The Three Ages of Wine Cork Production: A Visit to Corticeira Amorim

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It is impossible to drive through the Alentejo region of Portugal without seeing the dark trees that dot the landscape. Pretty soon you notice the lines on the trunks where the bark has been harvested and then you know for sure that you are in a cork oak (Quercus suber) forest, the densest concentration of these trees in the world (see map above).

Cork’s Medieval Roots

Planting a cork oak tree is a statement of faith in the future. The first harvest must wait for 15 years and then the cork will be of low quality, unsuitable for natural cork closures. The second and better harvest that yields more usable cork comes 9 years later. Only 9  years after that (and every 9 years into the future) can the highest quality cork be taken. Few other things in the world of wine (producing 40-year old Tawny Port, for example) can compare to cork in terms of optimistic forward thinking.

Sue and I visited both Porto and Alentejo during our recent trip to Portugal and Antonio Amorim and Carlos de Jesus of Corticeira Amorim, the world leader in cork closures, invited us to visit their factories in these two regions to see first-hand what I am calling the Three Ages of cork.

Cork is an ancient product — the Greeks, Egyptians and Romans all sealed their wine jars with cork. The harvesting of it is laborious hand work since each tree has its own configuration. Photos of modern cork harvests could easily be mistaken for medieval paintings.Cork1

Industrial Revolution

Stepping into the Amorim factory in Coruche, you get an initial sense of moving forward in time to the industrial revolution. There is still a lot of hand work here. Sorting the processed cork bark pieces, for example, still requires human judgement as they are inspected and graded for quality one at a time. The key to making a profit in cork is to waste nothing, so each cork piece must go to its best use and the waste at each step recycled into a lower-priced product.

Almost nothing is thrown away. One item that was headed for the power-supplying waste burner was a piece of cork that was badly infected with TCA, the source of cork taint. What a horrible smell!  Until a machine can consistently detect all the potential problems with cork including TCA, cracking, insect damage and so on, these workers’ jobs are very secure.

The factory was loud with the clamber of industrial machinery as every task that could be mechanized was mechanized. It gave me a sense of what those 19th century British textile mills must have been like.

Interestingly, the finest corks closures made from the best quality raw material are hand-punched by skilled craftsmen (see photo above). These corks need to be as close to perfect as possible and so far nothing can replace the human eye for seeing just where the cork’s sweet spot is (and what parts should be recycled down the line for other products).

NDtech: Cork for the 21st Century

It would be easy to think of cork just this way — a medieval product made using industrial revolution technology — but this viewpoint misses a lot as we learned when we visited Amorim’s second factory near Porto.

Here we saw many of the same processes as in the south, but the focus was different because Carlos and Antonio wanted us to see the progress that has been made at improving cork closures and addressing the issues that allowed synthetic stoppers and screw cap technology to make dramatic inroads in this market.

Innovative new production processes and seriously obsessive attention to detail have now all but eliminated the incidence of detectable TCA contamination in Amorim corks throughout the product line, which is a big deal and came only after intense and expensive research and process innovation. But that was not good enough and so earlier this year Amorim unveiled its latest innovation, NDtech corks.

Amorim scientists guided us into the controlled environment that you see in the video above and we saw the NDtech (think non-detectible TCA levels) process at work. ndTech really does individually-inspect each and every cork that goes through the process and guarantees then all to be TCA-free at human sensory threshold levels.

Amorim is convinced that the process works and we saw persuasive data about these and other Amorim cork closures. Now the challenge is to scale up to meet the demand for these, the very best corks that can be made.

Three Ages in One Product

I find  it interesting that cork is so many things at once. It is a natural product, of course, but one that is necessarily harvested and then processed by hand and manufactured using machines and processes from a variety of periods. It is also increasingly a technological product.

Making excellent cork closures is complicated as we saw at the Amorim factories and doing so profitably is even more complicated. We were impressed with the way that every scrap and bit of cork is put to use in closures and other cork products and every ounce of value realized. Environmental and economic sustainability go hand-in-hand.

Meeting the challenge of synthetic and screw-cap closures has not been easy for cork producers, who saw a some of their market share disappear. Hard work, expensive research and technical innovation has turned this around, however, and now many consumers and wineries who moved away from cork in the past are taking a new look.

Someone once accused the economist John Maynard Keynes of expressing a view that was inconsistent with his previous statements.” When the facts change,” Keynes replied, “I change my opinion. What do you do?” The facts about cork — especially the TCA situation — have changed in the past few years. No wonder many people in the industry have revised their views on cork.

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Many thanks to Antonio Amorim and Carlos de Jesus for he opportunity to see the three ages of cork with our own eyes and learn about the scientific progress from the experts. This concludes the short series of past-present-future stories from the Alentejo. Come back next week for a look at some unexpected wine tourism opportunities we found in Portugal.

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

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.

Four Faces of Sustainability at the Unified Wine & Grape Symposium

sonomaSue and I recently returned from the Unified Wine & Grape Symposium in Sacramento and we noted several important themes in the meeting rooms, on the trade show floor and in our many conversations with wine industry colleagues. One significant recurring topic was sustainability, which was also on the lips and minds of the people we met last November at the SIMEI meeting in Milan. Here’s a brief report.

Sustainable Sonoma

The week  began with the announcement that the Sonoma County Winegrape Commission had received the Governor’s Award for Sustainability, California’s highest environmental honor. The group, which represents more than 1800 grape growers, set an ambitious goal two years ago — to have 100 percent of the county’s vineyards certified sustainable by 2019. Did I say ambitious? Make that very ambitious!

And yet they seem to be doing it, increasing the proportion of vineyards with third-party sustainable certification from one-third in 2015 to 48 percent this year. Overall 64 percent of the county’s vineyards have had a sustainability assessment and the proportion continues to grow. It is obvious that Sonoma County winegrowers appreciate the importance of sustainability and are making impressive progress.

Will they achieve 100 percent sustainability by 2019? That’s a big goal and complete compliance may be difficult to achieve. But who would have guessed that they could come so far so quickly. I would not bet against them.

Fred Franzia’s Lecture

The next day’s program featured a luncheon speech by Fred Franzia, the head of Bronco Wine Company and Mr. Two Buck Chuck to his legions of fans. Franzia doesn’t give many public speeches and this event sold out quickly. The room was packed with industry executives and winegrowers.  (You might enjoy this article about the speech from the Italian wine press — I love the headline “Un Irriverente Fred Franzia Scalda Sacramento.”)

Franzia’s speech ranged over many topics. He honored important figures in California wine, talked about his own family’s long history in wine, and made some pointed comments about current wine policies. He also announced the sale of the one-billionth bottle of Charles Shaw wine and Bronco’s acquisition of the Petri Wine name from The Wine Group and the return of that name to Bronco’s historic Escalon winery. Petri was at one time the largest winery in the U.S., dwarfing current world production leader Gallo.

Bronco is involved in a number of important sustainability initiatives (for example it recently received a Zero Waste Gold certification), but Franzia’s speech focused on a topic of particular importance to the growers in the audience: water. Franzia noted that many growers in the San Joaquin Valley have been slow to adopt drip irrigation technology to their large vineyards. He explained the benefits of this technology and called upon the group to be better stewards of scarce water resources.

Sustainable State of the Industry

Once again this year I moderated and spoke at the big “State of the Industry” session on Wednesday. Last year all three of us who spoke talked about the importance of sustainability in different aspects of the wine business and the topic appeared again this year, but in a different guise.

Nat DiBuduo of Allied Grape Growers found himself with the unhappy task of telling the audience that it looked like thousands of acres of vines would need to be grubbed up in the San Joaquin Valley. Why? A combination of ageing vines, unmarketable grape varieties, falling demand in the value wine category and higher profits in other crops, especially tree nuts. Not the news Nat wanted to give. He planted some of those vineyards himself and hates to see them go.

Does the perfect storm of changing market dynamics spell doom for winegrapes in the Central Valley? A restructuring is needed, Nat said, but the key is to move the business upmarket to higher quality. There is a growing market for higher quality wine made from better grapes and sustainability is part of that package, he advised. Environmental and economic sustainability are not enemies, they need to be partners in this key winegrowing region.

EcoVolt Waste Water Innovation

Sustainability has many faces and we found lots of them on the trade show floor. The Unified is the western hemisphere’s largest wine industry gathering, so it attracts a diverse crowd, including entrepreneurs working on projects to help wineries that are committed to sustainability to achieve their goals.

We saw a number of interesting products, but the one that especially caught my attention was the EcoVolt Sustainable Wastewater Treatment system from Cambrian Innovation. Cambrian is a biotech company that was spun out of MIT labs in 2006. The EcoVolt product uses a proprietary bio-electric process to remove more than 99 percent of contaminants from waste water (and wineries generate a lot of waste water), in the process producing methane gas, which an integrated co-generation process converts into heat and power. Microbes do the heavy lifting, cleaning the water and producing the gas, and innovative technology brings all the pieces together.

I was particularly interested in the EcoVolt Mini, which is housed in a standard 53-foot shipping container (see image below) and scaled for wineries producing 200,000 to 500,000 cases per year. Bigger units scaled to larger needs are also available. With so much water used in the cellar, the need for products like this is clear.

Four Faces and More

I like that Cambrian’s product addresses several aspects of sustainability — water, power, cost — in this innovative way. If the goal of a sustainable wine industry is going to be reached we are gong to need a lot of faces involved — of regional organizations, growers and winemakers beyond the North Coast and innovators both inside the wine sector and those bringing ideas from other areas.

For a long time it has seemed to many of us that sustainability was often more talk than action. Lots of people talked about sustainability, but real progress was sometimes hard to see. Have we turned a corner? Are we really moving ahead? We saw positive signs in Sacramento.

 

Two Faces of Wine Innovation & Sustainability: SIMEI and Amorim

Sue and I recently returned from the biennial  SIMEI trade show in Milan. SIMEI stands for Salone Internazionale Macchine per EnologIi e Imbottigiiamento, which translates as International Enological and Bottling Equipment Exhibition.

SIMEI By the Numbers

The trade show’s focus  is narrow (equipment and technology) compared to the all-things-wine Unified Wine & Grape Symposium here in the U.S, which is my point of reference for these things. But its scope is broad, including not just the wine industry since tanks, bottling equipment, etc. are used in other sectors such as olive oil and so forth. No wonder so many people found a reason to attend.

By the numbers (according to SIMEI’s press release) there were 46,000 visitors from 90 countries, 600 exhibitors from 28 countries, and 12,000 tons of equipment and products displayed. The trade show took up 4 huge halls in the vast Fieromilano Rho exhibition center. The video below gives you a sense of the scale and scene.

Technology was the star of the show and one of the highlights was a gala dinner where awards were presented for outstanding new innovations. Wines & Vines reported on the top innovations.

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Sustainability Congress: Theory vs Practice

SIMEI is organized by the Unione Italiana Vini (Italian Wine Association), whose members account for 70 percent of wine production in Italy. They organized two international congresses in conjunction with the trade show as well as a number of presentations and demonstrations that took place in the halls among the big machines.

The congress on “Sustainable Viticulture as a Tribute to Wine Quality” followed up on a similar session in SIMEI 2013. The earlier meeting worked to agree a universal definition of sustainability in the wine industry, which is either easy or difficult depending upon how you approach the question.

It is easy to agree in theory that sustainability includes economic sustainability, environmental sustainability, and social sustainability “pillars” — this is now conventional wisdom. But just what exactly is meant by each concept and how can they be evaluated in practice? Not so easy.

The 2015 meeting probed some of the issues and trade-offs between and among the three pillars. One line of discussion noted the need for sustainability to be certified according to objective criteria, which is important if the concept is to mean anything. But what and whose criteria should be used?

I think there was a consensus in the room that a common or universal set of standards was needed (“harmonization” is a term often used here). Although I am probably wrong about this as I am about many things, I spoke in opposition to the single-minded pursuit of universal standards.

I see each country or region starting from a different base and often facing different economic, environmental, and social issues and constraints. I argued that at this moment it is more important that each region make the most progress it can towards sustainability. I cited programs in South Africa and New Zealand as good examples.milano

I worry that putting the main emphasis on having universal standards will  result either in diluted “least common denominator” rules or will squeeze stakeholders out of the sustainability movement altogether, limiting its reach and effectiveness, because the common rules do  not address their particular situations and concerns.

One size does not necessarily fit all, even if there is some wiggle room built in. It took only a moment for an EU representative to rise and explain to the audience why I was wrong, but I will stick to my viewpoint.

I admit that my views are based on an American way of looking at things (I love the grand Federalist laboratory that is the United States), but I don’t think this is exclusively an American attitude. I do not see universal wine sustainability rules happening soon within the US much less on a global scale.

Amorim’s Sustainability Initiative

If turning theory into practice was not easily accomplished in the congress center, there was plenty of evidence of strong efforts out in the trade show. Sustainability isn’t just ethics or philosophy, it is also good business and many of the exhibitors have embraced this concept.

An example is Amorim, the innovative Portuguese producer of corks for the global wine industry and many other cork products. We stopped by the Amorim exhibit and talked with Carlos de Jesus, marketing director of Amorim, and Carlos Santos, the head of Amorim Cork Italia. They were both excited to tell us about Amorim’s cork recycling programs, which tick all three sustainability boxes.

Cork is a natural product so it would seem that recycling it in a sustainable way would be easy, but it is not. You cannot, for example, simply re-use a wine cork on another bottle of wine — health and safety laws as well as common sense rule that out.

So the challenge is to collect the used corks and then repurpose them in some way that adds value to society without bankrupting all involved. The Amorim approach (which is implemented in different specific ways in each country where it has been rolled out) partners with local non-profit groups to collect the corks, keeping them out of the landfill.

Amorim pays these groups for the corks (thus supporting their social programs) and then grinds up the cork and partners with various producers to make useful products. In the U.S. you might have seen shoes with soles made from recycled cork, for example.

In Italy the cork is used to make the sort of building insulation panels that would otherwise by made out of foam. Cork is an excellent insulator and the price is competitive with the conventional product.

The Amorim program promotes social and environmental goals. What about economics? Well, I was told, this isn’t designed to be a profit center for Amorim. The idea is not to make a lot of middleman money reselling the corks that the non-profits have collected, but rather to facilitate the recycling system itself.

Many Small Steps Can Add Up

But that doesn’t mean that it isn’t good for business, Carlos de Jesus stressed. Amorim mainly markets to its direct buyers — the wineries — and doesn’t have as much interaction as they would like with the people who ultimately open the bottles. Programs like this give Amorim an opportunity to tell cork’s sustainability story directly to consumers and to establish a very positive image of cork with them. And since producers want their products to appeal to consumers, if consumers have a reason to choose cork  … well you can see where this can lead.

Amorin’s program is important even if it is a small step toward the goal of sustainability. If each sector of the industry can search out an appropriate strategy (and each region of the wine world do the same), then all these small steps can potentially add up to the more sustainable future that is the goal.

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Wine Sustainability: Trade-off, Trilemma or Synergy? It’s Complicated!

milanSue and I are in Milan this week at the International Congress on Sustainability during the 26th edition of SIMEI – International Enological and Bottling Equipment Exhibition.  This event is sponsored by the Unione Italiana Vini, an association of Italian wine producers whose 500 members account for 70% of the nation’s wine.

I will be leading a discussion of the economic elements of sustainability in wine on Tuesday and then taking part in a panel that looks at the role of sensory analysis in sustainability on Wednesday.

One of the themes of the conference is that sustainability is not simply an ethical matter but also a key to wine quality and wine market success. I am looking forward to meeting the international group of speakers and participants.

I was asked to prepare a quick “ice breaker” presentation to jump-start the discussion of the economic aspects of sustainability in wine and I thought I would share its outline with you here. I begin with the conventional wisdom of the “triple bottom line” analysis: sustainability must take into account the natural, social and business environments. The question is how are these three related. The answer is “it’s complicated.”

Some people see these simply as discrete goals and focus on trade-offs. Others see sustainability as a trilemma — pick two and the third is eliminated. I can understand this logic, but I think it is possible to design for sustainability and I will try to direct the discussion towards strategies for synergy and success.

I plan to get the ball rolling by talking about the case of Durbanville Hills winery in South Africa, a success story in terms of both wine quality and sustainability. Durbanville Hills isn’t sustainable by accident but rather results from the combination of effective leadership, a progressive organizational design and strong institutional commitment by all stakeholders. Inspiring! I hope the participants will contribute other success stories that will collectively point the way forward.

The key, of course, is to bridge the gap between theory and practice. and to identify the key pressure points. Sustainability is important in wine both for the success of the industry and as a beacon to other sectors. Wine, with its strong social and cultural connections and its deep agricultural roots, presents a clear example of how complex thinking about sustainability pays off.

Ciao a tutti — hope to see you in Milan!

Wine Sustainability & Sensory Analysis Congresses at SIMEI 2015

milan1I am pleased to report that I will be speaking at two international wine congresses in Milan, Italy next month.

I’ll be speaking at  the International Congress on Sustainability “SUSTAINABILITY AS A TRIBUTE TO WINE QUALITY” on 3rd November 2015  and “DISCOVER THE SENSORY FACTORS” on 4th November 2015 during the 26th edition of SIMEI – International Enological and Bottling Equipment Exhibition in Milan, Italy. This event is sponsored by the Unione Italiana Vini, an association of Italian wine producers whose 500 members account for 70% of the nation’s wine.

The congresses feature innovative and interactive programs and an impressive group of speakers and participants. I am very pleased to take part! Here is a description taken from the conference website.

“For the 2015 edition of SIMEI – International Enological and Bottling Equipment Exhibition – the WORLD LEADER in wine technology and the only international biennial exhibition which presents at the same time machinery, equipment and products for production, bottling and packaging  of all drinks, Unione Italiana Vini has confirmed its commitment in the organization of global hot topics congresses.”

milan2“The Congress will develop two different but strictly connected topics and will involve the most authoritative international experts of the scientific community. Prominent personalities have already been invited to participate in two complementary Steering Committees, chaired by two recognized international icons, the likes of Ettore Capri (Opera Research Centre- Università Cattolica del Sacro Cuore) and Anita Oberholster (Enology Department of Viticulture and Enology- UC Davis).
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“Stakeholders from the wine chain will fully be involved: farmers, service providers, operators of sustainability programs, retailers and the trade in general, consumers will be called to participate in an event that will exploit modern techniques of interactive participation.”
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“That is the natural sequel of the International Congress that was held during Simei 2013 (SUSTAINABLE VITICULTURE AND WINE PRODUCTION: STEPS AHEAD TOWARD A GLOBAL AND LOCAL cross-fertilization).”
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Here are two videos that explain the international congresses and another that shows what SIMEI is all about.
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Wine Uncorked: The Rise of Big [Really Big] Box Wine

This is the fourth in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week’s topic is how wine is becoming increasing “uncorked” and what this implies.

If you take the “uncorked” metaphor and add it to the “box wine” reference in the title, you might reasonably assume that I’m going to talk about alternative wine packaging — boxes, bags, 1-liter tetrapak containers and so on. That would sure make sense.

But you’re wrong. The box I’m talking about is big [really big] as in 20 foot ocean shipping containers holding maybe 25,000 liters of bulk wine in a “flexitank” bag.

Welcome to the New World of international wine trade — the ultimate ‘uncorked’ experience!

The Incredible Bulk

I’ve known about Big Box wine for a while — my 2009 post on “Wine’s Future: It’s in the Bag [in the Box]” is one of the most-read articles in Wine Economist history. But I didn’t realize how big the big box wine trade had become until I received a Rabobank  report titled “The Incredible Bulk: The Rise in Global Bulk Wine Trade” earlier this year.

Rabobank’s report focuses on New World wine trade since 2001 and the change in the composition of wine shipments (in terms of bottled versus bulk) is dramatic. Bulk wine (the big box stuff) accounted for about 22% of New World wine exports in 2001 (the remaining 78% was shipped in bottle). By 2010 the bulk share increased to over 40% while the bottle share fell to less than 60%. That’s a near doubling of the bulk wine share of New World wine trade in less than a decade, an amazing shift that is all but invisible to consumers.

Big Green Wine

What drives the shift from bottle to bulk in New World wine trade? The short answer is Big Green, but green in two ways. Green, first, in the environmental sense. Bottled wine is both heavier and bulkier than bulk wine (glass accounts for more than 40% of a standard bottle’s total filled  weight). All else being equal (a big assumption in wine economics) shipping wine in bulk and bottling closer to the final consumer should lower the wine’s carbon footprint.

Tesco, the world’s largest wine retailer,  is reported to be particularly aggressive on this front with bulk wine imports being bottled in screw cap-topped lightweight glass for its high volume private label brands. (Click here to read about their very green “furnace glass” wine bottles!)

Cost is another green (as in greenback) factor and there are savings here as well. Rabobank estimates that bulk shipping yields an average cost savings of $2.25 per standard 9-liter case (they estimate total annual savings of $142,300,000 in 2010 compared with the 2001 level of bulk shipments).  This is a very substantial saving for commodity wines of the type that often appear in private label brand portfolios.

The movement towards increased bulk wine exports started in the Age of Abundance, when surplus wine flooded the markets and it was important to move it as cheaply and efficiently as possible. Those days are now in the past; rising costs and tight margins are likely to make that $2.25 per case saving even more attractive to producers now, especially as they scour the world for supplies of wine (did someone say “Moscato?”) to supplement scarce domestic juice.

Subtracting Value Added

For vertically integrated international wine producers, the decision to ship in bulk and bottle in the domestic market is mainly about these cost savings.  They pay less to ship the wine and pay lower import excise, too, since the wine enters the country at the lower bulk value rather than a higher bottled value.

But more is at stake, as the Rabobank report notes, for wine makers who sell to third party importers. In this case bulk shipping results in a new division of value added in the supply chain, with less in the producing country and more further down the line. The impact is thus complicated: bulk wine shipment subtracts some value added in the producing country, although the lower overall cost encourages exports.

There are also relative price effects to consider. Bulk shipping increases the relative price of traditional bottled wine imports relative to bulk products, a difference that may be magnified as wholesale costs differentials are passed along through the supply chain.

Economic Impact: The Box

The standard 20-foot shipping container (a.k.a. “The Box”) revolutionized international trade when it became widely adopted. It changed everything (OK, maybe not everything) because it was so much more secure and efficient than the previuosly standard “break bulk” shipping system. One of the things it changed was the scale of international transactions because the greatest economies were realized by those who could reliably fill ocean containers.

I don’t think the rise of “uncorked” big box bulk wine shipments is going to change everything in the same way the ocean container did, but I do think the effects will be significant. I’ll talk about this more in my next post where I consider how the world of tight, fat and uncoked wine is likely to unfold.