everywhere? Or focus on a few big goals, either the ones that would be easiest or cheapest to achieve or perhaps the ones that would have the biggest impact? I do not know what the answer to that question is, but it is better to know what you want to do than to thrash around blindly.
The Porto Protocol
Participants were encouraged to sign the Porto Protocol, a platform created last July in the first iteration of this conference (which featured a keynote by Barack Obama). Those who sign the protocol commit to doing more in the future than they are doing now and to sharing their methods and results with others. The idea is to create an open source database that will help everyone do more, faster, better.
Interestingly, Sue and I ran into several people who confided that their organizations were having trouble deciding whether to sign up, which was puzzling because each of them has developed a strong program to promote sustainability and confront climate change.
What’s the problem? One colleague said that his organization was already doing more than the protocol currently requires, so there was a concern that they might not get credit for what they have done. No one said it, but I think it is possible that the transparency requirement could also be an issue. If that’s the case, I hope we can get past it. As Adrian Bridge, the CEO of Taylor’s and the driving force behind this initiative, has said, “There is no time, and no need, to reinvent things. If we share our successes and experiences, we will all benefit.” He is certainly right.
Does Climate Change Action Pay?
This is the question that I am often asked about both climate change programs and sustainability measures generally. The gist is that these programs are costly. Who is going to pay for them?
I do not recall hearing anyone say that consumers would be willing to pay a premium for climate change-friendly wine, although some of us talked at dinner about what could be done to draw consumer attention to wineries that are taking climate change action.
Does that mean that the costs fall like a tax on the wineries who fight climate change (and not on those who don’t)? Yes and no. Some of the defensive costs of mitigating climate change, especially in the vineyard, are going to be unavoidable. Better to treat them as a sunk cost and move on.
Some positive actions have the potential to pay for themselves, at least in part. Katie Jackson of Jackson Family Wines, told the story of the decision to move to slightly (one ounce) lighter-weight bottles for some of the millions of cases of wine that they sell. The conventional wisdom is that consumers associate lower bottle weight with lower quality, so there was pushback about this method to reduce the firm’s carbon footprint.
Happily, according to Jackson, consumers didn’t notice the difference and the environmental savings became a cost-reducing part of Jackson’s carbon-reducing program. The world is not filled with free lunches like this, but there were several examples given of actions that paid for themselves, contributing to both financial and environmental bottom lines.
All Along the Value Chain
Antonio Amorim, president of the world’s largest natural cork producer, argued for the environmental benefits of natural cork closures. The cork closure, which captures carbon rather than releasing it, can offset the carbon generated by the glass bottle it seals, he said. Amorim announced plans to expand cork forests, building upon previous innovations aimed at speeding up the long cork harvest cycle and ridding corks of perceptible cork taint.
Other speakers addressed issues up and down the supply chain, illustrating both the challenges and opportunities that climate change action presents.
U.C. Davis professor Roger Boulton’s presentation on “The Winery of the Future” was a fascinating deep dive into what is possible with current technology if you decide to design a winery from scratch to have zero or negative emissions. It is like a Rubik’s Cube in a way, since each action has many reactions, but Boulton showed that a solution is possible, with a super-efficient production facility the result.
Call to Action
Stephen Rannekleiv of Rabobank, Robert Swaak of PricewaterhouseCoopers, and I had the final session of the conference, “Efficiency and Economics: Call to Action” We presented in a “two-minute drill” mode because the earlier sessions went over time and the we had to finish on schedule so that the room could be turned for the afternoon summit.
Rannekleiv focused on the many steps that Rabobank is taking to foster innovation in the food and agriculture sector to address sustainability and climate change issues. Swaak could have touted PwC’s environmental impact assessment practice, but choose instead to add a new dimension to the discussion by highlighting how climate change impacts businesses, and not just wine, through the various often unseen risks that it introduces or magnifies.
I talked about the fact that climate change requires new ways of thinking (which fit in very well with my colleagues’ remarks) and issued the call for action. Wine gets it, I said, but that’s not enough. The wine industry needs to extend its influence across the value chain in order to maximize its impact.
>>><<<
Sue and I want to thank Adrian, Taylor’s Port, Pancho, and David Furer for organizing this conference and give special thanks to Greg for suggesting that we participate. To everyone we met at the conference: we hope our paths cross again very soon.
Porto will host a global gathering next week devoted to the topic of Climate Change Leadership: Solutions for the Wine Industry. Sue and I will attend the meetings, including a session on “Economics & Efficiency: A Call to Action” where I will speak along with Stephen Rannekleiv of Rabobank and Robert Swaak of PriceWaterhouseCoopers.
The program is a who’s who of wine industry leaders who have chosen to have a dog in the climate change fight. The list begins with Adrian Bridge, CEO of Taylor’s Port, who was instrumental in organizing the event, and continues with Miguel Torres, Cristina Mariani-May, Pau Roca, Antonio Amorim, Greg Jones, Roger Boulton, Jamie Goode, Gerard Bertrand, and on and on. Some guy named Al Gore is giving the summit keynote. Anyone heard of him?
I will be very interested in how the conversation evolves both in the official sessions and in the informal discussions that are sometimes more important. Sue will be paying special attention to the associated trade show because she’s very interested in how talk about climate change and wine translates into action and both the nature of the vendor turnout and the quality of interaction will be a good indicator of potential success.
Groundhog Day Syndrome?
There are lots of meetings and conferences about the environment, sustainability, and climate change. Sometimes in the past they have reminded me of the 1993 film Groundhog Day, where the same talk and motions are repeated as if on an endless loop and little of substance seems to change (until, at last, it does). Climate change has reached a critical moment, however, which demands action over talk.
I’m hopeful that the Porto meeting will avoid the Groundhog Day syndrome and one reason why is the focus on solutions — concrete steps to address climate change issues. And that’s why the trade show will be important, too, because it will an indicator of how seriously the market has embraced the importance of climate change and the opportunity for solutions.
The Gulliver Problem
But then there is the Gulliver problem. Jonathan Swift’s Gulliver found himself in Lilliput where he was vastly larger and more powerful than the tiny citizens. His every action posed a threat to their world and their only hope was to work together to control the giant. Lacking a massive rope to tie the big guy down, the Lilliputians teamed up with thousands of tiny strands.
Climate change is a bit like Gulliver in that it is a huge force that none of us has the power to stop by ourselves. Top-down initiatives like the Paris Agreement are very important, but need to have bottom-up support. Grassroots. Tiny strands. Addressing climate change head on requires thousands of small concrete actions that taken together can have real meaning.
Why is Wine Different?
So where does the wine industry come in? What is different about wine that makes its Lilliputians think that they can take on Gulliver? This is one of the themes of my talk and, while I don’t want to give too much away just yet, let me share a little of my thinking.
There are many reasons why wine is particularly responsive to climate change issues (you have probably already thought of a few reasons as you read this sentence). But here is an important one. Climate change is an existential threat to civilization and the natural environment, but it is not taken seriously enough by many people because its impacts are uncertain, uneven, and projected into the future.
But wine really is different. The future is now for climate change and wine as the combination of higher temperatures and more frequent extreme weather events redraws the world wine map. Wine is fragile, vulnerable. Ultimately there is not escaping the climate change threat.
Wine people have little choice but to seize their Lilliputian tools and work to save their businesses, their vineyards, and ultimately themselves. Porto will be an opportunity to see both the small and the big. Hope to see you there.
The Wine Economist World tour continues in 2019 and I thought you might be interested in the who/what/when/where because I think my speaking schedule reflects some important issues and concerns in the global wine business. Here’s an annotated itinerary.
Unified Wine and Grape Symposium
The Unified Wine & Grape Symposium is the Big Show, the largest wine industry gathering in the hemisphere. About 14,000 people will come to Sacramento for the sessions, trade show, and networking opportunities. The Wednesday morning State of the Industry session draws a huge standing-room-only audience that will be anxious to hear about this year’s special challenges: slowing economy, plateauing demand, surplus stocks, and useful strategies to deal with these problems.
I will moderate the session and present, too, along with Jeff Bitter, Allied Grape Growers, Danny Brager, The Nielsen Company, Marissa Lange, LangeTwins Family Winery and Vineyards, and Glenn Proctor, Ciatti Company. This is a fantastic lineup of speakers with much to say about the industry today and in the future. Not to be missed.
I will be busy again on Thursday morning as co-moderator with L. Federico Casassa, California Polytechnic State University, of “Technology Thursday: From Drones to Chatbots; How the Wine Industry is Embracing Digitalization.” The speakers will examine digital technology in the vineyard, cellar, and beyond, revealing what’s already available, what is coming soon, and what the distant future holds. The distant future, by the way, is only ten years away — the pace of technological change is that fast.
There is much to discuss, so there will be about a dozen speakers including Bob Coleman, Treasury Wine Estates, Nick Dokoozlian, E. & J. Gallo Winery, David S. Ebert, Purdue University, Nick Goldschmidt, Goldschmidt Vineyards, Liz Mercer, WISE Academy, Miguel Pedroza, California State University, Fresno. and Will Thomas, Ridge Vineyards, California. . Each speaker will have just ten “Ted Talk” minutes, so hold onto your hats!
Washington Winegrowers Convention
I will be a busy guy at the Washington Winegrowers Convention & Trade Show in Kennewick, Washington, February 11-14, 2019. I’ll begin early on the morning of the 12th moderating and presenting at the State of the Industry session, which will deal with some of the economic challenges facing the region’s wine businesses today.
Joining me will be Wade Wolfe, Thurston Wolfe Winery, Chris Bitter, Vintage Economics, Steve Fredricks, Turrentine Brokerage, and Jim Mortensen, President & CEO, Ste. Michelle Wine Estates.
In the afternoon I will be part of a session on “Intentional Rosé.”Rosé is the hottest category in wine and so it is no surprise that it gets a full session here and also at the Unified.
I will talk about the global market dynamic and be joined by Megan Hughes, Barnard Griffin winery, Rob Griffin, founder of Barnard Griffin winery, Lacey Lybeck , Vineyard Manager at Sagemoor Vineyards, and Vincent Garge, Maison Henri Garde, Bordeaux. Fred Dex with lead a tasting of Rosé from around the world.
Porto Climate Change and Wine Conference
Sue and I are looking forward to the discussion at Climate Change: Solutions for the Wine Industry in Porto on March 6-7. The focus will be on action, not just talk, which is much appreciated. Al Gore is giving the closing address and a host of wine industry leaders will speak on their concrete efforts to address the challenge of climate change. Climate change is such an obvious risk to the wine industry. It is great to see so many rise to meet the challenge.
I will be moderating and presenting at a session called “Efficiency & Economics: Call to Action,” which I assure you will be more interesting than it sounds. Joining me on the panel are Stephen Rannekleiv, Executive Director, Food & Agribusiness Research at Rabobank, and Malcom Preston, Global Head of Sustainability Services at PricewaterhouseCoopers.
Chile’s National Wine Fair
Sue and I are looking forward to being at Viña Viñamar, Chile on May 15-16 for the Feira Nacional Vitivinicola. I will be speaking about Chilean wine on the global stage, which is appropriate given that Chile is such an important wine exporting nation. Chile is hosting the Asia Pacific Economic Cooperation (APEC) meetings in 2019 and I expect that the National Wine Fair will take full advantage of this opportunity. The U.K. and U.S. have long been Chile’s top export markets, but China became #1 in 2017.
British Columbia Winegrape Council Conference
I’ve been invited to speak about the economics of sustainable winegrowing at the BC Winegrape Council Enology & Viticulture Conference and Tradeshow in Penticton, British Columbia in July Sustainability is on everyone’s lips (see climate change conference above), but the transition from theory to practice or talk to action is a challenge. Looking forward to discussing this issue with my BC friends and colleagues.
>><<<
Change is the common feature of all these programs. Changing economic conditions, changing market focus (who would have guessed that everyone would be talking about Rosé?), climate change and sustainable practices, and technological change, too. Change is always disruptive and always interesting, too. Hope to see you somewhere along the wine road in 2019.
There has been a lot of buzz about climate change and the future of wine recently, starting with a New York Times article on Sunday and spreading all around the web. Now there is a video to help us envision the research.
They say that a picture is worth a thousand words, so a cool “fly-over” animation like the one at the top of this post must speak volumes (see this article about the video and the research behind it). As you circle the globe in the video, keep these color codes in mind so that you can interpret the images.
Bear in mind that forecasting is difficult, especially about the future, so projections shouldn’t be confused with fact. But quality wine grapes are sensitive to climate change as this chart from Bemjamin Lewin’s Wine Myths and Realities (see p. 79) makes clear. Relatively small changes in average temperature can have significant impacts on vineyard patterns and, as the video suggests, the impact varies in different regions.
While the dramatic changes you see in the video may not happen, they certain could. And some of the possible climate effects go beyond the sort of changes that might be mitigated by adaptations and innovations in viticultural practices.
The puzzle that the article examines is why sugar levels (measured in degrees Brix) have risen in California, taking wine alcohol levels with them. Sugar levels in white grapes grown in California increased 12% from 1980-84 to 2005-08, for example, with the average degree Brix rising from 20.7 to 23.2. Average Brix for red grape varieties increased from 22.2 degrees Brix to 24.3. Sugar levels in Cabernet Sauvignon grapes increased from 22.8 to 25.0 degrees Brix at harvest. Higher sugar levels mean higher alcohol levels, all else being equal.
Two simple explanations are usually cited to explain the rising sugar/alcohol trend. The first is based on changes in demand. Robert Parker (and some other powerful wine critics) are said to prefer a certain style of wine that is riper. Sugar and alcohol levels have increased as wine growers have worked to produce the grapes that make the wines that most please the Golden Palate of Robert P. (or that otherwise appeal to changing consumer preferences).
Supply-Side Explanations: Chateau Al Gore
I call the second theory the “Chateau Al Gore” hypothesis because Al Gore is associated in popular culture with global climate change and that’s what this theory is about. Rising temperatures, according to this line of reasoning, produce riper grapes pushing up sugar levels, boosting alcohol.
It is pretty easy to line up facts to make a persuasive case for Chateau Al Gore. Temperatures as measured by a heat index have been rising in California, according to the article’s authors. Sugar and alcohol levels have increased, too. Although additional sugar may be welcome (the Parker principle), there are indications that producers would prefer lower levels. A good deal of wine in California is partially de-alcoholized, for example. Alcohol is removed from a portion of the vintage (using reverse osmosis or the spinning cone method I am told) and then the treated wine is blended back, reducing overall alcohol levels and allowing winemakers the opportunity to find the “sweet spot” alcohol level for their wines.
Some of the de-alcoholization may be motivated by federal taxes, which increase substantially on a per-gallon basis for wines that rise above the 14% ABV level. The extra 50 cents tax per gallon may not concern the makers of expensive wines like Screaming Eagle, but it can be a significant cost factor for bulk producters and thus worth the expense of alcohol reduction. In any case, the authors find that lower-priced grapes tend to have lower average Brix readings, which is consistent with the tax hypothesis but doesn’t prove it.
If alcohol levels of wine have increased even after partial dealcoholization, this suggests that rising sugar levels must be unwanted and this notion is at least partially confirmed by preliminary data reported here that many wineries under-estimate alcohol levels on product labels. The authors have obtained access to data from the Liquor Control Board of Ontario (one of the largest wine merchants in the world), which show that the average stated alcohol level of California wine exported to Ontario was 12.63 percent in the sample period while the actual level was 13.35 percent. The gap is clear, but the authors suggest that more work is needed to fully understand it. I’ll be interested to read their final report.
Ceteris Paribus
The Chateau Al Gore theory seems pretty persuasive. Ceteris paribus(holding everything else constant) it makes sense that sugar and alcohol levels would rise with average vineyard temperature. The fact that winemakers work to offset the alcohol boost and maybe fudge it a bit (within legal limits) on the label suggests that this is a climate change event that they struggle to contain.
But ceteris is seldom really paribus in wine. Employing multi-factor regression analysis, the authors find that the rising heat index is responsible for some of the increase in sugar levels, but not all of it. Put another way, climate factors alone are not sufficient to explain the total increase in sugar and alcohol. Other factors must also be at work.
Which pushes us back to the demand-side Parker Theory, but in a usefully complicated way. It is important to understand how much the California wine industry has changed in the last 30 years. The type of wine produced has changed, for example, with varietal wine (Chardonnay, Cabernet Sauvignon) increasing faster than production of generic wine (“Chablis,” “Burgundy”). Varietal wines accounted for 71% of California production in 2000, according to the authors, compared to just 19% in 1985.
The move upmarket required different grape varieties of higher quality from different production zones. Thus while total California wine grape production rose by 60% in the survey period, the biggest increase (+185%) was in the Delta region (including the Lodi AVA) with the North Coast (including Napa and Sonoma Valleys) increasing by 128%. Wine grape production in the San Joaquin Valley rose but by a much smaller amount. The southern San Joaquin valley accounted for just 30% of California vineyard acreage in 2008 (down from 50% in 1981), although it still produced more than 60% of wine grape tonnage because of higher yields.
So wine grape production has increased and also shifted in terms of desired quality, price per ton, grape variety and growing location. It is perhaps not surprising that average sugar levels would change too. Much of the growth in the California wine industry has thus been associated with the demand shift towards premium and ultra-premium wines and the rising sugar levels are to some extent associated with this “grape transformation” of the American palate. Robert Parker is part of this movement although I think it would be unfair to give him all the credit or blame for the changes noted here.
Getting to the Root of the Problem
So the JWE article finds evidence for both the demand-side and supply-side theories of rising sugar levels. But wait, there is more, including rootstocks (this is the “real dirt” in the title of this post).
Phylloxera struck California starting in the mid-1980s when the supposedly Phylloxera resistant AxR#1 rootstock was found to be susceptible to this root-sucking parasite. Eventually nearly all the vines affected were grubbed up and replaced with vines grafted to different (and hopefully more resistant) rootstocks. Several winemakers have suggested to me that the new rootstocks and associated changes in viticultural practices affect grape ripening — sugar levels peak before the desired flavor profile (phenolic ripeness) has been achieved. Longer hang times are needed to get the flavors right, leaving wine growers with the problem of too much sugar and so forth.
The rootstock hypothesis is beyond the scope of the JWE study, but it indicates how complicated it can be to explain seemingly simple questions in wine economics and how much wine remains an agricultural product after all.
>>><<<
I don’t think I’ve done justice to this research so I hope you will click on the link in the first paragraph above and read the study yourself.
It’s finals week at the University of Puget Sound, so I’m thinking about the question, what wine goes best with final exams and term papers? A sweet wine, to capture the sweet taste of success? Some bubbles to celebrate finishing one set of tasks and moving on? Or maybe a bitter sweet wine, because moving on inevitably means leaving some people and relationships behind? Hard to figure how best to match a wine with all these emotions. It’s a difficult question.
Dump Bucket Drills
But I know one wine that doesn’t match up very well. My class on “The Idea of Wine” organized an informal tasting on Monday to celebrate finishing their term papers. The main project was a blind tasting of inexpensive (some were very inexpensive) Merlots. I was impressed with the students’ serious efforts to evaluate and score the wine and their recently acquired (and, for college students, somewhat unnatural) propensity to use the dump bucket.
We tasted other wines including a Chinese wine that Brian West personally hauled back from Beijing a few years ago. It was a 1999 Changyu Cabernet Sauvignon. Changyu is China’s oldest winery and a good example of a mid-market Chinese wine (I wrote about Changyu and the Chinese wine industry in The China Wine Syndrome).
I found a video review of this wine on the web (click here to view it, but be forewarned that there is some harsh language used by the reviewer) that described the wine as being all about ashtray and coffee ground flavors with aromas of urinal crust. Hard to imagine. Until you taste it, that is. The description is right on the money.
I’ve read many optimistic reports on the Chinese wine industry, mostly based on high potential production volumes and not so much on quality. The quality wasn’t there in 1999, based on this wine, but there is reason to believe that things are changing. I sure hope they are! The dump bucket got good use on this one.
Hard Heads, Soft Hearts
I’m reading my students’ final papers now – they are quite good, by the way – and I thought you might be interested in their topics. I gave them great freedom to choose topics that interested them or related to their academic majors. You can find a list of the paper titles at the end of this post.
Most people think education is about learning the right answers, and this is certainly important, but I think the more valuable skill is learning to ask the right questions, and this is true about wine. I was impressed by the creativity of the questions my students asked.
One student, a Finance major, asked why Treasury bill auctions and wine auctions have different structures and what the impacts might be? A very interesting theoretical treatment. Another student did fieldwork in three wine retailers to try to understand the actions and interactions of wine buyers and wine sellers. The result was a revealing first person account of wine consumer behavior. An economics student who grew up in Napa Valley examined issues relating to migrant labor there, combining economic theory, empirical data and personal observation very effectively.
All the papers were very interesting. My favorite title: “How corks are being screwed over” (an analysis of the cork versus screw cap debate). Imagine, I get paid to read this!
Looking at the list of paper titles, I’m struck by how many students were drawn to issues of sustainable or ethical production and consumption: organic wine, climate change, biodynamic wine, fair trade wine and so forth. In general their analysis was thorough, pointed and objective. They have “soft hearts” and “hard heads,” as Princeton Economist Alan Blinder would say. They care about social issues, but think about them critically. Blinder says (and I agree) that’s better than the other possible combinations: soft head/hard heart, soft heart/soft head or hard head and heart.
Comparative analysis of changes in Treasury auctions versus global wine auctions
An ethnographic study of wine consumer trends
Hispanic workers in California’s wine industry
Climate Change: what it means for Spanish vineyards.
Climate change and the wine industry
TetraPaks and cans: the alternative packaging of wine
Movement from niche markets to mainstream: prospects and challenges for ethical consumption in the wine market
The terroir of equality: fair trade wine
Organic wine: the beginning of redefining fine wine
Oak in Wine: an exploration into differences.
Green wine: ideas and details of sustainable wine
Wine’s historical and modern role in religion
Of vines and witchcraft: biodynamic wine
India’s wine prospects
Old world crash: wine’s changing face in the globalized market
What makes that bottle so expensive?
How corks are being screwed over
Aging wines: from barrels to bottles
Drowning in the wine lake
Wine brands: friend or foe?
Wine tourism and economic development
Bordeaux versus Burgundy: why the rivalry matters
Transitioning wine industries: assessing development strategies in the wine industry
The Bible tells us that Jesus turned water into wine (John 2:1-11) — a miracle! Given the amount of water used in making wine today I think the miracle isn’t so much the conversion itself (no sacrilege intended) as the efficiency with which it was accomplished. Jesus didn’t waste a drop. Improving water use in winemaking is a serious issue today.
The End of Cheap Water
Readers of this blog know that water is important in wine production, but you may not appreciate just how much the wine industry depends upon cheap water supply. I have written about the effects of the Australian drought on wine output there, for example, and how producers like Casella (Yellow Tail) are adjusting. But water isn’t just an Australian wine problem, as everyone in the business knows, and the situation isn’t getting any better.
So the December 2008 issue of Wine Business Monthlyis especially welcome. WBM chooses a theme for the last issue of each year and this time it’s “The End of Cheap, Plentiful Water;” it is required reading for anyone interested in the economics of wine. Much of what follows is based on data from the WBM report.
Given all the attention that the Australian drought has received it would be easy to dismiss wine’s water woes as just another example of the challenge of global climate change. And while this is undeniably true to some extent, I think it is more useful to think about the water problem in terms of supply and demand.
Winegrapes: Squeezed and Dried
The supply of water for wine production is limited by nature, of course, especially in the long run, but that’s the easy part (and the focus of the climate change discussion). It is perhaps more realistic to consider that the supply of water for wine is limited by competing water needs. Water is valuable for environmental purposes, such as to maintain fish runs, for example. Water is needed for residential and industrial uses, too. And of course water is in very high demand for agricultural crops other than winegrapes. About 80% of California’s annual non-environmental water “budget” goes to agriculture, including wine. Residential and business use accounts for rest. As population continues to grow, the squeeze will affect everyone.
Between competing uses and recent drought conditions, it is no wonder that the water supply for winegrape production is being squeezed.
All agriculture suffers when water becomes scarce and drought conditions force both a general reduction in farm output and also a shift away from the most water-intensive crops to those that use water more sparingly. In Australia, for example, we have seen a decline in grape production in some areas due to drought and a shift from rice to grapes in other areas. 2001 data from the California Department of Water Resources estimates that grape growers in that state use an average of 2 acre-feet of water. That’s about 25% more than used for grain crops, but much less than rice production (nearly 6 acre-feet of water) or corn and tomatoes (about 4 acre-feet).
Water use in winegrape production varies considerably. Irrigation isn’t always necessary or even desirable, but high volume production is very water-dependent. It takes 75 gallons of water in the vineyard to grow the grapes for one gallon of wine in the California North Coast area. That seems pretty inefficient until you compare it with Central Valley production, where the ratio is 430 gallons in the vineyard to one gallon of wine! Water is also used in some areas for frost protection, which can adds to the total water bill.
Water use doesn’t end once the grapes have been harvested. On average it takes about six gallons of water in the cellar to make a gallon of wine. Barrel-washing and tank cleaning account for much of the water use, but everything in a wine cellar needs to be as clean as possible, and water is often the most convenient tool.
The trick, as many wineries have discovered, is to conserve and recycle. High pressure / low flow nozzles and barrel-cleaning rigs can do more with less. Waste water can be collected and filtered for many uses from irrigation to flushing the toilets. Erath Winery in Oregon employs a filtration process that allows it to reused 97 percent of winery processing water in one way or another. (Local ryegrass farmers use the rest as fertilizer.) Snoqualmie Vineyards, like Erath part of the Ste. Michelle Wine Estates group, uses just 2.9 gallons of water in the cellar per gallon of wine, an indication of the sort of savings that are possible.
What’s Your Water Footprint?
article. It’s only a matter of time, I think, until we start worrying about our water footprint as well as our carbon footprint. You can learn more about the water footprint concept at WaterFootprint.com. Here are some estimates of water costs associated with various products as reported on their website.
One cup of tea: 30 litres of water
One slice of bread: 40 litres
One apple: 70 litres
One glass of beer: 75 litres
One glass of wine: 120 litres
One cup of coffee: 140 litres
One glass of milk: 200 litres
One liter of wine: 960 litres
One hamburger: 2400 litres
I have seen reports that a Big Mac’s water footprint is 5000 litres, a huge number but understandable when you consider that the production of beef and cheese are both very water-intensive (particularly when the cattle are raised on diets of irrigated grains instead of natural grasses). I guess a kilo of beef requires 15,500 litres of water. Amazing!
These figures are estimates of the total water use, including transportation and packaging, which is why the wine figures are so high. I’m sure that it takes a lot of water to produce and clean wine bottles. The labels (paper), closures and shipping boxes add to the water footprint. It all adds up, for wine as for other products.
It Isn’t Easy Being Blue
The wine industry is in the vanguard of many important environmental movements. Being green (and now blue, I suppose, to represent water) is good marketing for a lot of industries.
But it is good economics for the wine industry, too, because water is such a key resource that we need to manage well in the vineyard, in the cellar and throughout the production process.
[Thanks to Wine Business Monthly for the information in their December 2008 issue and to a former student, Jenna Silcott, for making me think about water resources once again.]
The effects of Australia’s continuing drought on the wine industry are well known; I wrote about drought and other problems that Australian winemakers now confront last September in a post titled Big Trouble Down Under. An article on the front page of yesterday’s New York Timesexplains how the crisis is deepening and evolving in frightening ways.
The Global Food Crisis
The article is part of a series on the global food crisis. If you haven’t been paying attention, food supplies around the world are drying up (both literally and figuratively), causing chaos in many places. Food riots are reported in the press almost every day. The crisis has many causes. Drought and climate change have reduced supplies in some areas, for example. Increasing demand is part of the problem, too, especially in China where, rising incomes have encouraged greater consumption of pork, which in turn increases the demand for grain. Rich countries like the U.S. are not helping the situation. Our biofuel policies divert food to the gas pump. All these factors push up food prices and the poorest people are the most affected.
As prices rise and surplus supplies shrink, food-exporting countries have begun to impose export taxes or even export bans in an attempt to keep domestic supplies plentiful and relatively cheap. The effect, of course, is to drive international prices even higher and “beggar they neighbor.” The price of rice rose by 40 percent in a single day last week as these export controls kicked in.
The Rice-Wine Connection
What part does wine play in this problem? Australia was until recently a major exporter of rice, but rice is an especially water-intensive crop and the continuing drought in Oz has dramatically limited production there. The Australian drought is a key part of the global rice shortage story. Wine production, however, makes the problem worse.
As the New York Times explains, winegrape production uses much less water than rice and so, as irrigation costs have soared, farmers have shifted production from rice to grapes. The graphic above shows the economic reality of the situation. Even at today’s crisis price of $1000 per ton for rice, higher water costs make winegrapes the more profitable crop. So while drought has reduced production of both grapes and rice, the substitution effect has reduced the impact on grapes and made the crisis in rice even worse.
Many authors suggest that what we are seeing here is part of an important transformation in the global economy. Globalization linked up producers and consumers at the far ends of the earth in the 1990s and produced a world of abundance and falling prices. The growth this helped produced (plus the associated environmental effects, according to some) are now combining to turn surplus into shortage. It is easy to see this in rice, but it is true in wine as well, as I argued in my post on The End of Cheap Wine. Protectionist policies conspire to raise the problem to crisis level for those who are least able to deal with it.
[Note: My senior Arizona correspondents m&n recently went searching for the Erath vineyards — and they found them and Dick Erath’s Arizona wine, too! Click here to read their report. Update posted 5/15/2011.]
Erath in Arizona
I spent Friday in the Arizona wine country – south-west of Tucson near Sonoita – with my “research assistants” Michael, Nancy and Sue (Michael and Nancy took these photos). I thought that I would learn something from talking with winemakers here, and I did, but it wasn’t exactly what I expected. Here is my report.
I was drawn to explore Arizona wine by the news about Dick Erath’s investment there. Erath is one of the pioneers of the Oregon wine industry; his early wines helped establish the reputation of Pinot Noir in Oregon and he has been instrumental in the growth of the industry over the years. I think you can say that he is a legend in Oregon. Like many north-westerners, Erath likes to go south – to Tucson — during the winter months and he became acquainted with the nascent wine community there in the mid-1990s. He started buying vineyard property near Wilcox east of Tucson a few years ago and has planted vines there. He recently sold his Oregon brand to Ste Michelle Wine Estates (he still owns the vineyards) and is moving forward with the Arizona project.
Erath’s presence lends credibility to the region. People like me figure that Erath wouldn’t put his name, time and money here if he didn’t believe in the potential of Arizona wine.Wines from unfamiliar places always raise questions and Arizona winemakers hope to change the questions from “Arizona? Are you kidding?” to “Is Arizona the next Napa Valley?” Establishing credibility is the critical second step for an emerging wine region (achieving quality is the first) and Erath’s investment is an enormous advantage in this regard.
A Working Hypothesis
My hypothesis going into this research was that the wines themselves would be a bit problematic, as emerging region wines often are, and that the biggest challenge would be in the vineyard not the cellar — growing wine grapes in the high desert.
Our first two winery stops quickly made me change my mind about the quality of Arizona wine. The wines atDos Cabezas WineWorks were intense and flavorful, with a spicy complexity that surprised me. I am not a wine critic, so I will not bore you with amateur tasting notes and doubtful ratings, but we were very impressed with these wines and bought some to give as gifts to Arizona friends who did not know about Arizona wine. Todd Bostock, the winemaker, really knows how to draw flavor from Arizona (and some California) grapes. Todd is working with Dick Erath in addition to his own projects and I think this collaboration bodes well for Erath’s Arizona wines, when they are ready, and for the region’s reputation.
Our second stop was Callaghan Vineyards. Kent Callaghan’s wines were strikingly good. We noted the depth and distinctive character of these wines, particularly the Tempranillo- and Petit Verdot-based blends but also a Mourverdre, Syrah and Petite Sirah blend. These wines were different from Bostock’s and gave us a hint of the potential range of Arizona wine styles. Kent let us taste some library wines and the question, can Arizona wines age well, was answered in the affirmative. We bought wine and had it shipped home, which is I suppose the highest praise a wine consumer can provide.
We visited one other winery, a new one that I won’t name, that made the sort of wines that I originally expected to find – what I would describe as immature wines showing wood in the wrong places. They served to put Bostock’s and Callaghan’s achievements in context. It is possible to make very good wine in Arizona, but it’s probably not easy.
The Globe in Your Glass
Wines have started to appear from many regions not on the list of “usual suspects:” India, Thailand, Peru and Brazil, for example. Brazilian wines actually make a cameo appearance in the film Mondovino, but not in a way that makes them seem in any way part of the classic tradition of wine.
It is possible to grow wine grapes at unexpected latitudes, but special conditions are necessary. In Arizona it is the desert at an altitude of about 4500 feet, where summertime highs are only in the 90s and the temperature at night can drop by 35 degrees. Altitude compensates for latitude. This advantageous diurnal variation along with lots of sunshine and rocky red soil are a good recipe for wine if you can add the right amount of water – not too little or too much.
Climate is not the problem I thought it would be and I think some of the wines we tasted displayed that mystical terroir that is the holy grail of wine critics. But climate change isa problem and that’s the unexpected story here. (I’ve written about climate change and wine in Chateau Al Gore.)
Kent Callaghan told me that the climate seemed to him to have changed significantly in the last 18 years. He reported recent crop yields of just a ton an acre for some varieties due to unfavorable weather. Some of the plantings of the classic varietals that showed promise earlier now seem misplaced so he has started slowly to change over to grape varieties that are able to produce consistent quality in the evolving environment.
This helps explain the use of California grapes for a few wines I tasted (to compensate for low Arizona yields) and the effective use of unexpected varietals (Tempranillo from Spain and Petit Verdot, a Bordeaux blending grape). Having learnt to make good wine in Arizona, winemakers like Callaghan have had to learn the process all over again with new varietals. In this regard I think they are perhaps ahead of the curve – winemakers all over the world will have to adjust to climate change in the decades ahead.
I understand that the Erath Arizona vineyard is being planted with many different varietals. It sounded to me like an experimental vineyard when I heard the list of plantings, but I think there is more than guesswork involved. I expect that Erath, Bostock and Callaghan and other talented winegrowers will figure out what Arizona’s terroir is meant to produce. It will be interesting to track Arizona’s progress and see how its wines fare in a world where the environmental givens are shifting and the market conditions becoming increasingly diverse and competitive.
Wine and Wine Tourism
The wineries I visited are all relatively small with limited distribution, so don’t expect to find these products at your local shop. Production is limited to a couple of thousand cases, even with the use of California grapes to fill in the gap left by low local yield, and sales are mostly cellar door. The winemakers I spoke with are beginning to develop wine clubs and internet sales facilities, but most of the product is sold face-to-face. Restaurant placements, if done well, can help build reputation, but there is not much money in it for a small winery. And output isn’t usually big enough to fill a distributor’s pipeline. All of this may change in the future, of course, but for the present it is a craft industry. The future of Arizona wine, at least in the short run, is local not global.
And that is not necessarily a bad thing because exploiting the local is an important strategy and it seems to me that Arizona has a good potential for wine tourism. The world will probably come to Arizona wine before the wine is produced in sufficient volume to venture out into global markets.
The country around Elgin and Sonoita is strikingly beautiful and closer to Tucson than Napa Valley is to San Francisco. It is already a desirable day-trip destination from Tucson because of its bicycling and horseback riding opportunities. All you need is wine (and food) to complete the deal. The wine is already there, as we learned, and the food, too, but the word hasn’t leaked out. That, I think, is about to change.
Note: Thanks to Michael, Nancy and Sue for their help with this report and to Joyce at Dos Cabezas and Tom Bostock and Kent Callaghan for taking time to talk with us.
The Wine Economist World tour continues in 2019 and I thought you might be interested in the who/what/when/where because I think my speaking schedule reflects some important issues and concerns in the global wine business. Here’s an annotated itinerary.
The new issue of the 
The effects of Australia’s continuing drought on the wine industry are well known; I wrote about drought and other problems that Australian winemakers now confront last September in a post titled 
