Category Archives: cooperatives

Wine Economics 101: the Three Vs of Wine

August 27, 2024 By in cooperatives, economic crisis, wine, wine markets 3 Comments

We often talk about trends and problems in the wine industry, but I think we all know that wine isn’t a single business about which it is easy to generalize. Different countries or regions have different business characteristics, for example, and making and selling multi-million case brands like Gallo’s Barefoot differs greatly from much smaller and more local operations.

The wine industry doesn’t come in one size or shape that fits all and doesn’t run at a single speed. Significantly, while all or most parts of the “wine patch” face challenges from climate change and declining consumption of beverage alcohol, the specific conditions vary and can change quickly.

So when a journalist asks me about what’s happening in the wine industry, as happens frequently, I have to stop, pause, and think. Which wine industry are we talking about?

Wine and the Three Vs

The Financial Times recently published an interview with Stephen Cronk, co-founder of the Provençal Rosé producer Maison Mirabeau, about the perils and rewards of starting a wine business more or less from scratch.  Mirabeau has achieved great success in just a few years. How did it happen? Here’s an excerpt of the Q&A.

Was there a seminal moment in your business? Probably when I met a British Master of Wine in the Languedoc in 2008. He told me about the three Vs: viticulture, vinification and vendre, farming vines, winemaking and selling. Up until then I thought I would focus on buying a vineyard. He said don’t buy a vineyard yet: build a brand. Looking back, it was absolutely the right advice.

The idea of the Three Vs is important. There is a romantic image of winemaking that looks like this. Lovingly hand-tended grapevines surrounding a modest winery, with a cozy tasting room next door where most of the wine is sold (often by the winemaker herself) to loyal customers.  This is the idea of wine that defines the industry for many people. But, from an economic standpoint, it is a bit misleading because it suggests that wine is a single business when it is really, as the Financial Times story points out, it is really more like three.

Growing grapes is agriculture. It is a risky capital-intensive business that requires specialized equipment and knowledge. Growing wine grapes successfully and profitably is a considerable achievement. Making wine is also a risky capital-intensive business. It requires specialized equipment, some of which is only used once a year.

Finally selling wine is a risky capital-intensive business, too. It is risky because selling wine like selling anything else is affected by market forces beyond individual control. It is capital intensive because building a brand or establishing networks of personal or professional relationships to facilitate sales can consume a good deal of time and money. Many winery owners have told me that, going into the business, they thought that growing grapes or making wine would be their biggest challenge, but selling wine and tending to customers sometimes is the hardest part.

Specialization and Exchange

Because all three businesses are capital heavy and all three are risky, there is a strong incentive for specialization at the firm level and for the industry to take advantage of Adam Smith’s principle of the division of labor. Smith said that the division of labor was determined by the extent of the market and so it is not surprising that it is most fully realized in the wine business by very large wine companies that specialize in one or two but seldom all three wine industry segments.

Some of the largest winemaking facilities here in Washington, for example, are mainly engaged in contract wine production for other firms, which market the wines under their own brand names. And some large wine firms sell big volumes of wine with few direct employees, relying upon purchased grapes, contract production, and bulk wine purchases to feed their efficient marketing and distribution pipelines.

Specialization and exchange is Adam Smith’s recipe for efficient production, but the situation is never as simple as that (and nothing is ever very simple in the wine industry). Remember that each of the V-factors is risky and the risks are very different. Engaging in just one V-function means you only have to account for one set of risks, not all three, but from an industry viewpoint the risks are always there. And in some cases division of labor can magnify them.

Risky Business

All three wine industry functions are risky in part because they involve lags. The final market for wine is constantly evolving, for example, but firms that specialize in marketing have to make plans many months or even years in advance, so there is always the risk that the last quarter’s market plan is no longer relevant. That’s a problem.

Wine production involves lags, too, and they can be much longer. The wine that a producer can sell today is based on decisions made one, two, three, or more years in the past. Time lags mean that costly shortages and surpluses are more likely, creating instability. The viticulture V is also subject to lags and they are much longer than the previous ones just because of the time it takes to bring grape vines into production or to alter the product mix on existing vines.

One implication of this situation is that, while sometimes the Three Vs are in synch and tell the same story, sometimes they are not and you get a different reading on the health of the industry depending upon which V you consult. Arguably this is the case today, when the disruptions of the pandemic era and rapid inflation are working their way through the system at different speeds.

Market Dynamics

There is a certain degree of instability baked into each wine industry segment’s cake. What happens when we fit them all together? Under some circumstances, the result can be benign or even beneficial as cycles offset one another the way that the sound waves your noise-canceling headphones emit silence the racket around you. But it is also possible for cyclical factors to compound, making the overall wine industry riskier than its individual segments.

Is this one of those times when risks are compounded because instability in each segment feeds the others? Risky business(es).

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I recently discussed some of these wine economics themes and more with “Wine Behind the Scenes” podcast host Laurel Simmons. Click on this link to listen to our 30-minute conversation.

Cantina Tramin: Strength in (Small) Numbers in Alto Adige

June 18, 2024 By in cooperatives, Italian wine, wine, wine history, wine markets Leave a comment

Your first impression when you arrive at Cantina Tramin is that you’ve entered some sort of space portal. Here in the lush Alto Adige hills, you expect to see a sturdy old building housing Cantina Tramin winery, but it’s not there. Or rather it is there, but it is hidden by a very modern addition that was completed only in 2010. Old and new.

The new Tramin is striking. You feel like you are approaching a space ship when you drive up. And you feel like you are peeking out among the vines when you look out from inside.  It is quite an experience.

Quite a Surprise

The wines are quite an experience, too, especially the white wines. Bright, bold, complex. They fit the image of the winery perfectly. The surprise comes when you learn that this sleek, modern winery with its terrific wines is a cooperative, born from crisis more than 100 years ago.

Sue and I have visited the Alto Adige several times and we are always impressed  by the great wines we taste and the tiny vineyards we encounter. The vineyards cling to the hills in this region with the valley floor given over in many places to the tree fruit for which the region is well known. There are about 5000 hectares of vineyards and about 5000 winegrowers tending them. Even if math isn’t your strong suit I think you can tell that the average holding is pretty small and the smallest of them are like grape-strewn postage stamps.

1898 and All That

The Cantina Tramin cooperative took flight during a crisis in 1898. The many small growers lacking market power relative to a few large buyers, facing ruinously low prices, and led by Tramin’s parish priest, pledged to work together rather than run a race to the bottom. This is how wine cooperatives spring up. But as anyone who has served on a committee can tell you, it isn’t always easy to make collective enterprises succeed.

Cantina Tramin followed the well-traveled road in its early days, producing bulk wines (mainly red wines from the Schiava grape) and selling them off at low prices to be bottled, marketed, and sold by others. Then in the 1980s came the realization that competition for basic wines in the bulk wine market might not be economically sustainable, especially for a region with such fragmented vineyard ownership.

So the decision was made to radically change the cooperative’s model, moving from quantity to quality, from bulk wine to branded wine, from red to white. It was an expensive decision because it meant replanting by individual cooperative members and cellar investment by the group. The fantastic new winery that opened in 2010 was the crowning touch, but it came after much hard work and investment by the 160 families and their 270 hectares of vines.

Bold DNA

Bold moves seem to be in Cantina Tramin’s institutional DNA. Creating and later expanding the cooperative was a risky decision, albeit one that was more or less forced upon the grower families at the start. Breaking away from the quantity-driven bulk wine model was a big step, too. I am sure there were doubts and second thoughts at the time, but that bet has paid off very well.

You get a sense of the strategic thinking at work here when you look at the winery’s Chardonnay program. Chardonnay does really well here and there is a lot planted, but it wasn’t suited to the kind of buttery Chardonnay that was in fashion 20 years ago. So rather than release a 100% Chardonnay, Tramin created “Stoan” (stone), a blend of Chardonnay, Sauvignon, Pinot Bianco, and Gewurtztraminer. Only some years later, when tastes had changed, did Tramin release “Troy” (trail), a pure Chardonnay that spends a year on the lees.

Big Bets Pay Off

Maybe the biggest bet of all is Tramin’s signature wine, the Nussbaumer Gewurtztraminer. Although it is difficult to know for sure, many think Gewurtz originally hails from this region. It sure does well here, whatever its origin. It is an easy wine to enjoy when done well, as it is at Tramin, but not necessarily an easy wine to sell. There’s the name, which some consumers are afraid to pronounce, and then there are the different styles of Gewurtz that you find, from austerely dry to sweetish and flowery.

The Nussbaumer is more about minerality than flowers. Made from very ripe grapes, which account for the surprisingly high 14.5 percent abv, it is all about balance. The winery’s food pairing recommendations are speck (the delicious smoked prosciutto product this region is known for) and saffron risotto with licorice powder.

Winebow represents Cantina Tramin in the United States and a look at its online catalog shows a surprisingly wide range of wines including other white wines like Pinot Grigio (an important export to the U.S.) and reds, too, including Lagrein, Schiava, and Pinot Noir.

Cantina Tramin is a great success. Could it be a model for other regions? Definitely yes if you are looking for a business model for cooperative success. In terms of organization, Cantina Tramin does everything right, especially in terms of creating strong incentives for winegrower members to produce the best possible grapes and no sacrifice of quality for quantity or collective reputation for individual gain.

It is never easy to get collective agreement for such systems and many cooperatives failed in the past precisely for this reason. One key, we were told, is that Cantina Tramin is not too big so the families know one another and the social contract that binds the members together is as tight as the legal contract. (Not for nothing are Italian cooperatives called cantine socialle). So there is strength in numbers … so long as the numbers are not too big!

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Here are the Cantina Traminb wines we tasted for this report:

Pinot Grigio Classico 2023

Unterebner Pinot Grigio 2022

Stoan Bianco (70% Chardonnay, 20% Sauvignon, 5% Pinot Bianco, 5% Gewurtztraminer) 2022

Troy Chardonnay 2020

Nussbaumer Gewürztraminer 2022

All of the wines were distinctive and delicious. The biggest surprises were the Chardonnay, which was complex with a long finish, and the two Pinot Grigio wines, which set a high standard for wines made from this grape variety.

Italian Wine and the Paradox of Scale: Three Case Studies

July 11, 2023 By in cooperatives, Italian wine, wine, wine markets Leave a comment

Most of the world’s wine is produced by a relatively small number of very large wineries. But most wineries are very small. So wine is both big and small at once. That’s wine’s paradox of scale.

You can see the paradox at work here in the United States. According to the annual Review of the Industry issue of Wine Business Monthly (February 2023), there were 11,691 wineries in the U.S. Eighty-three percent of the wineries, however, produced fewer than 5000 cases of wine in 2022 and 49% produced 1000 cases or less.

Most of America’s wine was made by the less than half of one percent of makers in WBM’s “Top 50” list of wineries that produce at least about 300,000 cases a year. Gallo tops the list with an estimated 100 million cases, about as much as the next four producers combined (The Wine Group, Trinchero Family Estates, Delicato Family Wines, and Constellations Brands).

The situation isn’t exactly the same in other wine-producing countries but the paradox of scale still generally exists. How can small wineries compete in markets dominated by big ones? There’s no single answer to this question, so Sue and I are always very interested when visiting small wineries that seem to thrive alongside much larger and better-financed competitors. Herewith are three case studies from our recent tour of the Lugana DOC and Garda DOC regions of Northern Italy.

Location, Location, Location

Sirmione is a pretty special place, no matter how you look at it. The people are special, or at least the ones we met are. Maria Callas, the famous opera star, was born here 100 years ago. The land is special, too, flat as a pancake right on the edge of Lake Garda, with a small peninsula jutting out into it. The land, with its thick clay soil, and the lake effects mean that the wines are special. Distinctive and intense.

Four generations of the Zordan family have been farming grapes here since 1924, so their roots in this particular location run very deep. As the region has developed, however, the challenges they’ve faced go beyond the usual list of natural and market woes. The land here is terrific for wine growing, but it is also in demand for hospitality and tourism. It is a beautiful location if you are staying in the Garda region. So it was, in fact, a little bit surprising when we came upon the four-hectare vineyard and winery as we navigated through the otherwise fairly built-up streets that surround them.

The family business, Cascina Maddalena, has evolved over the years. The basic business before 1999 was selling bulk wine and that is still a source of revenue today. But it became clear that the family needed to capture more of the value added if it was to sustain the vineyards and the business through more generations. So a few hectares of the land were sold off to pay for a small but useful winery, producing about 35,000 bottles per year, and an attractive agritourism center for tastings, group events, and direct sales. “Cascina” is Italian for “farmhouse” and that’s the warm feeling you get here.

Farming grapes and making wine is hard work. Running an agritourism business is hard work, too, and the whole family pitches in to make it successful and to make the family business sustainable.

Is all the hard work worth it? From our perspective, the answer is a clear yes. The Cascina Maddalena Lugana DOC wines we tasted over lunch were stunning, displaying an intense and memorable minerality. I was especially impressed by the wines they call “Clay,” which are only produced in special vintages (we sampled 2020 and 2018). The wines spend a year on their lees in stainless steel tanks and another year in the bottle before release. Incredible.

Location in terms of both the vineyards and the winery and its hospitality facilities is key to Cascina Maddalena’s success and it is one successful strategy for smaller wineries to consider.

Sharecropper Roots

Cantina Gozzi shares some interesting similarities to Cascina Maddalena along with clear differences from it. Gozzi is also a multigenerational family winery that was founded about 100 years ago. The family were sharecroppers, working the owner’s land in return for half of the crop. This is not exactly the easy road to fortune, but it was a common practice in Northern Italy for a long time.

Somehow the Gozzi family managed to find a way to buy the land to farm for themselves as a mixed agricultural enterprise of cattle and cereals along with wine grapes. The farm is several kilometers from Lake Garda in the rolling hills closer to Mantova. The soil is different here with clay in the lower spots and more stoney and calcareous near the hilltops, the result of ancient glacial action.

It wasn’t until 1985 that the family decided to make wine the main focus, which required new investments in both vineyards and cellar facilities. Given the farm’s history, it must have been a difficult decision to give up the security of diversified production and put all the family’s eggs (I mean grapes) in one basket. But they have made it work through the sort of energy and focus that must have been necessary to buy the land in the first place. Total production is about 120,000 bottles per year.

Gozzi is in the Garda DOC zone, which means that both native and select international grape varieties are permitted. Our tasting, therefore, featured a pair of Garda DOC Chardonnay wines, one fresh and floral after a time in stainless steel tanks and the other, the Garda DOC Riserva Colombara, a richer style from a single vineyard with a year in French oak. There is also a Frizzante Chardonnay that we enjoyed at lunch at Trattoria La Pesa in Castellaro Lagusello which specializes in local cuisine (you should try the stewed donkey with polenta).

Hard work, clear focus, and a generational perspective. These are some of the qualities that impressed us at Cantina Gozzi and I even think you can taste them in the wines if you close your eyes and open your imagination.

Strength in Numbers

Cantina Colli Morenici is a cooperative winery, a type of business organization that we don’t often think about here in the United States. But cooperatives are enormously important in global wine markets, especially in Northern Italy. You may not think about cooperatives when pouring a glass of wine, but you should. You may have poured yourself a glass of wine made here, for example, although chances are that there was a different name on the front label.

Cooperatives tend to be formed in times of crisis, when winegrowers and small producers band together as a protective measure, seeking strength in numbers in the face of unfavorable market conditions. Such conditions existed in Italy in the 1950s and Cantina Colli Morenici was born in 1959.

The “strength in numbers” strategy continues to drive Italian wine to a certain extent and in 2021 Cantine di Verona was formed through a merger of Cantina Collie Morenici and two other cooperatives: Cantina Valpantena and Cantina di Custoza. Together they have three wineries providing both scale (1800 hectares of vineyards) and scope of production (a wide range of wines and styles)  for their 500+ members.

The wines are meant for everyday consumption, not cellaring and investment. The wines we tasted were good and good value. The most memorable was a limited-production Amarone from Cantina Valpantena that sold for €49 at the winery. The shop at the winery sold bottles, bag-in-box, and pumped directly into your container using a machine that looked like it would be at home in a gas station: €1.35 per liter, rosato or bianco. Yes, the wine was cheaper than gasoline.

We were told about 70 percent of production is exported, with most of the wine bound for the U.S. market destined for private label brands. That made sense to me when I tasted one particular wine and had an “ah-ha” moment. I know that wine, I thought. I’ve bought it at Trader Joe’s (or something very much like it, I’m sure) under a different label.

The future? Custoza Superiore DOC is underappreciated in the U.S. market and the winery sees potential to develop the market for this wine. Custoza is the wine region between Lake Garda and Verona and its signature wine is a blend of native varieties. A lot of potential there, I think.

Strength in numbers gives the wineries of Cantine di Verona the volume they need to support export investments and the resources to market their wines at home. We were pleasantly surprised to see an advertisement for Cantine di Verona when we were watching a bit of television at our hotel in Verona during a thundershower. It was during a Food Network Italy show featuring Italian nuns cooking traditional dishes. Cooking nuns? I’ll drink to that!

Quality by Design at an Abruzzo Cooperative Winery

July 19, 2022 By in cooperatives, Italian wine, wine, wine markets Leave a comment

The first thing you notice as you approach Cantina Frentana is the tower, which rises up over the flat landscape and trellised vines like a lighthouse. And in a way it is a beacon, shining a bright light on the future of Abruzzo, Italy’s underestimated wine region.

Abruzzo Lighthouse

The tower, Torre Vinaria, was originally built in 1958-60 with the practicalities of winemaking in mind. A gravity-flow winery, as you probably know, is thought to be gentler on the wine because less pumping is involved (and economical of labor, too, I think). Such facilities are frequently built on hillsides, but there are few suitable hills so near the Adriatic coast, so the grapes were hoisted to the tower’s top floor and worked their way down until they were finished wine at the bottom.

The tower, 28 meters high and 18 meters in diameter, is thus a symbol of a thoughtful commitment to quality. It was also a statement of confidence and ambition because it was created along with company itself, which is a cooperative or cantina sociale as they say in Italy. Cooperatives are generally born in times of crisis for grape growers, who band together to make and sell wine from their grapes when other market opportunities are scarce. To have this tower rise up from tough vineyard times was indeed confidence and optimism.

Preserving Vineyards and Grape Varieties

Ninety-two growers signed a deed to organize the Cooperative Society “Cantina Sociale Frentana” on November 16, 1958. The first vintage was released (and the famous tower completed) two years later. Now, after more than 60 years, the cooperative has 500 members who collectively farm 1000 hectares (or about 2500 acres). The average vineyard size is small, only 4 hectares or about 10 acres, and so there are many members who farm very small plots indeed.

As the years have passed and the founding members grown older year by year, the cooperative has had to face the fact that interest in the hard work of grape growing is not always passed down to the next generation. To keep membership alive, therefore, it has instituted what it calls the vineyard bank.  The cooperative contracts with the elderly grape grower and family to manage the vineyard for them, thus allowing the family to maintain membership, ownership, and income.

Cantina Frentana is committed to preserving native grape varieties, especially the distinctive local white grape  Cococciola. Indeed, it is the largest producer of this wine in the region and, hence, in the world. Still, sparkling, or a bit frizzante, it is a delicious wine.

Stronger Brands, Higher Margins

A generation ago, when Burton Anderson surveyed Abruzzo for his classic Wine Atlas of Italy, the number of high-quality producers he found could be counted on your hand. The rest, including the cooperatives that dominated the landscape, bet on quantity over quality. And in a big way.

The statistics that Anderson cited in 1990, were stunning. Abruzzo’s wine production often exceeded the output of Tuscany or Piemonte, for example, with less than half their vineyard areas. This was made possible by pushing vineyard yields to the highest average in all of Italy — 133 hectoliters per hectare, according to Anderson. I calculate this to be about ten tons per acre on average, which is high given the viticultural practices then in use and the fact that red wine grapes dominate the market.

Get the Incentives Right

High yields, and the lower quality that often follows, creates a vicious cycle. High output and low quality push prices down. Swimming upstream against this current by raising quality is risky and expensive, so the incentives are to push for even higher yields to make up in volume what is lost in margins. This can be a race to the bottom.

Cooperatives are often part of this problem, which is why they have poor reputations in some regions, but it doesn’t have to be the case as Cantina Frentana shows. In my experience there are three steps that cooperatives must be willing to take to move ahead in quality. It is all about getting the incentives right.

First, grower members must commit to sell all of their grapes to the cooperative. Otherwise, they will sell the best grapes privately (or make their own wine from them) leaving the cooperative with the low-quality product. Second, the cooperative must be able to vary grape price by quality, so that growers will find the lower-yield/higher quality trade-off attractive. If all grapes are worth the same, we are back to the race to the bottom again.

Finally, the cooperative must be able to refuse to purchase sub-standard grapes. This is obviously necessary if quality is to be maintained, but difficult from a social standpoint because cooperative members are also neighbors and sometimes even family.

Necessary But Not Sufficient

Cantina Frentana satisfies my quality cooperative checklist, but it is important to remember that these are necessary but not sufficient conditions for success. Excellent wine is the beginning not the end in today’s crowded and competitive marketplace.

Cantina Frentana impressed us with their wines, commitment to quality, ability to adapt to changing natural and economic climates, and their efforts to build brands for their wines and margins for their grower members. Cooperatives like Cantina Frentana are part of the promising future of wine in Abruzzo.

Back in Burton Anderson’s day, a cooperative winery was probably the last place someone would send us to learn about the promising potential for Abruzzo’s wine industry. Flash forward to 2022 and Cantina Frentana was our first stop. There is a message there.

Scratching the Surface of Sicilian Wine

January 11, 2022 By in cooperatives, Italian wine, wine, wine history, wine markets Leave a comment

I was intrigued when we were asked if we’d like to sample wines from a Sicilian cooperative winery. The history of Sicily’s wine industry — and the role of cooperatives within it — is a roller-coaster tale and such sagas in wine do not always have happy endings. I was thirsty to learn more about the situation today.

I learned about the history of Sicily’s wine sector from The World of Sicilian Wine by Bill Nesto MW and Frances Di Savio (see the Wine Economist review here). Wine in Sicily has been buffeted by a combination of shifts in the external markets and changing domestic incentives. It is no wonder that cooperatives arose to help growers navigate the ups and downs and gain a measure of control over their own destinies.  Cooperatives spring up in times of crisis, but it is their ability to adapt when conditions change that is most important.

Incentives Matter

Sometimes the economic incentives the cooperatives and other wine actors faced favored quality, but all too often quantity was the dominant strategy. This was particularly true during the years when EU wine policy unintentionally encouraged over-production of low-quality wines with no obvious market potential. These unsalable wines, the source of the famous EU “wine lake,” were bought up and distilled into industrial alcohol, a process that was not sustainable in economic, political, or environmental terms.

The wine lake days are gone — EU incentives now favor market-driven wine production — and the wines have changed faster than their reputations in many cases. Not all wineries have raised their game, however, and that inconsistency is a headwind.

The wines we sampled were from the Cantine Ermes cooperative, which was founded in 1998 in the Belice Valley in northwest Sicily. The cooperative is very large with 2373 members farming more than 12,000 hectares and operating 11 winemaking facilities.  In total Cantine Ermes produces 11.5 million bottles annually, which are sold in 29 countries around the world. Does this surprise you? Cooperatives are important in Italian wine, more important than most people realize.

Beyond Low-Hanging Fruit

One criticism I have heard of many Italian cooperatives is that they cut their own throats by focusing too much on bulk wine and private label products — they take this low-hanging fruit and fail to build the brands that might yield higher margins that would improve their economic sustainability.

Some of the deep dark red wine made in Sicily, for example, is sold off to be blended with lighter Italian reds to give the result more body, color, and alcohol — a practice that has been going on for a long time. Cantine Ermes gives attention to several brands, however, including the Vento di Mare wines that we sampled.

Vento di Mare means sea winds and so it was inevitable that we would ask our friends R and M to sample the wines with us. Their visit to Sicily was punctuated by gale force sea winds that nearly blew them off the island and caused sea foam to pile up on the shoreline like drifts of snow.

The three wines we tasted were screwcap-topped bottles of Grillo DOC, Nerello Mascalese IGT, and Moscato Frizzante that retail for about $12 here in the US — right about the center of the retail wine wall in today’s market.  The Grillo had nice varietal flavor and good balance. It seemed very versatile and would pair with many dishes as well as on its own. It was probably our favorite wine.

The red Nerello Mascalese was more intense and called out for a bold food pairing. Nerello Mascalese is the most-planted red winegrape in Sicilty according to my sources, and it was easy to see how it could be the foundation of a number of interesting blends as well as a single-variety wine.

The Moscato was fizzy and slightly sweet. Just 10.5% abv, the wine has a secondary fermentation for two months in an autoclave and then ages another two months on its lees. Aromatic (think orange blossoms) and nicely balanced. Like the Grillo it would work in a number of situations. Very pleasant indeed.

Sicilian Wine Ambassadors

We were impressed with the Vento di Mare wines and a bit surprised at the affordable entry-level price point. Other Cantine Ermes brands probe the higher reaches of the wine wall. I hope the attractive packaging and price point encourage consumers to give these wines a try (and that some restaurants see the potential for wine-by-the-glass sales). These wines are good ambassadors for Sicily and its cooperative wineries.

Since we aren’t able to travel to explore the wine world these days as we did in pre-pandemic times, we find it useful to focus on invitations like the one we received from Cantina Ermes. Clearly we have just scratched the surface of the wines of Sicily and the progress of Sicilian cooperatives, but we are encouraged, nonetheless. These are good wines that chart a path out of Sicily’s quantity-driven past towards a more sustainable future.

Flashback: the Very Model of a Modern Cooperative Winery

July 13, 2021 By in China wine, cooperatives, Portuguese wine, wine 3 Comments

I’ve been busy working on a revision to my 2011 book Wine Wars and I had one of those deja vu moments. I was reading the chapter on “The China Syndrome,” which includes a report from my friend and former student Matt Ferchen, who was working in China at the time the book was published. Matt attended a wine fair in Beijing sponsored by Portuguese producers and sent me a report of what he found, which I included in Wine Wars.  Matt said that he was impressed with the Portuguese wines.

The first wines I tasted, and the ones I ended up liking the best, were from a cooperative called Adega Coop. de Borba. A couple of the wineries were family owned and there was a kind of earthiness to the wines that I really enjoyed. I was especially impressed with the Portuguese whites, which were all very crisp and I think would go very well with spicy Chinese food.

Adega de Borga? Sue and I visited that winery when we were in Alentejo in 2016. I had forgotten that Matt made a point to call it out in his report. It impressed us, too, so much so that I devoted an entire column to our 2016 experience, which I re-print here. Re-discovering Matt’s reference reminded me how surprised we were to discover this excellent example of a modern cooperative winery.

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They say that you shouldn’t judge a book by its cover and I think this applies to wineries, too. We visited Adega de Borba as part of a brief tour of wineries active in the Alentejo vine and wine sustainability program and found ourselves led astray by our first impressions.

Adega de Borba is a cooperative winery founded in 1955 and was a pioneer at the time. All the economic incentives in those days were stacked against wine and in favor of grain production in this part of Portugal in those days. It took some effort and determination to nurture and expand wine production here.

Beyond the First Glance

At first glance the original 12,000 square meter facility was what I expected from a “mid-century modern” winery, but on closer inspection I began to realize that this was both more and different than it seemed. More because the winery is a surprisingly large operation. The 300 members together farm 2000 hectares of vineyards and the winery produces over 15 million bottles a year.

And different because while the winery dates from mid-century, the ideas are not frozen in time. Looking closely, we saw that everything was meticulously clean and well-maintained as it should be but so often is not in the case of “vintage” production facilities.

And the answers to our questions about economic incentives were the right ones, too. Do the members have to sell their grapes to the cooperative, or are they allowed to hold back some (usually the best ones)? No, they must sell to us. How are they paid? By weight, of course, but with substantial adjustments plus and minus based upon objective measures of quality. Are the premiums enough to motivate a movement to quality? Yes, they are very high for the finest grapes.

Adjusting to New Market Realities

The large scale is important because wine in Portugal is low-priced by U.S. standards and price pressure is increasingly intense. Consumers who bought €3 wine (that’s where the mass market is here) before the global financial crisis are spending €2 instead and margins for exports to some markets can be low as well. So efficient production is key as well as quality that will allow sales in the higher-price categories. imagem_rotulo_cortica_reserva_tinto13_pagina

Former Portuguese colonies Angola and Brazil have been the largest export markets for Alentenjo wines in past years, but both are going through difficult times at the moment (especially Angola with its dependence on petroleum export income), so attention is shifting to other markets such as the U.S., Canada, and Switzerland, which demand higher quality, and Russia and China, where low price is a powerful factor.

Adega de Borda has moved in both directions. The Rótulo de Cortiça wines, which are easy to spot because the label is printed on a thin sheet of real cork (cortiça in Portuguese), are a good case in point. The winery sells about a million bottles of this wine each year at the astounding (for Portugal) price of €9 and even more for the reserve bottling.

That €9 price won’t seem like much to my Napa Valley friends, but it is a stunning achievement for this volume of wine in the context of the Portuguese market and is only possible because of the care and attention that goes into every stage of the process.

Uphill / Downhill

But this doesn’t explain how Adega de Borba is able to compete in markets where margins are razor thin and competition from other producers and other wine regions fierce. To understand that we had to walk up a gentle hillside to the biggest surprise of the day, a stunning  140,000 square meter state-of-the-art production and storage facility that was completed in 2011 at a cost of €12 million. A system of underground pipes connects the new winery with the old one down the hill so that the wines can be bottled there.

Everything is big about the new facility from its crushing capacity (1200 metric tons of grapes a day) to the fermentation and storage capabilities. But it is the technical efficiency that it creates that is most impressive since it allows both volume and margin-boosting quality to co-exist.

Thought and Action

I said at the start that you shouldn’t judge a book by its cover, but this big modern building might be an exception to that rule because the exterior of the new building gives away something of its high-tech interior. It is blistering hot in this region in the summer, so the building is clad in white ceramic tiles to reflect the sun with horizontal rows of white marble from a nearby quarry that, a bit like radiator fins,  provide a certain amount of natural heat control as well. Very cool (pun intended) and not necessarily what you would expect from a wine cooperative.

We came to Adega de Borba because it has embraced the Alentejo region’s sustainability initiative, but it is easy to see that this is part of an overall approach to wine growing and production, with attention to every detail and eyes firmly set on horizon. Cooperatives tend to struggle when they get the incentives wrong, fail to note changing market environments, and hesitate to invest for the future. Adega de Borba shows us how wine cooperatives must think and act to be relevant and successful in today’s markets. It is how all wine enterprises must think and act.

Discovering the “Invisible” Cooperative Wineries of Languedoc and Roussillion

July 17, 2018 By in cooperatives, wine, wine history, wine markets 1 Comment

caramanyThey say that there is strength in numbers, which may explain why wine cooperatives tend to emerge during periods of crisis, when individual winegrowers are practically powerless to defend themselves and only collective action holds hope.

The cooperative in Caramany, the Vignerons de Caramany, was founded in 1924 in response to the Phylloxera crisis. It experienced ups and downs in the century that followed and seems to be thriving today — a good sign for Caramany and for French cooperatives generally.

Strength in Numbers

Caramany is a village of 150 inhabitants in the Pyrénées-Orientales scenic L’Agly valley in Roussillon. It has its own appellation:  Côtes du Roussillon Village Caramany. The cooperative has 50 members, some of them quite small holders,  growing mainly Carignan, Grenache and Syrah.

We were in Caramany to learn about its cooperative and its wines during our recent press tour to Languedoc, Roussillon, and the Loire Valley. Cooperatives were on our radar because they are very important in all these regions as they are in Europe generally. Cooperatives produce about 70% of all wine in Languedoc, for example, making their success critically important to the wine industry.

You sometimes have to look closely at a wine label to know that a cooperative has made the wine — seeing Caves Coopérative for a French wine or Cantina Sociale Cooperativa for an Italian one is a sure indicator, but sometimes the link isn’t clear, especially if the wine is sold through a negociant or, as is increasingly the case, made for a private label customer such as a supermarket.

Invisible but Important

carmin

According to the latest edition of the Oxford Companion to Wine, cooperatives probably account for more than half of all the wine produced in the big three Old World wine countries: France, Italy, and Spain. These “invisible wineries,” as I have called them, are one of the most under-appreciated elements of the global wine market despite the commercial success of some of the wines. One of the top-selling Prosecco wines on today’s market — La Marca — is produced by a second-level cooperative — a cooperative of cooperatives.

Some Italian cooperatives — I am thinking Alto Adige and Piemonte in particular — are know for their high quality. But cooperatives in the south of France have the opposite reputation, which they continue to battle to change. It is easier to produce new, better wines that a new reputation.

The Vignerons of Caramany impressed us with their commitment to making delicious, market-friendly wines, which we sampled while eating a Catalan barbeque lunch that included snails grilled over live coals, grilled meats (including delicious blood sausage), and a variety of salads. One wine (see top photo) was a tribute to the past, but others looked to the future.

tremoineThe Reserve Rouge Carmin, for example, is a blend of Grenache, Syrah, and Carignan (the Carignan was vinified with carbonic maceration while the Grenache and Syrah use conventional methods) that was one of my favorites. Delicious with the food we were served and impressive generally. Its packaging is modern and appealing and it sells for a premium price — about 8 to 10  euro, as I recall, which is impressive for a wine from this region.

There were wines from other cooperatives at the lunch and they were also noteworthy. The Rivesaltes Ambré from the Vignerons de Trémoine is a terrific sweet wine that I could sip  all day.

Sleep No More

So what has changed to make these cooperatives (and many others that we learned about) so different from the stereotype of sleepy, inefficient (and sometimes not very clean) cooperative cellars? Well, it isn’t that the cooperatives have simply become stronger — more strength through more numbers — because that’s not the recent trend. Cooperatives seem to be under attack to a certain extent, with the next generation of winegrowers looking beyond old practices to new market opportunities. An association of independent producers has been formed in Languedoc, providing a different sort of strength in numbers through collective marketing not production investment.

Some of the new independent projects are inspired, I was told, by Department 66, a wine project initiated by Dave Phinney and located in the Maury appellation of Roussillon. Its Grenache, Syrah, Carignan blend D66 wine sells for $38, which is a super-premium price for this region. A special old vines Grenache-Syrah blend received a 95-point score from Robert Parker and retails for $175. That would sure get my attention.

More than anything I think it has been competition that has stirred French cooperatives to raise their game — competition in the retail market and also competition between and among the cooperatives for the declining group of potential grower-members. Competition is disruptive but has obviously been a good thing and the results are clear when you consider the achievements of a relatively small cooperative in a tiny appellation such as the Vignerons de Caramany.

If other cooperatives are moving in the same direction as the ones we learned about on this trip. then the future of the “invisible wineries” is bright.

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Thanks to everyone we met on our trip to France and to the wine regions of Languedoc, Roussillon, and the Loire for hosting us.

caveau

Portugal’s Adega de Borba: the Very Model of a Modern Cooperative Winery

May 24, 2016 By in cooperatives, Portuguese wine, sustainability, wine, wine markets 3 Comments

P1110444They say that you shouldn’t judge a book by its cover and I think this applies to wineries, too. We visited Adega de Borba as part of a brief tour of wineries active in the Alentejo vine and wine sustainability program and found ourselves led astray by our first impressions.

Adega de Borba is a cooperative winery founded in 1955 and was a pioneer at the time. All the economic incentives in those days were stacked against wine and in favor of grain production in this part of Portugal in those days. It took some effort and determination to nurture and expand wine production here.

Beyond the First Glance

At first glance the original 12,000 square meter facility was what I expected from a “mid-century modern” winery, but on closer inspection I began to realize that this was both more and different than it seemed. More because the winery is a surprisingly large operation. The 300 members together farm 2000 hectares of vineyards and the winery produces over 15 million bottles a year.

And different because while the winery dates from mid-century, the ideas are not frozen in time. Looking closely, we saw that everything was meticulously clean and well-maintained as it should be but so often is not in the case of “vintage” production facilities.

And the answers to our questions about economic incentives were the right ones, too. Do the members have to sell their grapes to the cooperative, or are they allowed to hold back some (usually the best ones)? No, they must sell to us. How are they paid? By weight, of course, but with substantial adjustments plus and minus based upon objective measures of quality. Are the premiums enough to motivate a movement to quality? Yes, they are very high for the finest grapes.

Adjusting to New Market Realities

The large scale is important because wine in Portugal is low-priced by U.S. standards and price pressure is increasingly intense. Consumers who bought €3 wine (that’s where the mass market is here) before the global financial crisis are spending €2 instead and margins for exports to some markets can be low as well. So efficient production is key as well as quality that will allow sales in the higher-price categories. imagem_rotulo_cortica_reserva_tinto13_pagina

Former Portuguese colonies Angola and Brazil have been the largest export markets for Alentenjo wines in past years, but both are going through difficult times at the moment (especially Angola with its dependence on petroleum export income), so attention is shifting to other markets such as the U.S., Canada, and Switzerland, which demand higher quality, and Russia and China, where low price is a powerful factor.

Adega de Borda has moved in both directions. The Rótulo de Cortiça wines, which are easy to spot because the label is printed on a thin sheet of real cork (cortiça in Portuguese), are a good case in point. The winery sells about a million bottles of this wine each year at the astounding (for Portugal) price of €9 and even more for the reserve bottling.

That €9 price won’t seem like much to my Napa Valley friends, but it is a stunning achievement for this volume of wine in the context of the Portuguese market and is only possible because of the care and attention that goes into every stage of the process.

Uphill / Downhill

But this doesn’t explain how Adega de Borba is able to compete in markets where margins are razor thin and competition from other producers and other wine regions fierce. To understand that we had to walk up a gentle hillside to the biggest surprise of the day, a stunning  140,000 square meter state-of-the-art production and storage facility that was completed in 2011 at a cost of €12 million. A system of underground pipes connects the new winery with the old one down the hill so that the wines can be bottled there.

Everything is big about the new facility from its crushing capacity (1200 metric tons of grapes a day) to the fermentation and storage capabilities. But it is the technical efficiency that it creates that is most impressive since it allows both volume and margin-boosting quality to co-exist.

Thought and Action

I said at the start that you shouldn’t judge a book by its cover, but this big modern building might be an exception to that rule because the exterior of the new building gives away something of its high-tech interior. It is blistering hot in this region in the summer, so the building is clad in white ceramic tiles to reflect the sun with horizontal rows of white marble from a nearby quarry that, a bit like radiator fins,  provide a certain amount of natural heat control as well. Very cool (pun intended) and not necessarily what you would expect from a wine cooperative.

We came to Adega de Borba because it has embraced the Alentejo region’s sustainability initiative, but it is easy to see that this is part of an overall approach to wine growing and production, with attention to every detail and eyes firmly set on horizon. Cooperatives tend to struggle when they get the incentives wrong, fail to note changing market environments, and hesitate to invest for the future. Adega de Borba shows us how wine cooperatives must think and act to be relevant and successful in today’s markets. It is how all wine enterprises must think and act.

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As you probably guessed, this column’s title was inspired by the Gilbert & Sullivan tune from Pirates of Penzance. Enjoy.

Alentejo Wine in Transition: History and Changing Times in Portugal’s “Lodi”

May 17, 2016 By in cooperatives, economic crisis, emerging wine regions, Portuguese wine, wine, wine exports 3 Comments

seloSue and I recently returned from historic Évora, Portugal where I am spoke at the 10th Alentejo Vine and Wine Symposium. We spent about a week in the Alentejo wine region and learned a lot. This is the first of a short series of columns loosely organized around the theme of the disruptive intersection of old and new which I have found in many corners of the wine world, but none more clearly than Alentejo.

Portugal’s Lodi

The map gives you an idea of Alentejo’s location. Évora is about an hour east of Lisbon and give hours south of the Douro Valley. Portuguese leaders once thought that this region would be Europe’s grainery (more Kansas than Lodi, I suppose), but the landscape we saw was more pastures dotted with cork trees and vineyards, some of which are quite large by Portuguese standards.lisboa-alentejo

I think of Alentejo as the Portugal’s Lodi for several reasons. The first is the summer heat, which reaches up to 40 or 45 degrees Centigrade (100 to 110 Fahrenheit) or even higher in July. Difficult to grow high quality wine grapes in such baking heat. But, as markets shift, both regions feel the need to increase quality and so producers are pushing hard. And both regions are implementing important sustainability initiatives that are part of their new identities.

They both produce quite a lot of wine, too. Alentejo accounts for more than 40 percent of the wine consumed in Portugal. But the market is changing and the region must adjust and evolve. The domestic market has not fully recovered from the global financial crisis and price pressure is extreme, especially in the lower price tiers. At the same time, the traditional export markets — especially former Portuguese colonies Angola (#1 on the export list) and Brazil — are struggling.

Drawing Strength from the Old and the New

Alentejo is drawing strength from its past in this transition and from new ideas and initiatives, too. The sense of history is never far below the surface here. Évora is a Unesco World Heritage site, for example, with Roman ruins around every corner. The Romans made wine in this region and the big clay pots they employed are inspiring today’s winemakers (watch for a future column on this).

Portugal was once part of the Arab world (“Portugal,” we were told, means “orange” in Arabic and this was not hard to believe with orange trees everywhere). The name Alentejo itself reflects this history. Alentejo comes from Al Entejo (just as mathematic’s algebra was originally al gebra).

Old practices and a wealth of indigenous grape varieties are more than living history — they form building blocks, but bold initiative is needed for glue. The next three columns will explore this dynamic.

First I will introduce you to Adega de Borba, a big cooperative winery that is moving decisively into the future. Then I will take you into the world of cork by visiting Amorim cork’s processing plant in Alentejo and its high tech labs and production facilities in the north. Finally, we will go back in time to the wines made in big clay pots when we meet with winemaker Domingos Soares Franco at José Maria da Fonseca‘s José de Sousa winery.

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One of the highlights of the conference was a dinner that featured a group of men who sang the famous Cante Alentejano that is unique to this region. It was a moving experience to hear the singing that turned to pure joy when we learned that the singers were winegrowers — members of the Vidigueira  cooperative. And to top it off, we were drinking their excellent wines. What an experience!

Unhappy Families: Wine Cooperative Failure and Success

August 9, 2011 By in cooperatives, EU wine market reforms 2 Comments

Tolstoy wrote that happy families are all the same, but each unhappy family is dysfunctional in its own special way.  I think wine cooperatives might be the opposite of Tolstoy’s families: the unhappy ones are all the same, but each happy one succeeds in a different way.

Made when Alto Adige was Austrian.

This is not a theory, only a working hypothesis (a.k.a. educated guess) based upon some recent fieldwork. We all know the story of unhappy cooperatives (which I summarized in my last post on Invisible Wineries), but what about the successes?  Answering this question was one of my goals during our recent visit to Italy’s scenic Alto Adige wine region.

A Recipe for Failure?

If I describe the Alto Adige wine economy to you it will sound like a recipe for failure. The region is tiny in terms of wine, producing a total of only about 40 million bottles each year, which is less than one percent to Italy’s total output (and about 1/20th of Gallo’s annual output). Although I don’t have data on this, I am pretty sure that wine is not even the most important agricultural product in the region — I suspect that apples are #1.

The vineyards are tiny and ownership is impossibly fragmented. Typical vineyards are a hectare; the top 100 account for only about 5 percent of the total. And, although popular international varieties are grown here, production is dominated by indigenous varieties such as Schiava (aka Vernatsch), Lagrein and Gewurtztraminer.

Historic barrels at Elena Walch

Against all odds, the Alto Adige cooperatives are among the happy families of the wine world. Seventy percent of Alto Adige’s wine is produced by its 14 cooperative wineries. Although this wine varies in price and quality, of course, it must be said that the best of the cooperative wines rank among the best wines of their type in Italy and perhaps even the world and the cooperatives we visited were prospering.

Thumbing through my copy of the 2007 Gambero Rosso guide to the wines of Italy, for example, I encounter a long list of cooperative wines with the highest “three glasses” ratings. Here’s a list of the cooperatives so honored: Cantina Calterenzio, Cantina San Michele Appiano, Cantina Convento Murie-Gries, Cantina Santa Maddelena/Bolzano, Cantina Viticoltori di Caldaro, Cantina Valle Isarco, Cantina Terlano, and Cantina Termeno/Tramin. Several others earn ratings nearly as high. These are my happy cooperative families.

[By comparison, only about 25 percent of the wine made here comes from 37 private wine estates, which purchase grapes to supplement their estate fruit. They are small wine firms, obviously, but some have international reputations and distribution  — Tiefenbrunner, Elena Walch and Alois Lageder, for example.]

Getting the Incentives Right

Why do cooperatives work here when they seem often to fail elsewhere in Italy and Europe? My very tentative conclusions (based on visits to three cooperatives — Cantina Santa Maddelena/Bolzano, Cantina Termeno/Tramin and Cantina Valle Isarco) can be sketched this way. On one hand, the cooperatives we visited avoided the key errors in institutional set up: they require that members bring all their grapes to the cooperative rather than allowing them to keep the best and dump the rest in the cooperative vats. And they carefully monitor member wine grower practices and grape quality.

Many cooperatives are organized so that the collective cellar is the “buyer of last resort.” Members can keep the best grapes for their own production and dump the rest in the cooperative’s vat. If coop members have a choice, they will keep the best grapes for themselves (putting private interest ahead of collective interest) and the result is that after a while only the worst grapes go to the cooperative and the wines necessarily suffer both in the bottle and in the marketplace. With no alternative but to sell all their grapes to the cooperative,  however, Alto Adige vineyard owners have an interest in raising quality in both their own plots and those of other members.

(I was surprised to learn that the well known Prunotto winery, which we visited in Piedmont, was originally a cooperative, which failed when a harvest of exceptional quality produced almost no cooperative grape deliveries. All the growers apparently kept the grapes for their individual wines rather than add them to the cooperative fermentation vat. The crippled winery soon fell  into private hands. It was eventually acquired by the Antinori family, who have guided it to higher and higher levels of quality.)

Old and new at Cantina Valle Isarco

Getting the incentives right is clearly important, but this is often easier said than done. What happened to the Alto Adige cooperatives to cause them to adopt effective collective arrangements?

Every Happy Cooperative is Different

I think the unique history of the Alto Adige wine region has something to do with it. Alto Adige has been a wine growing region for thousands of years. Production seems to have peaked around 1910 when nearly 10,000 hectares (25,0000 acres) of vines covered the region, which was then part of Austria. The local industry was devastated by the combination of World War I, the Treaty of Versailles (which transferred the territory from Austria to Italy) and then the Great Depression. Alto Adige producers found that the couldn’t sell their wines in Italy (which still thought of them as the enemy) or in Austria or, well, anywhere given the Depression.

The Alto Adige wine industry collapsed except for rather limited production for local consumption. The valley floors were taken over with more profitable apple orchards; vines grew only on the steeper hillsides.

When DOC regulations were instituted in the 1960s, the lines were drawn to reflect this history. Wine grapes were limited to the hillsides, where quality was generally higher, and apples ruled the valley floors, crowding out vineyards there. Apples were still more profitable than grapes in the 1960s, so the DOC lines reflected local economic reality.

Vineyards today occupy about 5300 hectares (13,000 acres), half of the peak level and, as noted above, they are fragmented into tiny plots of surprisingly high value. The limited vineyard area combined with the success of the cooperatives and wine estates makes these small plots some of the most valuable vineyards on earth — second only to those in Champagne, one winery owner told me. When the tiny vineyards change hands so do hundreds of thousands of euro. Wow!

This is not to say that all the wine made in Alto Adige is of the highest quality. I would say that the majority of the production of the cooperatives is still simple low cost Schiava — these easy-to-identify pergola-trained vines are everywhere. But the trend is clearly up and — unlike the worst of the wineries elsewhere — there seems to be a local market for even the most modest bottlings.

Wines of the Cantina Bolzano

Lessons for Europe’s Cooperatives

What lessons can the successful cooperatives of Alto Adige provide for the struggling cooperatives elsewhere in Europe — the ones who have produced the lake of surplus wine and who are threatened by EU reforms on the wine hand and New World competition on the other?

I would like to say that it’s really simple — just adopt the sort of incentive structure that these Italian cooperatives have used so successfully. This is good advice and perhaps a place to start, but I do not think it is as simple as that. We used to talk about Path Dependency in economics. Path Dependency is the theory that “you can’t get there from here.” The road ahead depends on the path you have already taken.

It may not be possible to backtrack on the road that Europe’s unhappy family of cooperatives have taken, which has left many of them dependent upon subsidies and crisis distillation.

My working hypothesis is that Alto Adige’s unique history (and geography, too) put them in a position that  allowed them to succeed (or forced them to do so?).  The “unhappy family” cooperatives may not be able to transform themselves, but rather may be victims of their own history. Perhaps, like the Prunotto case, their future lies in private ownership.

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The photos I have inserted in this post show the contrasts we found in Alto Adige cooperatives and wine estates.