Wine Festivals Uncorked

August 1, 2009 By Mike Veseth in critics, Jancis Robinson, Supply and Demand, Wall Street Journal, wine critics, wine festivals, wine markets, wine tourism 1 Comment

Jancis Robinson and Wine Economist Mike Veseth at the IPNC. Wine Festivals draw celebrity wine critics, who taste, talk, sign books, pose for photos and lend credibility to the event.

Wine festivals have become big business. So big that the Wall Street Journal publishes a guide to upcoming festivals in each Friday’s edition. Click here to see their online August festival listing.There are lots of different wine events, but I’m not talking about charity wine walkabouts here, where you make a small donation, get a few drink tickets and visit tables where random bottles of donated wine are poured. The modern wine festival is a lot more focused and sophisticated and designed to engage wine enthusiasts on a different level.

International Pinot Noir Celebration

The International Pinot Noir Celebration (IPNC) in McMinnville, Oregon is a good example of the state of the art in wine festivals today. Sue and I attended the grand tasting last Sunday (a chance to sample dozens of Pinot Noir in a beautiful but hot outdoor setting), but the real deal for serious Pinot lovers is the full three day festival. For a fee of about $900 per person (not including lodging) you spend your days in tastings, seminars and vineyard tours and your nights under the stars at grand dinners.

The festival attracted winemakers from Oregon, California, Washington, Canada, France, Austria, Australia and New Zealand — quite an international lineup in a recession year.

I’m told that about 400 people attend the big festival — many of them come back year after year — and I would guess that another 300 or so came to the grand tasting on Sunday, so the festival’s total budget must approach a half-million dollars. More than enough to pay the expenses of wine critics and celebrities (like Jancis Robinson above).

What’s In It For Me?

It is interesting to consider what brings all these people together? Yes, yes, I know that it must ultimately be about buying and selling wine, but that doesn’t fully explain it. No wine typically changes hands at events like this and there are probably more cost effective ways to market wine, from the supplier standpoint, and cheaper ways for consumers to fill their glasses, too. So what’s really going on?

One reason winemakers travel so far to attend these festivals is to communicate with other producers and to taste and compare their wines. Although I still don’t fully understand it, I have observed a subtle kind of dialogue when winemakers taste together. Information about taste, technique and status are all transmitted in the glass. Professors go to conferences and communicate by reading papers. Winemakers go to festivals and taste each others’ wines. It is easy to see who has the more sensible approach to intra-industry communication.

I suspect that there was a lot of producer dialogue at the Pinot festival because the wines that we tasted did not have much in common except the genetic pedigree of the grapes used to make them. Although the world wine market is moving to a lingua franca based upon grape varietal labeling (Chardonnay not Chablis, Pinot Noir not Burgundy) it is very clear that wines made from Pinot Noir grapes can have extraordinarily different textures, flavors and aromas. depending upon who makes them, how and where.

The Old World naming system (based on place not varietal) sure has its merits in the wineglass where terroir is actually experienced — too bad it works so poorly in the cluttered supermarket aisle when wines are bought and sold.

I met more than one winemaker who told me basically that she came to Oregon to prove something — to prove that good Pinot Noir could be made in X where X = Oregon, Austria, California, Australia — fill in the place — only Burgundy has nothing to prove.

Hemispheric Exchange

A good deal of business gets done whenever producers come together, as you might expect. Partnerships, consulting services, distribution agreements and so forth are frequently arranged. The McCrone vineyard wines made by Ken Wright Cellars and Ata Rangi are a good case study of the sort of connections that probably could only happen in face-to-face meetings at a wine festival.

Don and Carole McCrone

Don McCrone is a distinguished retired politics professor turned distinguished active winegrower. His vineyard outside of Carlton, Oregon produces amazing fruit, which winemaker Ken Wright turns into a wonderful single-vineyard bottling. Don and Carole McCrone met the winemakers from New Zealand’s famous Ata Rangi winery at IPNC a few years ago and were encouraged by them (while tasting each others’ wines, no doubt) to scout out vineyard properties in Martinborough.

Now the McCrones spend half of the year in each hemisphere supplying grapes to both Ken Wright and Ata Rangi for “McCrone Vineyard” wines. Are there any other winegrowers with vineyard designated wines in both hemispheres? It is an extreme example of the sort of cross-fertilization that can happen behind the scenes at major wine festivals.

Relationships not Transactions

I think that the most important function of wine festivals is to establish and build relationships. I always say that wine is good, but wine and a story is better. Wine and a relationship (even a superficial one with the grower, the winemaker, or other wine enthusiasts) is best of all. Doug Tunnell, winemaker at Oregon’s Brick House, explained to me that he brings his wines to IPNC every year to maintain contact with the people who attend. I got the impression that it isn’t so much about selling wine as honoring relationships. I think elite makers recognize that investing in relationships with customers (and with wine critics and journalists and all the others who attend these events) pays dividends down the road. Winemaking and relationship-building both require a long-term perspective.

The fact that many people come back to IPNC year after year suggests that they value the relationships, too, both with the producers and with each other. I have written that wine always tastes best when it is shared with others who enjoy and appreciate it. This may be especially true with festivals like IPNC, which tend to attract participants who are especially focused on a particular wine or region.

What I Think I Have Learned

So here is what I think I have learned from my fieldwork at wine festivals so far, both at IPNC and elsewhere, on both sides of the table, both pouring and receiving wine.

Wine festivals aren’t really about the wine, they are about the people, the conversations and the relationships. The role of the wine is to bring the people together and to give them something to share in a way that is impossible to recreate electronically.

Wine, or really the sharing of wine, is a personal relational experience in an otherwise increasingly impersonal transactional world. That people seem to appreciate this sort of experience (and seek it out, even at high monetary cost and even in a deep recession) suggests something about its scarcity, don’t you think?

Prime Time for Fine Wine?

July 17, 2009 By Mike Veseth in economic crisis, Economic impact, robert parker, Supply and Demand, Wall Street Journal, wine distibution, wine markets, wine price 1 Comment

The Wall Street Journal reports that USDA Prime beef is now available in your supermarket meat case. Bad news for your cholesterol count, perhaps, but maybe good news for supermarket wine sales. Do you think it will last?

Steak-Out at Ruth’s Chris

USDA Prime beef is usually almost impossible to get outside of restaurants. Prime is the grade reserved for the top 1-3% of all beef — it is sort of like beef with a 93+ rating from Robert Parker. Fine dining establishments, including steak houses like Ruth’s Chris (which advertises itself as “The Best Prime Steakhouse Restaurant”), pay a premium for the limited supplies of this top quality beef. It is unusual, therefore, to find much Prime beef in the regular retail food distribution chain (USDA Choice is usually the top grade you will find at your store). It is especially rare to discover choice cuts like Filet Mignon in a supermarket meat case.

So then why did some shoppers recently find USDA Prime ribeye steaks at Costco for $9.99 per pound? The answer, according to the WSJ article, is the slump in high end restaurant sales. (I don’t know how Ruth’s Chris in particular is doing, but the fine dining industry overall is taking a beating. due to the economic crisis.)

The recession is bad news for restaurants and for the businesses that supply them. I have already written about the effect on wine. Some hard-to-get, winery-list and restaurant-only wines are now relatively easy to find — a few have even shown up at Costco — because distributors are diverting the wine that restaurants won’t buy to their other selling channels. The same thing, apparently, has happened to Prime beef.

Prime Time on the Wine Wall

Some of the folks who used to splurge on expensive restaurant meals are now sometimes treating themselves to fancy home-cooked meals, which can be less expensive even when they use similar ingredients because high restaurant labor costs are supplied in house for free (or lower cost, anyway, if you have to pay your children to be waiters, prep-cooks or dishwashers). Prime beef and excellent wines are now more readily available to these home chefs, as the WSJ article indicates and, while they may be expensive in an absolute sense (compared to Kraft Macaroni Dinner, for example) they are still cheap relative to the restaurant experience. Good food and wine at home can cushion the recession’s hard knocks.

My friend Patrick, wine manager at a local upscale supermarket, has a front row seat as these shoppers assemble ingredients for a special meal. His Wine Wall is located strategically at the corner of Meat, Fish and Produce, so aspiring gourmet chefs inevitably pass through his territory once or twice and he is happy to help them select a nice wine to complement their home creations.

Patrick thinks that this fine-dining shift from restaurants to residences may not be a temporary phenomenon. People are educating themselves about food, ingredients, cooking methods — and wine of course — and they may find themselves drawn more deeply into the home dining experience. As they become more skilled and knowledgeable they may begin to identify themselves as “foodies” who enjoy planning menus, shopping for and preparing food, not just eating it, and change their fine dining behavior for good.

I’m sure this won’t happen to everyone everywhere, but I think I agree with Patrick that a noticeable structural shift could occur. If sustained, this trend could have important implications for several industries, including wine. A major shift in sales from restaurants to supermarkets, specialty stores and big box retailers would force some winemakers to reevaluate their business plans and perhaps shake up the whole wine market.

Now, where are my car keys? I feel an urge to go to Costco …

Stimulus Package: Refreshing but Restrained

July 3, 2009 By Mike Veseth in economic crisis, Supply and Demand, washington wines Leave a comment

cavatappi People are always asking me what I think about the stimulus package and they never seem to be satisfied with my answers.

What Stimulus Package?

For a while I was telling people, “Stimulus package? What stimulus package?” My reasoning was that the tax cuts were more political than economics — no one seriously thought they would stimulate much consumer spending — and the big government spending programs will take several quarters to kick in. Only a small percentage of the money has been spent so far. The promise of economic stimulus in six or nine months is a useful thing, but there hasn’t been much in the way of a direct effect yet.

Here in Washington State, cutbacks at the state level seem to be more than offsetting whatever Federal stimulus there has been. Although the Washington situation is very serious (see the recent Economist article on the recession in this state), things could be worse — think California.

Too Soon to Tell

Recently I’ve changed my tune a bit. Stimulus package? Too soon to tell, I say, or impossible to know. These are both good answers even if my friends don’t like them. Too soon to tell because it will take more time before the full effects, positive and negative, are felt. Too soon to tell because we haven’t figured out yet how to deal with the inevitable consequences of the recent spectacular money creation and public debt increases. Some people fear that the cure to these problems will be more deadly than the recession’s disease.

Impossible to tell? Yes, because economics isn’t a hard science and we don’t have the luxury of running controlled experiments. We know that unemployment has increased to 9.5% with the stimulus package in place — that’s pretty shocking — but how high would it have been without the federal emergency programs? We will never know for sure, so these policies are sure to be debated back and forth for years.

No one seems to appreciate my analysis of the economic stimulus package so I’m going to change gears again. Now when people ask me my opinion I’m going to give them a wine review. That’s because I recently discovered an interesting white wine called Cavatappi Stimulus Package 2008.

In Vino Stimulus

Cavatappi (it means corkscrew in Italian) is a winery founded some years ago by former restaurateur and Italian wine lover Peter Dow. Cavatappi produces mainly Washington-grown Italian varietal wines (23 vintages of Washington Nebbiolo and Sangiovese). I’ve seen a Cavatappi white blend before, but this is the first one with an economic crisis hook. I couldn’t find anything about the wine on the web so I wrote to Peter Dow. He reports that

It is a blend of SB and Viognier. I tasted a similar wine in the Rhone last winter that was a Marsanne Roussane and SB blend and I really liked it. It is designed to be a simple summer quaffer and at 10.00 retail it is being well received.

I was speculating about what message Cavatappi is trying to send by naming this white blend in honor of the economic stimulus program. Is it to show support for the Obama plan? To send a message to consumers: spend your tax savings on wine? Or maybe it’s a cash flow thing — white wines can be turned over relatively quickly, providing an economic stimulus to the winemaker. Buy this wine and stimulate the Cavatappi economy!

Unfortunately the correct answer is much less complicated. “I used the name because I thought there was some humor in it, but mainly wanted to see if I could get it by the TTB,” according to Peter. Apparently he did!

So here’s the bottom line: what do I think of the stimulus package? Refreshing, but restrained. (I’m not a skilled wine taster but it seems to me that the Viognier tames the Sauvignon Blanc and shapes it a bit.) It made a nice match with a hearty salad at dinner last night.

Refreshing but restrained. Not a perfect description of the economic stimulus package, but not completely off the mark either.

And I can honestly recommend this stimulus to all my friends. (Or almost all of them: ten dollars is more than my senior cheap wine researcher Michael Morrell likes to spend — I guess you can’t please everyone.)

Supply and Demand in New Zealand

June 19, 2009 By Mike Veseth in book reviews, globalization, Marlborough Sauvignon Blanc, New Zealand, Rabobank, Supply and Demand, wine brands, wine markets 1 Comment

My copy of the second edition of Michael Cooper’s Wine Atlas of New Zealand arrived this week and I am having trouble putting it down. Cooper’s coverage of the wines, the wineries, the people, the industry and the market is exceptional. And it is stunningly beautiful, too, with excellent maps and spectacular photos. A coffee table book in terms of size and weight, but with real substance. One of the two best regional wine atlases I own (the other is Burton Anderson’s Wine Atlas of Italy, which is still a valuable reference 20 years after its publication).

(Note: Cooper’s NZ Wine Atlas hasn’t been released yet in the US, but it is easy buy from UK online sellers like Amazon.co.uk.)

The Amazing NZ Wine Story

I’ve always been fascinated by the New Zealand wine story — how a tiny (0.5 percent of global output) wine producer at the far corner of the earth could become a leading global brand (a NZ wine is the #1 Sauvignon Blanc in the US) and earn the highest average export price of any country in the world.

I couldn’t wait to get Cooper’s second edition because a lot has changed for New Zealand wine since the first edition was published in 2002 and my last research trip there in 2004. A lot has changed, but a lot has stayed the same, too.

The biggest threat to New Zealand’s success has stayed the same: the problem of balancing supply and demand. New Zealand was plagued by boom and bust cycles for many years. Overproduction of low quality wines created a crisis in the 1980s. Many winemaking businesses collapsed and were snapped up by NZ or foreign buyers, leading to the internationalization and consolidation of the industry. The NZ government initiated a grubbing up scheme in 1986 to reduce vineyard plantings, especially of low quality wines, setting the stage for the current boom.

New Zealand has been extremely successful in this era of global wine, which has been characterized by high quality, a strong global brand (Marlborough Sauvignon Blanc and now Pinot Noir as well), and a liberal trade regime that accepts high import levels of inexpensive wine as the price to be paid for high levels of higher-priced exports.

The Spectre of Surplus

Despite this success — or more precisely because of it, fear of wine and grape surpluses, price wars and market collapse continue to haunt New Zealand producers — at least those who are old enough to remember the crisis of the 1980s. In agriculture we know that nothing generates a surplus tomorrow faster than high prices today.

Cooper’s data make this boom-bust concern easy to understand. New Zealand’s industry has grown rapidly — can it be sustained? Producing vineyard area in New Zealand tripled from 10,000 hectares in 2000 to more than 31,000 hecrates (projected) in 2010. Wine production rose from 60 million liters in 2000 to 200 million in 2008. The number of wineries risen, too, if not quite so quickly: about 600 today, up from 334 ten years ago.

NZ domestic wine sales and wine imports have been relatively flat over the last ten years, so essentially all of the increased production has been targeted for export: 87.8 million liters in 2008 compared with just 15.2 million liters in 1998.

So far the world market has been wiling to absorb this rising production (and without diluting the NZ brand and the price premium it commands). Can this continue into the future or does Stein’s Law (see note below) apply?

A recent Rabobank report on “New Zealand Wine Supply — Testing Limits” provides mixed indicators. Rabobank acknowledges the importance of balancing supply and demand, especially given the world economic crisis, and notes that nature may limit runaway growth. Marlborough is running out of land suitable for vineyards, according to the report.

The day will come when the quantities of Marlborough Sauvignon Blanc available … will reach its physical limit and the long term supply and demand outlook looks very favorable for growers and producers in the region. It is vital that in the next 10 years the reputation and bargaining power of producers in this region be maintained in order for the region to enjoy higher returns in the future.

In other words, things look good in the long run, it’s the short run that NZ needs to worry about. Persistent short term surpluses could devalue NZ wines from premium products to commodities. That would be enormously damaging to the industry.

There are some indicators that the damage is happening now. I have heard of deep discounts on some New Zealand wines in Britain, for example, and I even saw iconic Cloudy Bay on sale at Costco this week for just $20, about $10 less than its price last year. More to the point, however, today’s Gisborne Herald reports that Pernod Ricard, which owns a number of important NZ brands, is terminating many or most grower contracts in the Gisborne region (North of Hawkes Bay on the North Island). The president of the Gisborne Winegrowers group is quoted

I have fielded a lot of calls from very concerned and distressed growers — my advice to them is to certainly not spend any more money on any of those blocks … Meantime, they should talk to their accountants and bankers.

Gisborne is a major producing area, but it doesn’t have the name recognition abroad of Marlborough, Martinborough, Hawkes Bay and Central Otago. It is Chardonnay country with 52.8% of producing vineyard area in that varietal compared to 8.2% planted to Pinot Gris and less than 4% each to Sauvignon Blanc and Pinot Noir. Chardonnay has become unfashionable — it is not where the market growth is these days. It makes sense therefore that Gisborne might be the first area to feel the combined effects of an overall surplus and shifting demand.

The Next Big Thing?

What is to be done? The Rabobank study looks to Pinot Gris, arguing that it could join Sauvignon Blanc and Pinot Noir as a leading NZ export wine thereby expanding and diversifying the NZ export market. The expected growth of wine consumption in Asia is one factor in this optimistic scenario, since Pinot Gris is said to pair well with Asian foods. Food friendly and premium price — these are attractive qualities it is said in the growing Chinese wine market, according to Rabobank.

Pinot Gris is also thought to be a style that younger wine drinkers will find fun, friendly and easy to like (but also flavorful, unlike certain Pinot Grigio you may have been served …). Michael Cooper is optimistic, too, in his Wine Atlas discussion of the varietal., citing “high potential” and “impressive weights and flavour richness” on both North Island and South wines.

Pinot Gris is profitable, too. Made in stainless steel tanks with no oak aging, Pinot Gris is a good cash flow wine. I can’t remember seeing NZ PG on store shelves here in the U.S., however. Perhaps I’ve just missed them or maybe NZ producers are focusing on different markets — Britain, Australia or Asia? — to avoid undercutting Sauvignon Blanc sales here.

“Demand for Pinot Gris,” the Rabobank report asserts, “should underpin even greater returns for growers in the medium to long-term.” A good thing, I think, if things hold together until the medium- and long-term arrive (there’s a famous Keynes quote about this, although I don’t think he was talking about wine). There is still the old problem of the short-term supply-demand balance to be worked out.

Note: Stein’s Law (named for Presidential economic advisor Herbert Stein, is that if something cannot go on forever it will stop. Stein’s point was not that all bubbles burst but rather that market forces tend eventually to rein in unsustainable trends (although not always in a gentle way) and you don’t necessarily need government to do the job for you.

The #1 Sauvignon Blanc

June 9, 2009 By Mike Veseth in brands, Constellation Brands, globalization, Marlborough Sauvignon Blanc, New Zealand, Supply and Demand, wine brands, wine markets 1 Comment

Decanter.com reports that Nobilo Marlborough Sauvignon Blanc has overtaken Kendall Jackson as the best selling Sauvignon Blanc in the United States. The ranking is based upon sales volume, but the wines retail for about the same $10 to $12 price, so Nobilo probably ranks first by value as well. An amazing achievement, given the many obvious challenges the New Zealand wine industry faces in terms of size, production cost, shipping distances, access to US distribution and so on.

A Matter of Style

It is interesting to consider how Nobilo and the New Zealand industry have managed to achieve this success. The first reason is the distinctive quality of Marlborough Sauvignon Blanc itself. Even wine critics who don’t think very highly of Sauvignon Blanc in general (I’m talking about you, Jancis Robinson) acknowledge that the Marlborough wines are distinctive and that the best of them are truly exceptional. In my house they set the standard for Sauvignon Blanc.

Why are these wines so good (and so popular)? Winemakers always start with the vineyard and it is certainly true that Marlborough seems ideally suited to produce Sauvignon Blanc grapes. (Ironically, no grapes at all were grown there before the mid-1970s). The skills of the winemakers are also important. The distinctive style of the wines is another factor. The June 2009 Wine Business Monthly includes a fine article by Curtis Phillips on Sauvignon Blanc yeasts that nicely explains the NZ style. NZ SB, he writes, emphasizes a varietal style, letting the fruit speak forcefully. The French SB style is “anti-varietal,” he says, emphasizing texture and minerality over fruit aromas and flavors.

Finally there is the oak-influenced style, which originated in France but was made famous by Mondavi as Fumé Blanc. This barrel-fermented SB style remains very popular in the U.S., but has obviously been eclipsed in the marketplace by the fruit-forward Marlborough product.

The New Zealand varietal style is a hot commodity. New Zealand producers should hope that it stays hot and doesn’t fade as some popular regional styles have done (I’m thinking about how quickly Australian Shiraz has fallen from favor).

The International Influence

Nobilo’s rise to #1 in the US market is not an accident, according to the Decanter.com article. Nobilo is a Constellation Brands product — one of five New Zealand export brands of ConstellationNZ (see logos above). Joe Stanton, the ConstellationNZ CEO, explains that his company’s strategy was to make Nobilo the top US SB by focusing on “traditional” wine buyers and giving them what they expect in the way of packaging for premium wine: cork instead of screw-cap, for example, and flint-colored glass bottles instead of traditional French green. Plus, of course, the intense Marlborough aromas and flavors. New wine in old bottles (and closures), I guess, and it worked.

ConstellationNZ accounts for 40% of all NZ wine sold in the US — an astonishing figure, but understandable given the strong brands that it has acquired (Nobilo, Kim Crawford, Drylands, Selaks) or built (Monkey Bay)and the efficient distribution system that has evolved to get these wines and all the other Constellation products on store shelves and restaurant wine lists.

In fact, the New Zealand industry is dominated by foreign-owned wineries, as wine writer Michael Cooper points out in the new edition of his fine Wine Atlas of New Zealand. Of the top wine producers only two (Delegat’s and Villa Maria) are Kiwi-owned. The largest producer is Pernod Ricard NZ (formerly Montana wines), part of the big French drinks group. Pernod manages 25 NZ brands according to their website, including of course Montana (sold as Brancott Estate in the US), Corbans, Church Road and others.

The most famous NZ wine — Cloudy Bay — is owned by LVMH Möet Hennesy-Louis Vuitton, the French luxury goods conglomerate. Matua Valley, another leading NZ producer, is part of the Australian Foster’s Group. The list goes on.

It is tempting to consider the pluses and minuses of international ownership as Michael Cooper does briefly in the article linked above. This is a topic that I plan to analyze in more detail my next book. In the meantime, however, it is perhaps best to consider how the combination of the local (New Zealand’s wonderful terroir) and the global (big multinationals like Constellation and Pernod Ricard) have combined to both produce New Zealand’s tasty wines and to deliver them to our doorsteps.

New Zealand has done specutacularly well in the global wine market so far. What lies ahead? Watch this space!

Time to Invest in Wine?

May 21, 2009 By Mike Veseth in economic crisis, speculation, Supply and Demand, wine auctions, wine investment, wine markets, wine price, wine research 1 Comment

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” — Mark Twain, Pudd’nhead Wilson (1894)

I wonder what Mark Twain would say about speculating in wine in October, May or any other month? I expect he would be suspicious of the idea. Mark Twain was a great author but a lousy investor. His cautious attitude toward investment was based upon his own disastrous financial experiences.

I was reminded of this quote this morning when I opened the New York Times “Special Section on Wealth & Personal Finance.” The cover features a half-page color image of an exploding cherry pie (or maybe it’s strawberry — what do you think?). I am not really sure what it means.

What Time Is It?

But the theme of the special section is pretty clear — time to consider alternative investments and investment strategies. And on page 4 I found the article that got me thinking about Mr. Twain’s investment advice: Investing in Wine: Now May Be the Time by William L. Hamilton. It’s an interesting article — click on the link to read it.

The idea, of course, is that wine prices have been falling, so this is an opportunity to buy in at the market bottom.

“It’s a great time to buy wine, the best time in a decade,” said Charles Curtis, who is in charge of Christie’s North American wine department. “People we’ve never heard of are jumping into the market, taking advantage of the lull to get into collecting, now that they have access.”

I am naturally a bit suspicious of buying advice given by people with an interest in the sales. They always seem to think that now is the time to buy. Rising prices? Buy now because they can only go higher. Falling prices? But now before they rise again. Mr. Curtis may be right, and I’m sure his recommendation is honestly given, but he might be wrong, too.

Uncommon Times

These are uncommon economic times and market changes are unusually hard to predict, which makes investing even in fine wines feel a bit speculative. Alfred Marshall, the great Cambridge economist, argued that markets are generally as stable and predictable as an apple in a bow. Prices fall when there is a surplus until the excess supply is gone. Prices rise when there is a shortage until the shortage disappears. The movement towards stable equilibrium is quite strong and predictable.

But wine markets today look a bit more unstable — more like that exploding pie now that I think of it. Here’s another quote from the New York Times article.

Though falling prices kept many collectors from selling, reducing the amount of wine on the market, returning prices in the last four months have produced an uncomfortable volume of wine to sell, said Charles Curtis of Christie’s.

The first part of the sentence describes how a market responds to surplus — falling price causes sellers to pull some goods out of the market. The second part describes a market in shortage — the opposite condition — where rising price brings sellers into the market. This is not a combination of forces that you expect to see in the same paragraph much less the same sentence.

There are a number of supply-demand changes that could account for this (Econ 101 students — do your stuff), but one distinct possibility is what economists call over-shooting, which is a characteristic of some financial markets and especially foreign exchange markets and maybe now wine markets. When over-shooting occurs, prices don’t drop smoothly to equilibrium like an apple in a bowl. Rather they over-shoot the equilibrium and then shoot back up. Back and forth, sometimes in increasingly unstable cycles. Market equilibrium and the “true market price” are hard to determine.

It is difficult to know where prices will go next in a market like this and the difference between “investing” and “speculating,” at least in the short run, is not completely clear. I don’t give investment advice (or rate wines, either, which makes this an unusual wine blog), but I’m not planning to rush into high end wine markets just yet. Too risky for me.

Investors vs Collectors

But then I’m not really a wine investor. In my reading I find the terms wine investor and wine collector often used as synonyms, but I’m not sure they should be. A wine collector buys what he or she wants to own (and, presumably, drink). It’s a personal thing. A wine investor should buy what other people will want to own, which might have nothing to do with personal taste. I have known only a few real wine investors but lots of wine collectors who justify at least some of their purchases as investments, but don’t manage them as they would a real investment.

In today’s market, however, both groups need to realize that there is a significant speculative element to their wine purchases and keep Mark Twain’s 115 year-old warning in mind!

Note: Stephen Bachmann at Vinfolio posted an interesting reponse to this article. Click here to read it.

Wine Recession Reports

May 20, 2009 By Mike Veseth in Constellation Brands, economic crisis, Economic impact, emerging wine regions, globalization, Supply and Demand, wine markets, wine research Leave a comment

Economists joke that data usually come in one of three forms: the incomplete, the inaccurate and the forthcoming. No wonder we are such unreliable oracles!

Wine economics data generally takes one of three forms, too: highly processed statistics, persuasive but unscientific anecdotes (bloggers are a big source of these) and public reports, such as newspaper and magazine stories. Each type of data has its uses and each has its weaknesses.

The wine economist’s job is to try to piece them together to get a reasonably accurate picture of what’s going on. This post tries to do just that — I use a recent statistical release, a personal anecdote and a magazine report to reveal an outline of some of the ways the economic crisis is affecting the wine market.

Lies, Damned Lies and Statistics

There are three kinds of lies, Mark Twain said, and statistics are the worst of them. They can be pretty useful, however, if you know how to handle them. The Global Drinks Market: Impact Databank Review and Forecast has just released data about worldwide wine consumption and the news is a bit grim. Global per capita consumption of wine was down in 2008. At 3.5 liters per capita, the global average is a full liter per person per year than in 1990.

A close look at the data indicates that the falling average is the net effect of two opposing trends. Wine consumption in the New World continues to grow in volume terms (the increase in terms of value is somewhat less due to the on-going trading down effect). At the same time wine consumption in the Old World, where both production and consumption are still the highest, has fallen off the table (also continuing a trend).

New World consumption is rising, but not enough to compensate for falling Old World demand. The falling per capita average is real, but it masks somewhat an even more important trend — a fundamental global restructuring of the wine world.

A Wine Spectator’s article reports that

Until recently, overall wine consumption was growing, thanks to emerging markets. But the recession has depressed total consumption as well. The United States still represents tremendous potential for the world wine market—Americans consumed an average of only 9 liters per-capita last year, compared to 51 liters and 44 liters, respectively, for the French and Italians. Canada, Chile, South Africa and Australia have all enjoyed steady consumption growth also, as have the emerging markets of India, Taiwan, South Korea and Norway. But China will probably account for much of the future growth in global wine consumption, as the Chinese drink less than a bottle of wine per person annually. The financial crisis has slowed down this growth momentum somewhat, but huge opportunities still abound, especially for large multinational wine companies doing business in China.

I remain suspicious of the potential of the Chinese market, especially in the short run, but I agree with the gist of this. When examined closely, the data tell an interesting story.

Listening to the Wine Wall

Anecdotes are a second source of wine market information. Anecdotes are dangerous because, while they are usually more casual observations rather than rigorous studies, people find them incredibly persuasive. It is their personal nature that is so appealing, I guess, and the fact that you can dine out for weeks on a really good story. A good statistic or table of econometric results (sigh) just can’t compare.

My anecdote is about a particular wine, Leonetti Cellars Merlot. Leonetti is an iconic Washington State wine producer. The conventional wisdom is that you cannot buy it — they sell out every year to insiders, people say. The Leonetti Cellars website hints at this without saying it. The “mailing list,” it says, is full. There is a waiting list to get on the waiting list, but it will probably take 5-8 years to get to top of the wait list.

My friends who are on the mailing list (or the wait list for the mailing list) vouch for Leonetti’s scarcity. They snatch up their allocated 3 (or however many) bottles quickly, knowing that people like me, lacking insider status, will never get a taste. (Note: Leonetti doesn’t say that their wine is impossible to buy, only that their waiting list is limited. And I think that limiting the wait list is a good business decision.)

Many people tell me that iconic wines like Leonetti are recession -proof because they are so hard to get that there will always be a market for them. So (here is the anecdote) I was a bit surprised to see Leonetti Merlot advertised a few weeks ago in a Wednesday supermarket ad for a local upscale farm store. Yup, we’ve got it, the wine buyer told me — want some? We’re even doing a tasting later in the week, she said. Further conversations with my wine business friends suggest that Leonetti (and some other “impossible to buy” wines) have often been available, although they are a bit easier to come by now. You just have to ask.

I suspect that some wine distributors find themselves with more high priced wine that they would like to carry in stock right now, especially with restaurant sales slumping in many areas, and the surplus is filtering down the distribution chain, even showing up on farm store shelves. It’s only a story, but it suggests that the economic crisis is hitting wine producers even at the top of the ladder.

And the grocery store ads that arrived today (anecdotally) back this up — they feature more hard-to-get wines and, unlike the Leonetti case, they are being sold below their release price!

RH Phillips, RIP

The Sacramento Bee reports today that Constellation Brands is closing the RH Phillips winery. Here is an excerpt from the report

R.H. Phillips Winery is being shut down by its parent company, Constellation Brands Inc. The Victor, N.Y.-based company, which also owns the Robert Mondavi Corp., is the world’s largest wine company with annual sales of 95 million cases of wine.

R.H. Phillips Winery’s 1,700 acres of vineyards, in the Dunnigan Hills area of Yolo County, will remain under the ownership of Constellation Brands.

“(The closure) is part of an ongoing strategic initiative for efficiency,” said Nora Feeley, a Constellation spokeswoman. “We could produce the wines and keep the grapes, but produce them with no damage (to quality) to the wine at Woodbridge.“

RH Phillips and Toasted head wine will still be made, but production is being shifted to the big Mondavi plant in Woodbridge, which apparently has some excess capacity. A big loss for the local community, apparently, and an opportunity to save cost through consolidation for Constellation.

What does this article tell us? Well, it is more like an anecdote that a statistic in that it reports just one story that may or may not be representative of the broader population. It tells us, I think, that the weak wine economy is putting pressure on even the largest players to cut costs and increase efficiency. The wine recession is affecting the entire market, not excluding Toasted Head and RH Phillips, wines that sell in the intensely competitive $8-$12 range.

Surrounded by Data

It is pretty hard to prove anything with wine economics data but sometimes you can use a combination of statistics, anecdotes and news reports to sort of surround a question. The three stories I’ve reported here don’t prove anything, but taken together they suggest that the wine recession is being felt globally, nationally and at the local level and at every shelf on the wine wall.

The wine recession is real. Restructuring is already under way. Or is that just a rumor, too?

AVAs: Good, Bad or Ugly?

May 19, 2009 By Mike Veseth in AVAs, brands, Supply and Demand, washington wines, wine markets Leave a comment

The birth of a new AVA (American Viticultural Area) is generally greeted like the birth of a baby – a good thing, a cause for celebration. So a recent Wine Spectator article was somewhat bittersweet – it announced two successful births (Snipes Mountain AVA and Lake Chelan AVA – both in Washington State) and one failure. But I’m not sure that that “two cheers” is necessarily the right toast (and I found myself quoted to this effect in the Wine Spectator). My problem, I guess, is that I can’t stop thinking like an economist, even when it comes to good news like new AVAs.

It isn’t that AVAs are bad, it is just that they are complicated and new AVAs produce both benefits, which are celebrated, and costs, which economists like me can’t seem to ignore.

Good or Bad?

As I have said in a pervious post, the American Viticultural Area is an ill-defined concept. It is a geographic indicator, of course, telling the buyer that a high percentage of the grapes used to make a particular wine come from a specific geographic area, but its significance beyond that is unclear.

An AVA doesn’t necessarily indicate a particular style of wine, for example, the way some European AOC rules do. AOC protocols often specify region, grape varieties, levels of ripeness and even the nature of particular blends that are permitted or sometimes required. Chianti is a region in Tuscany, for example, but it is also a recipe (albeit a flexible recipe) for the wines that carry that label. There can be great variation among wines from a given AOC, but the idea is that they represent variations on a theme rather than completely different wines.

AVAs don’t necessarily define terroir either. Many AVAs are quite large and contain many different soil types and microclimates. The Napa Valley AVA, for example, encompasses rather different condition in the North than the South and on the hillsides and valley floor. The Columbia Valley AVA in Washington State takes this to the next level in terms of terroir diversity.

Even the relatively small Snipes Mountain AVA (a sub-AVA of the Columbia Valley) includes rather dramatic differences in growing conditions. As Kevin Pogue of VinTerra Consulting said in a comment on a previous Wine Economist post:

It’s impossible to equate US AVAs with terroir. They’re just too big and there’s too much variability in all the physical parameters (soil, bedrock, climate, geomorphology). I had temperature monitors on Snipes Mountain (one of the smallest AVAs) during the growing season last year, and they showed huge variations in several important climate parameters. The top part of Snipes Mountain rises above the cold air pool that regularly forms in the Yakima Valley and so it’s much warmer and has a much longer growing season. The Walla Walla AVA has at least 4 distinct soil terroirs and the average annual rainfall varies from 7 to 24 inches within its boundaries!

In Economics Veritas

While the viticultural idea of AVAs is ill-defined the economic idea of AVAs is relatively clear. AVAs are brands, but not the type of brands you are used to thinking of. Brands have a bad reputation among wine consumers because they are associated with insipid wines sold as package goods – Franzia, Yellow Tail, Two Buck Chuck. While these wines clearly serve a purpose in the marketplace and are obviously a satisfactory choice to the people who buy them, they are seen by wine enthusiasts as an insult to the concept of fine wine. They are industrial wine, not terroir wine, if you see what I mean.

Economists don’t react so strongly to the idea of a brand, however. To us brands are just devices that producers use to send signals to buyers in markets with costly information. You may or may not like to eat at McDonalds, for example, but you know what to expect when you go there. Brands do the same thing for Budweiser, Coca Cola and Starbucks.

Private brands do the same thing for wines if you think about Robert Mondavi, Clos du Val or Screaming Eagle. You have a good idea of what you are getting in terms of style and quality because producers invest in the brands to establish reputations. Having a well known and reliable brand is a great advantage in the marketplace.

The main difference between private brands like these and AVAs is this: AVAs are communal brands. They don’t belong to any single producer but rather to anyone who sources grapes from the region. Hence the great difference in style that appears as different makers first seek the AVA designation to differentiate themselves from wineries in other areas and then further to differentiate themselves from other makers within the AVA. The result is not necessarily harmonious and so the AVA concept loses value to consumers.

Essentially the problem is that the incentive to invest in the communal brand is ultimately weaker than the incentive to invest in the private brand once the AVA has been established. This makes sense since benefits from an improved communal brand must be shared while benefits from improving your own private brand are yours alone. The market significance of the AVA can quickly disappear.

The problem gets worse as AVAs increase in number, making it more and more difficult for consumers to understand what qualities are associated with each. As I say in the Wine Spectator article, each new AVA benefits a small set of producers by giving them a new brand, but the collective result (the number of AVAs is now approaching 200) is in fact to reduce the significance of AVAs generally. I think it is possible that private brands gain market power as collective AVAs proliferate. And that’s exactly the opposite of what AVAs are supposed to do.

The Ugly Side

I felt bad in raising my doubts about AVAs because I know and admire some of the winemakers in the new Lake Chelan AVA (especially Tsillan Cellars and Nefarious Cellars) and I didn’t want to rain on their parade. But I stopped feeling guilty when I discovered an article by A to Z Wineworks CEO Bill Hatcher on the Oregon Wine Press website. The continued proliferation of AVAs and sub-AVAs in Oregon, Bill says, isn’t good or even bad. It’s downright ugly!

Oregon’s wine industry is tiny compared to California and small relative to Washington State. But it is big in AVAs, as the map above indicates, with sixteen AVAs overall and six sub AVAs within the Willamette Valley region itself. Wow! Bill writes that …

Our fixation on sub-appellations at the expense of raising the profile of Oregon over the past years is coming back to haunt us. As the economy tailspins, consumers, restaurateurs and retailers are returning to familiar roots. The results are pruned wine lists, repetitive shelf facings of monolithic national brands and small wineries being culled from wholesaler books. Gone are the halcyon days when someone picked up a $50 bottle of Oregon Pinot Noir in Memphis and said, “Cool, I didn’t know they were making wine in Oregon; let’s give it a try.”

If the majority of Americans cannot point to Iraq on a world map, do we really expect them to pinpoint the Eola Hills or Chehalem Mountains, let alone deconstruct the subtleties between the two? Further underscoring that presumptiveness, a recent study commissioned by the Oregon Wine Board revealed that over half the respondents in our target market were largely unfamiliar with Oregon as a wine-producing region. The sub-appellation movement reached absurdity with the Snake River AVA, containing one Oregon vineyard and no wineries, meaning that we had, in fact, finally parsed an appellation to someone’s backyard.

Bill Hatcher is smart and bold. His A to Z Wineworks is now the largest single producer in Oregon and he thus has an unusually strong interest in seeing the Oregon brand strengthened since this would strengthen his own brand as well. He argues that a complex web of sub-AVAs provides few benefits and potentially large costs. An ugly situation, but an understandable one. It is what Mancur Olson characterized as the tension between narrow and encompassing interests. Bill Hatcher concludes

The industry has come to be driven more by politics and narrow self-interest rather than collective marketing economics or common sense, a polemic we can no longer afford (if we ever could) in these precarious times. More than a few wineries will fail in the coming months and more than a few vineyards will not be harvested. This is not the time for intellectually bankrupt parlor debates as to whose soil is redder and whose vineyard practices are greener, but rather a time to unite and underwrite the commonwealth of Oregon.

The economic crisis is likely to intensify the tension between narrow and encompassing interests and between private and communal brands. The strong are likely to get stronger in this environment, I think, and as Bill Hatcher suggests, some of the weak will fade away.

Wine Distribution Bottleneck

May 5, 2009 By Mike Veseth in Charles Shaw, Constellation Brands, Economic impact, Rabobank, Supply and Demand, Trader Joe's, Two Buck Chuck, wine distibution, wine markets, wine spectator 10 Comments

I have often argued that to really understand an industry you first need to understand where the bottlenecks are in the value chain. Bottlenecks disrupt the efficient flow of resources and so industries tend to evolve around them. I believe that this observation holds especially true for wine. Herewith a brief update on the current situation.

Do the Math

Silicon Valley Bank released their annual State of the Wine Industry Report yesterday. SVB is a major lender to US wine producers and thus has a strong interest in producing clear, relevant wine economics research. (I also admire the wine economics research produced by the Dutch agricultural lender Rabobank.)

The report provides some good news along with many worrisome observations (click on the link above to download the study) and fresh data on the biggest single bottleneck in the U.S. wine industry — distribution.

Here’s the basic math. SVB estimate that there are 6000 wineries actuve in the US market producing about 7000 wine brands. All these brands need to squeeze through the U.S. three tier distribution system bottleneck. This means they need to go from maker (first tier) to state-licensed distributor (second tier) to local retailer (third tier). That’s the law here in the United States, where we still think of wine as a controlled substance.

There are only limited opportunities for producers to skip a step. I understand that Bronco Wines, for example, can sell its Charles Shaw brand directly to Trader Joe’s in California because of a legal loophole there, but has to use an independent distributor in other states. That’s why Two Buck Chuck costs $1.99 in L.A. but $2.99 here in Washington State. That extra buck is the cost of the extra distribution layer.

The Big Squeeze

Now we get to the big squeeze. These 7000 brands get funneled through about 550 major distributors according to SVB (obviously this does not count many smaller Mom-and-Pop and specialized distributors that I am familiar with), which is about half as many as a few years back. Hopefully you can appreciate the bottleneck — 7000 brands worth $30 billion in retail sales have to squeeze through 550 distributors in 50 states on their way to 76 million wine consumers. Any blockage in the distributor tier backs up the whole industry.

And the problem gets worse because the distributors are obviously getting squeezed themselves by the economy — falling sales, trading down, shrinking margins, credit limits and counter-party risk. Expect distributors to consolidate in some cases and pull back to reduce cost and risk in others.

The net effect is clear — distributors are reducing their SKUs (stock keeping units to non-economists) and focusing a smaller number of reliably profitable products lines. This means that it is harder and harder for new and niche wineries to get on the warehouse pallet.

The Missing Middle

I’m not sure exactly how this all will shake out, but I suspect the problem will be worse in the middle market. Very small wineries can often successful self-distribute. Very large ones will probably get distribution because of the volumes they can generate. The middle falls awkwardly in between — too big to sell it all yourself, too small to be worth a major distributor’s time. The fact that the distribution system is fragmented into 50 (plus DC) pieces just makes the situation worse.

In the same way, SVB data suggest that lower priced fine wines ($35 and less on their scale — remember that a lot of SVB’s customers are in Napa Valley) are still selling pretty well and very expensive icon wines apparently are doing OK, too. The mid-range is in trouble. SVB calls $35-$50 a “gray area” and $50-$125 a “dead zone.” Ouch.

I would hate to be a new 3000-5000 case winery trying to sell wine made to be priced in the dead zone. Unfortunately, I think there may be a lot of new wineries coming on line now who planned to do just that back when economic conditions were sunnier. It will take exceptional effort (or truly exceptional wine) to make this business model work in the current economic environment. I recently talked with one middle-sized premium winemaker who has already figured this out and pulled back — lower output, lower prices — to get clear of the dead zone.

This is the “missing middle” effect that economists are familiar with in other contexts (small family operations and huge corporate businesses survive, the middle simply disappears). The distribution bottleneck isn’t necessarily the cause of the coming missing middle effect in the wine industry, but it will certainly make it worse.

Wine, Recession and Argentina

April 30, 2009 By Mike Veseth in Argentina, Australian wine, brands, Chateau Ste. Michelle, economic crisis, exchange rates, globalization, Marlborough Sauvignon Blanc, New Zealand, Supply and Demand, Washington wine, wine brands, wine markets, wine price Leave a comment

The global economic crisis has been bad news for Argentina, but good news so far for Argentinian wine. Will the wine part of the story have a happy ending or, like so many Argentinian economic booms, turn eventually to bust?

Bad News and Good

The Economist Intelligence Unit reports that Argentina’s economy has been hard hit by the economic crisis. The economic forecast is gloomy (see below) with the only good news being that inflation, while still high, is falling.

Given rapidly declining business and consumer confidence, the government’s fiscal stimulus measures will have a limited effect, and we expect the economy to contract by 3% in 2009, before only a mild recovery in 2010.

Unofficially measured inflation will ease to 10-15% in 2009, as private demand falls. The official rate will end 2009 at 6.8%, with a similar rate in 2010.

The peso will continue to depreciate in 2009 owing to weaker foreign-exchange inflows, before the pace of depreciation slows in 2010. The current-account position will weaken in 2009-10.

The Argentinian wine economy situation is sunnier. The May 2009 issue of Wine Business Monthly includes two reports that paint a bright picture of Argentinian wine trends.

The first story is a competitive analysis of Argentina wine in the United States market. It reports that U.S. imports of Argentinian wine have risen dramatically in recent years, from 2.6 million cases in 2006 to 4.3 million in 2008. The total value of Argentinian wine in the U.S. rose from $75 million to $146 million in this period.

It is important to put this increase in perspective, however. Total Argentinian imports are roughly equal to the annual output of a single US winemaker, Washington State’s Chateau Ste. Michelle. So the Argentinian presence is rising, but from a modest base.

Molto Malbec

Unsurprisingly, Malbec is Argentina’s calling card in the U.S. market. Malbec’s share of Argentinian wine imports increased from 35% to 48% over 2006-2008 measured by volume and from 44% to 55% measured by dollar value. I was interested to learn that Argentina wine sales are rising at all price points, not just in the value brand segment as you might imagine. But value is still important. Argentinian wine prices are rising, but still relatively low. The article reports that the average FOB price has increased from $29 to $33 per standard 9-liter case.

In the same issue the results of the Nielsen company wine market survey for the period ending 2/7/2009 are reported. Argentinian table wine imports were up 40% by dollar value for most recent year. This compares to a 10 percent increase for Chile, one percent for Italy and a one percent decline for Australia. Overall growth in imported wines was 2.4 percent by dollar value for the most recent year.

The 40 % annual rise is spectacular, but Argentinian wines account for just 1.4 percent of U.S. domestic wine volume compared with two percent for Chile, nine percent for Australia, almost 10 percent for Italy. This shows that Argentina either has a lot of room to grow in the U.S. market, as optimists will perceive, or a lot of work to do to escape niche player status.

American Exceptionalism

I think the Argentina producers were wise to focus on the U.S. wine market for their export surge. Although the European Union is more important to Argentina in other major export sectors, the U.S. is the target wine market, and that’s a good thing in this economic environment. EU wine consumption has long been in decline because of demographic and market shifts, for example, while wine sales have been rising in the U.S.

The recession is likely to depress wine sales growth in both the U.S. and the EU, but the impact will be less in the U.S., I believe, if only because I think the recession will be shorter here. My current thinking is that the U.S. economy will benefit from greater short term fiscal and monetary stimulus, compared with the EU, and more effective medium term structural adjustment. That said, the recession is and will be very severe.

Early U.S. evidence suggests that wine sales have actually continued to rise during in the first year of the recession, when measured by case volume, although the dollar value of those sales has declined as consumers trade down.

Opportunities and Threats

Reading the latest articles on WineSur, a noteworthy Argentinian industry website, it pretty clear that Argentina producers appreciate both the opportunities and threats inherent in the current situation. The opportunities — to establish a market presence built around good value and the rising popularity of Malbec — are significant. But I think it must be hard for Argentinians to see silver linings without looking around for associated dark clouds — their country has suffered repeatedly from the global market booms and busts.

Some of the threats are strictly economic. Argentinian producers are currently benefiting from a falling peso value relative to the US dollar, for example, which helps their wine hit market-friendly price points in the US. But the falling currency is in part a reflection of high domestic inflation rates, which ultimately lead to higher production costs. A lot will depend upon how the inflation (cost) and exchange rate (export price) factors balance out in the future.

Some of the threats relate more to the fickle nature of the wine market itself. Malbec and Argentina are nearly synonymous today, but this could change as other wine regions adopt their signature varietal. A recent visit to the Walla Walla AVA, for example, found many producers experimenting (successfully, I think) with Malbec. Argentina has the first mover advantage in Malbec and must capitalize on this because it will face more competition in the future. This happened to New Zealand (Sauvignon Blanc) and Australia (Shiraz) and I do not think Argentina will be different.

In exploiting its Malbec lead Argentina will need to strike another difficult balance, between establishing a useful “house style” that will build market identity and letting this deteriorate into a stylistic “monoculture” that soon bores consumers. It seems to me that Australian Shiraz is currently suffering from the “monoculture” curse, perhaps unfairly, while New Zealand still benefits from a popular “house style,” although I’m not sure how much longer it can ride the gooseberry wave, especially given the vast quantities of Sauvignon Blanc that need to be sold.

Argentina is at a crossroads at a critical moment and moving in the right direction. Count me cautiously optimistic regarding the future of Argentinian wine.

Update: Just hours after I posted this piece about Argentina the following item appeared on the Decanter.com website.

Argentine wine harvest down 25%

May 1, 2009 / Jimmy Langman

Due to climatic conditions, this year’s wine harvest in Argentina will be down 25% as compared to last year.

According to Argentina’s National Wine Institute, hail in some provinces, and overall higher temperatures in February and March, are factors in the lower production output this year.

The lower production this year has occurred despite Argentina having a 12% increase in land under cultivation for wine grapes.

Guillermo Garcia, president of the National Wine Institute, said: ‘If there had not been an international crisis, we would not have been able to provide wine to countries with developed markets.’

Garcia added that Argentine wine companies need to begin keeping more than three months of stock on hand to make up for such production shortfalls.

Exequiel Barros of the Mendoza-based Caucasia Wine Thinking consultancy told decanter.com that many Argentine wineries are worried about their ability to supply medium-priced wines but added: ‘We need to see how the international outlook develops this year before we can dare to make any projections.’

In Chile, wine growing areas that are not irrigated, such as Cauquenes in the Maule Valley, are predicting a similarly low harvest, with an estimated drop in production from 30 to 40% because of higher temperatures and low rainfall.

Most wineries in Chile, however, are reporting a good harvest. ‘The lack of rain has been good for this year’s harvest. But wineries in the far south, such as in the Bio Bio, may experience changes to quality because of the higher temperatures,’ said Edmundo Bordeu, professor of oenology at Chile’s Catholic University.

The Wine Economist

Category Archives: Supply and Demand