Rioja to Walla Walla: Celebrating Tempranillo Day

November 8, 2022 By Mike Veseth in wine, wine history, wine markets 1 Comment

There are a lot of holidays that are centered around wine. The one that we most often celebrate here at Wine Economist world headquarters is Open That Bottle Night — the excuse to open special bottles for no particular reason other than to enjoy them. It comes around every year on the last Saturday in February, although you really don’t need to wait if you don’t want to.

This year we are adding Tempranillo Day to our holiday list. It’s coming right up — Thursday, November 10, 2022 — so get your corkscrews out and ready to go!

Tempranillo World on the Rise

Tempranillo is most closely associate with Spain and its famouos Rioja wines, of course, but it has become a global phenomenon according to the 2022 edition of Which Winegrape Varieties are Grown Where? by Kym Anderson and Signe Nelgen. Tempranillo was the grape variety with largest expanded plantings during the 2000 to 2016 period of their study (see table above taken from the Anderson-Nelgen report).

The new Tempranillo plantings are concentrated in Spain, where it has become even more important than in previous years as winegrowers have upgraded their vineyards, but also Portugal and Argentina. Australia, the United States, Chile, and even France have seen significant new plantings of this popular grape variety.

Tempranillo #1 — ahead of Cabernet, Syrah, and Sauvignon Blanc in the new-planting league table. Incredible. But maybe it really shouldn’t be a surprise. Tempranillo is a very versatile wine grape that can take on a number of guises depending upon where it is grown and how the wine is made.

New World Tempranillo

Tempranillo has a history in California, according to the standard reference, Wine Grapes. It was planted in the Central Valley alongside (and sometimes inter-mingled with) heat loving Zinfandel. Artesa Winery (owned by Spain’s famous Raventós Codorníu family) has recently planted Tempranillo vines in its higher-elevation estate vineyard. Sue and I are looking forward to tasting this wine when it is released.

Tempranillo gets a lot of attention here in the Pacific Northwest. Walla Walla’s cult winemaker Cayuse Vineyards has made a Tempranillo called Impulsivo since 2002 and it gets consistently rave reviews. Critic Jeb Dunnock says of the 2019 vintage that “You’re not going to find a better Tempranillo in the US, and it will stand toe to toe with the best out there,” by which I think he invites comparison with the best of Spain. That’s quite a challenge.

The Cayuse team also makes a remarkably delicious and well-balanced Tempranillo for their No Girls label, which Sue declared to be even better than the Impulsivo at this stage of development when we tasted them both. The Impulsivo was very good, she said, but the No Girls was great — very memorable.

There are several others you will find in the Walla Walla, many making good use of grapes from The Rocks District of Milton-Freewater. One that we found particularly interesting on our last visit was The Walls winery’s Wonderful Nightmare.

Oregon’s Other Signature Grape?

If you are telling the story of premium Tempranillo in America, a good place to start is about 40 years ago when Earl Jones began his quest to make quality Tempranillo on U.S. soil. He considered Washington and Idaho but was discouraged by the (very real) possibility of vine-killing freezing temperatures. Jones’s path ended in an unexpected place: south-west Oregon’s Umpqua Valley and his Abacela Winery.

Abacela’s success with Spanish wine grape varieties clearly demonstrates the folly of the idea that a state or region must be defined by a particular signature grape. Oregon may be Pinot Noir to many wine enthusiasts, but that’s far from the whole story. Taste the Abacela wines and you will know what I mean.

And then there is Idaho Tempranillo. If you visit Boise, Idaho you will probably be directed to the Basque Block, a downtown area that honors the state’s active Basque community (food tip: Bar Gernika for the Solomo sandwich). Maybe that Iberian connection is one reason Tempranillo was planted some years ago in the Skyline vineyard and several wineries make a Tempranillo wine today. Look for award-winning Cinder Tempranillo and for Fujishin Family Cellars Tempranillo, too, both from the Snake River Valley AVA.

The Tempranillo boom extends to Texas, according to Wine Grapes, and also includes regions Canada, Mexico, New Zealand, Switzerland, Turkey, and Malta. Winegrowers and wine-drinkers around the world can’t seem to resist it. Tempranillo is one of global wine’s success stories, so it is worth pulling a cork on Thursday and celebrating Tempranillo Day!

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Thanks to the crew at Bionic Wines for samples of the Cayuse and No Girls Tempranillo wines. Special thanks to Jim Thomssen for information about Tempranillo in Idaho.

Susumaniello & Beyond: Charting the Outstanding D’Addario Puglian Wines

November 1, 2022 By Mike Veseth in Italian wine, wine, wine markets 3 Comments

It was the Susumaniello that first got my attention.

Our friend John Marino asked if we’d be interested in tasting the wines of Aziende Agricole D’Addario. D’Addario produces a range of wines in Puglia, which is a region we want to get to know better. Southern Italy is having a moment as consumers, having “discovered” Sicily and its wines start to probe other regions. That, and the reputation of the winery, were enough to get my attention.

Susumaniello: Old is New

But, as I examined the winery’s listings, it was the Accanto Susumaniello IGT Puglia that made me stop in my tracks. Susumaniello isn’t a wine or wine grape variety that you see very often. An old grape variety, according to Wine Grapes, my standard reference of such things, what little there is of it is planted around Brindisi. Susumaniello is mainly used as a blending grape and 100% Susumaniello wines are pretty rare. I had to try it!

But before we tasted the Susumaniello we had to get some context in terms of what Puglia has to offer, so we made a summer project of cooking meals with fresh garden ingredients to pair with D’Addario’s Casale Ciliani lineup of IGT Puglia and IGP Salento wines, which are priced in the current market “sweet spot” of about $16 (for an IGT Puglia Fiano) to about $22 (for an IGP Salento Primitivo).

Pretty in Puglia Pink

The first wine we tried, a Negroamaro Rosé, really opened our eyes. We make an effort to sample lots of different Rosé wines in the summer months and this was one of the best — maybe the very best — of 2022. A lovely, flavorful wine! Fresh, balanced, and a terrific value, too.

We enjoyed the red wines with variations on spaghetti alla Norma (this was a good year from tomatoes and eggplant in our garden). We found the Negroamaro, Malvasia, and Primitivo wines flavorful and well-balanced, with nice acidity to cut through the richness of the pasta.

Then it was time to move up to the D’Addario premium wine lineup and to finally taste the Susumaniello. And we were not disappointed. It was different, distinct, interesting and delicious. Worth waiting for, to be sure.

But, it turns out that the Susumaniello wasn’t our final destination. This wine opened the door for us to the range of D’Addario wines at the next level, priced from about $27 to $40 dollars. And, although we are still working our way through this part of the line-up, I have to say we are impressed.

A Stunning Primitivo

The Vignalesta Primitivo di Manduria DOC, for example, was just stunning, with a finish that went on forever. What amazing wines these are, waiting to be discovered by wine enthusiasts who look beyond Italy’s “usual suspect” regions.

I asked winemaker Leonetta D’Addario to tell me the winery’s story. Well, she wrote, it began more than 100 years ago with her great-grandfather.

” At that time my family was involved in three main activities: the production of artisanal pottery from the famous Grottaglie area, trade, and agriculture. We owned fruit trees lands and we were mainly producing bulk wine. When my grandfather became a young man, in the early 1960s, also due to what it is known as the “Italian economic miracle”, he soon became one of the most important car dealers in Italy, while the other part of the family was still managing the land and producing wine.”

Focus on Old Vines

Choosing her own path, Leonetta was drawn to the land more than the auto business. Realizing that the family’s old-vine vineyards were a special resource, the family established the D’Addario winery in 2010. “I graduated at the Università degli Studi di Milano in Viticulture and Enology in 2016, writing a thesis in which I analyzed differences between 8 years old vines and 60 years old vines of Primitivo,” she writes.

Leonetta worked at Epoch Estate Wines in Paso Robles before returning home to Puglia to apply what she had learned to the family estate. “We do have in our staff one of the best winemakers of Italy, Teodosio d’Apolito, she writes. “Since 2015 he has followed the Aziende Agricole D’Addario with our agronomists in the production of our wines.”

The result of this multi-generational journey are the wines that Sue and I have been enjoying. Come for the Susumaniello. Stay for the complete lineup of distinctive, quality wines that over-deliver in every case. And don’t miss that awesome Negroamaro Rosé if you see it!

Storm Clouds Ahead for Global Wine Trade

October 18, 2022 By Mike Veseth in economic crisis, wine, wine markets 3 Comments

Storm clouds are on the horizon for the global wine trade and I am worried because I can’t really say how things are going to develop in the short and medium terms.

The problem is that the disruptions are both broad and deep. They are widespread throughout the commodity chain and impact both the supply- and demand-sides of the market. It’s a lot to take in. Herewith a brief sketch of the situation as I see it today.

Storms on the Supply Side

Some of the storms on the supply side are literally storms — wind, hail, freezing temperatures in the main winegrowing regions of Europe plus drought and wildfire smoke taint elsewhere, especially California.

The increasing extreme weather impacts are unlikely to diminish and inject elements of risk and uncertainty into the supply side of the market. Some of this risk is inherent to agriculture, of course, but it seems like the factors that punctuate equilibrium are both larger and more frequent. Increasingly hard to predict what’s coming over the horizon.

Storms on the Demand Side

From a global perspective, as I explain in my recent book Wine Wars II, a small number of countries and regions (France, Italy, Spain, California) shape supply conditions and an equally small number (USA, UK, Germany, China) are key forces on the demand side.

Each of these countries if facing its own economic crisis and taken together they suggest major impacts on both global wine imports and, according to a recent IMF report, the prospects for a global recession. JPMorgan CEO Jamie Dimon is predicting a US recession within six to nine months.

The storm clouds are somewhat different in each country but the fact that they have come together at the same time raises concerns. Inflation is both high and persistent in the US, for example, causing the Federal Reserve to double down on interest rate increases. The hope is a “soft landing” that would slow the economy enough to reduce wage growth without actually increasing joblessness and tipping the economy into recession.

This is a tough target, especially because monetary policies are subject to what are called “variable lags.” You roughly understand what will happen, but not when. Imagine driving a car with variable lags on the brakes, accelerator, and steering! In theory you might be fine but in practice you will probably end up in the ditch.

The recent declines in equity prices and widespread cooling of the housing market is another concern. A recent Rabobank report suggests that sales of super-premium wines, which seem to persist even when income takes a hit, are not immune to changes in net worth.

So it is entirely possible, following Dimon’s lead, that the US will spend 2023 with both falling income and rising prices. Some wine market niches might be little affected by this combination, but the broad market will certainly suffer.

German and UK Problems

Germany is known for its bulk wine imports, and these are likely to be squeezed by rising energy prices and falling output in its energy-dependent manufacturing sector.

What will German consumers choose: shivering in the cold while they drink their usual ration of wine? Or staying warmer but cutting back on price or quantity? I will leave the answer to you.

The UK market, which is in some ways the wine trade’s most important, will suffer higher energy bills this year and next, too. But its problems go deeper. Already more economically fragile than the other countries discussed here, it must now confront the fact that its new government seems to be both economically reckless and politically tone-deaf (an unusual combination — it is usually one or the other). So the Bank of England has had to raise interest rates even faster than expected and invoke emergency measures to prevent fire-sale losses among pension funds.

To invoke the car example once again, the UK’s drivers are stomping down on both the brake and accelerator pedals at the same time. Not a very safe situation according to most driving instructors. Jeremy Hunt, the newly appointed chancellor, signaled a big U-turn in economic policy yesterday, but much damage has already been done and fundamental problems remain. Watch for more shoes to drop.

Although there was some good wine business news in the original “mini-budget (scheduled duty increases had been postponed), the alcohol tax increases have been restored and the outlook for the wine trade is grim. Will UK consumers spend their inflation-reduced purchasing power on the higher mortgage bills that are coming soon due to rising interest rates … or will they buy wine? Once again, the answer’s up to you.

China’s Economic Bicycle

A few years ago we would have looked to China for a ray of sunlight in the global storm, both in terms of the wine trade and more generally. But not today. The Chinese economy is fragile right now, with many risks to consider, especially in the possibility that the property bubble might burst or deflate.

I have argued that the Bicycle Theory of Economic Growth applies to China. A bicycle is only really stable as long as it keeps moving forward. Once it stopes, staying upright is a real balancing act. I think China is much the same — it has to move ahead rapidly to keep its inherent contradictions from tipping it over. The property market crisis is a clear example of this. As growth has slowed, consumers are now refusing to pay their mortgage bills for housing still under construction.

Five years ago, China would have been the engine we counted upon to pull the global wine trade and, indeed, the global economy, out of its storm. Now its weakness on both fronts (covid lockdowns prevent a return to normal wine market conditions, for example) stand in the way of recover.

What Next?

What next? That’s the question on the cover of last week’s Economist newspaper. The Economist speculates that we are entering a new era of global economic policy. Hard to know where that path will lead.

What’s next for the global wine trade? The combination of demand- and supply-side storms I have outlined here make it hard to know. What next? Too soon to tell, I think. Stay tuned.

The Judgment of Paris and Napa Valley’s Road Not Taken

September 13, 2022 By Mike Veseth in wine, wine history, wine markets 4 Comments

A journalist recently asked me to comment on the impact of the famous 1976 “Judgment of Paris” tasting of California and French wines. The California wines were very competitive, according to the scores given by the panel of French judges, and wines from the Napa Valley actually topped both the Cabernet and Chardonnay lists. Amazing.

Time magazine reporter George M. Taber was the only journalist in attendance and his exclusive story about the unexpected American victory was a shot heard round the world. His 2005 book, Judgment of Paris is worth reading and even re-reading today.

What if … ?

Would Napa Valley have grown and developed if the Judgment of Paris had not taken place? Well, yes, I answered, there was already a good deal of momentum stimulated by, among other things, the successful opening in 1966 of the Robert Mondavi Winery, the first major new winery in the valley since Prohibition.

In fact, local residents were already concerned about the masses of wine tourists clogging local roads and highways and over-whelming winery facilities back in 1972 when a KPIX Eyewitness News reporter paid a visit to see what was happening. Click here or on the image below to watch the vintage video report.

And there was already international attention, too. Domaine Chandon, the Yountville outpost of the famous French Champagne house Môet Chandon, opened in 1973, three years before the famous Paris tasting.

On the Road Again

So the Napa Valley was already on the road to big things even before the Paris tasting. But just about everyone agrees that the international recognition changed things.

It changed things for Napa and for California, but the impact didn’t stop there. Towards the end of his book, George Taber takes a bit of a global tour, showing us how the world of wine broadened as the result of a number of forces including, of course, the new perspective on New World wine that the 1976 tasting provoked.

Second Thoughts?

Revisiting the Napa Valley years after the Paris tasting, to gather insights for his 2005 book, Taber could see the result of the intense focus that his astute reporting helped create. There was growth, for sure, and lots of new investment, both domestic and by a long list of international wine luminaries including, of course, the Rothschilds who partnered with Robert Mondavi in 1978, just two years after the Judgment, to build Opus One.

Taber was concerned about how the boom was unfolding. Enormous wealth, vanity vineyards, trophy wines. “The Napa Valley unfortunately became another proof of the maxim that nothing succeeds like excess.” And a good indicator of excess, he proposed, was the price of vineyard land. Warren Winiarski paid about $2000 per acre in 1970 for the first Stag’s Leap vineyard, Taber reported. In 1999 the owner of Far Niente winery paid $100,000 an acre for a 42-acres vineyard, which seemed like a lot. Francis Ford Coppola raised the stakes just a few years later, paying $300,000 an acre, a jaw-dropping price at the time.

Now, of course, $300,000 an acre for Napa Valley vineyards is not noteworthy or exceptional. $300,000 to $500,000 per vineyard acre (adjusting for the value of any production or housing assets) seems to be the norm, with some particular parcels going for even more. The excess that Taber saw 20 years ago has not diminished.

Money, Taste, and Wine

Naturally this is reflected in the wine. Not all of it, of course, but it is easy to see a pattern. The focus in Napa is increasingly on its signature grape variety, Cabernet Sauvignon. I am sure this is about taste — the best Napa Cabs I’ve tried are really good — but it is also about money, I think.

Cabernet is the grape of Bordeaux, too, and some people are happy to pay much more for Cabernet than they would for Zinfandel, which was once widely grown in the valley but now not-so-much. Sky-high land prices require high grape prices which mean high bottle prices for the wine. King Cabernet is the surest bet, many believe, and so it increasingly carpets the valley floor.

Many of the wines are really distinctive — Sue and I have tasted some real stunners! — but some of them taste the same to my amateur palate. I call them Napa Valley Red Wine. Maybe this is true of all wine regions, even the great ones? In Napa they often sell for more than $100 a bottle and seem to satisfy the thirst of buyers looking for the taste of Napa.

They Think I’m Bragging

I am not the only one who is concerned about how the wines of Napa Valley have changed and how the flood of tourist dollars and investor wealth has led to excess. But whenever I bemoan certain aspects of the Napa wine industry environment to international audiences, they think that I am just bragging. All those tourists and fancy restaurants! All the celebrities and trophy wines! Such economic success and pure opulence!

Napa Valley is a dream to international wine visitors, and for foreign winery owners who long for their own Napa moment, their own Judgment of Paris. Who can blame them?

But what if the Judgment never happened? If you know the story, you can appreciate that it could easily not have taken place (of the results could have turned out differently). Napa Valley would still have grown the thrived, I think, but it would be different today. What might it look like? Come back next week to see what might have been … and is.

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Thanks to Tony Correia for his help nailing down vineyard valuations. Thanks to Silicon Valley Bank’s Rob McMillan for his help locating the KPIX video, which was originally featured in a very memorable post on Rob’s blog.

Anatomy of the Provence Pink Wine Tide

August 16, 2022 By Mike Veseth in wine, wine exports, wine markets 3 Comments

I don’t have to buy rosé. That’s not how I’ll earn enough to buy a little stone house overlooking the Mediterranean. Nor do I have to put up with the incredulous expressions on my clients’ faces when in the shop I recommend a rosé. “What do you take me for, a hick?” their expression demands. Or “Try that one on the next sucker, mister.” Or, “Let’s move on to something more serious.”

In the course of my buying trips I run across excellent wines with a rosé color. I don’t look for them. They appear. What can Ido?

So wrote wine importer extraordinaire Kermit Lynch nearly 40 years ago (quoted in the August 2022 issue of the famously readable Kermit Lynch newsletter). Pink wine is the People’s Choice in many markets but struggles for legitimacy among some wine drinkers.

I have read that Rosé outsells white wine in French supermarkets, for example, and American wine drinkers of a certain age will remember when the best-selling imported wines were Rosés from Portugal — Mateus and Lancers.

Rosé is once again getting a lot of attention. The Rosé tide has risen relatively speaking (the wine market has been pretty chaotic in the last few years), especially after 2021’s logistics struggles delayed some imports until the very end of the summer season or even later. Ugh.

The wines are even getting the critical attention they deserve. First Elizabeth Gabay MW published her 2018 book Rosé: The Pink Wine Revolution and now she and Ben Bernheim have released Rosés of Southern France. Taken together these two books provide anyone who wants to explore the Pink Wine World with a clear and critical roadmap.

50 Shades of Pink?

Gabay and Bernheim’s focus on Southern France in the new book is appropriate. Although Sue and I have enjoyed Pink wines from all around the world, France is the obvious reference point. France is the largest producers of Rosé wines in the world and the largest consumer of them, too, although they tend to export upscale Rosés into the global markets and import less expensive Spanish wines for ready drinking.

Southern France is general and Provence in particular is at the center of the action. Provence and its pale pink wines define the Rosé category for many consumers, although I agree with Gabay that focusing on a pale shade of pink is a waste of time. I think I remember that Tavel Rosés were popular when I first started paying attention to wine and they still have much to recommend. I like, therefore, the playful design of Gabay and Bernheim’s new book, which emphasizes the appeal of a range of hues.

The U.S. is the largest export market for Provence Rosé, accounting for more than a third of export sales. Recent NielsenIQ data reported in Wine Business Monthly places the average Rosé bottle price at $11.39, which is higher than Cabernet Sauvignon, for example, and much higher than the market average of $8.48.

American consumers might once have confused Rosé with “blush” wines like White Zinfandel (average bottle price $4.40), but that’s no longer true. Just look at the pink wall at your local wine shop or upscale supermarket and you will see what I mean.

Three Faces of Rosé

Sue and I were encouraged to probe deeper into the world of Provence Rosé when we received three editorial sample wines from Vins de Provence. The wines were sourced from the region’s three main appellations. Château L’Escarelle Rosé (in the Bordeaux-style bottle on the left) is from the AOP Côteaux Varois en Provence. The Ultimate Provence (UP) in the distinctive bottle, center, is Rosé AOP Côtes de Provence. And the attractive wine in the Burgundy-style bottle on the right is Famille Ravoire Costeval Rosé AOP Coteaux d’Aix-en-Provence.

These are premium products. Based on internet sources the price points appear to range from mid-teens for the Famille Ravoire Costeval to the high twenties for the Château L’Escarelle. It is not really fair to make a single wine represent an entire appellation, but Sue and I were game. Were the wines good representatives of Provence? Were they distinctive?

We paired the Ultimate Provence Rosé AOP Côtes de Provence with sausages and grilled vegetables from our garden. The Famille Ravoire Costeval Rosé AOP Coteaux d’Aix-en-Provence was paired with a Niçoise salad (grilled garden vegetables again) and the Château L’Escarelle Rosé AOP Côteaux Varois en Provence was terrific paired with a salad of fresh Dungeness crab and ripe garden tomatoes. Very different wine-food combinations.

Three Faces of Provence

We enjoyed all three wines — they represented Provence very well. They were very different from each other, however, as you would expect, so Provence isn’t a simple thing. The terroirs were different, of course, but so were the wine grape blends. Grenache led the list of grapes for one wine, and combinations of Syrah, Cinsault, and Grenache in the others. The Ultimate Provence, which was probably our favorite wine for its fruit and bright acidity, even included a bit of Rolle (aka Vermentino)!

Bottom line. Wine is pretty in pink. There is much to like if you just want to sit back and enjoy, but also a lot to learn if you take the exploration of regions, grape varieties, styles, etc. seriously. No wonder the Provence Pink tide is rising.

Wine and the No-Recession Recession

August 9, 2022 By Mike Veseth in economic crisis, Economic impact, wine, wine markets 2 Comments

Are we headed for a recession here in the United States? Or are we already there? What about the future — the second half of 2022 and 2023?

If you follow economic news reports you have encountered all sorts of answers to these questions. And you can be forgiven for being a little confused and maybe quite a lot frustrated that the answers to these important questions are not clearer. Herewith a brief guide for the perplexed with implications for the wine sector.

The Recession Question

The “rule-of-thumb” definition of a recession is when there are two consecutive quarters of falling gross domestic product (GDP). The U.S. economy is in a recession now by this definition because GDP fell in both the first and second quarters of 2022 (second quarter data subject to revision). By this measure, many of the world’s most important economies are either in recession, too, or teetering on the brink.

The two-quarter rule is very useful, but it is not the final world. The National Bureau on Economic Research (NBER) more formally defines a recession in a way that stresses depth, diffusion, and duration: a recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months.

The NBER’s more nuanced definition is better than the two-quarter rule, but it has some downsides. How significant is significant, for example? And how widely spread need the decline be? There is also the problem, unavoidable with lagged economic indicators, that a recession can only be declared well after it has started and will probably be over before the conclusion is called.

So we might be in a recession now — one that started months ago in fact — or we might not. We will only know for sure later on — perhaps when the recession (if there is one) is already over. Argggh!

Up, Down, Twist

If you follow business and finance news you will find evidence to back up any hypothesis you may have about a recession. Prices in some sectors are rising quickly (have you bought a airline ticket recently?) and plunging steeply in other areas.

There are plenty of stories of firms with squeezed profits, declining sales, and employee lay-offs. But there are also stories about rising sales and profits and, of course, the labor market puzzle, where the number of unfilled positions is about twice the number of people who say they are looking for work (but apparently cannot find it).

Last week’s job report was unexpectedly strong — the unemployment rate is only 3.5% and total employment is back to the pre-pandemic level — suggesting that the U.S. is not currently in recession, despite what the GDP figures say. Ironically, some analysts speculate that this good jobs news actually increases the odds of bad news in the near future. The reasoning is that the Federal Reserve will be forced to raise interest rates even higher now in order to slow control demand-driven inflationary pressures.

What’s the story? Is the economy up or down? The correct answer (which applies to wine, too) is … yes. If you are looking for a generalized answer to the recession question you won’t find it. Maybe it is best to say that the economy is twisting. The devil is in the details here and the answer you get depends upon where you look and how.

The Price is Right?

There are several reasons for this complicated picture. One of them is that the economy — like the wine market — is never all one way or another. Like the climate, it is always running hotter in some areas and colder elsewhere.

But another, particular to this moment, is the fact of rapid inflation because an inflationary economy works by different rules. In an economic system with stable prices, consumers cut back purchases when employment falls or when there is fear of unemployment. In an inflationary economy, the pressure to cut back spending affects a much broader set of consumers who find their budget squeezed by rising prices of necessities. Higher energy and housing prices (although moderating somewhat in recent weeks) have put the squeeze on millions of households regardless of job market status.

And so that’s what we are seeing now. So maybe the recession question isn’t the right one to be asking.

The Squeeze: A Tale of Two Worlds?

The conventional wisdom is that wine is recession-proof. Maybe. But an inflationary squeeze and the twist it creates is different and I don’t see how wine sales can escape unscathed.

Under these circumstances it is more important than ever to know your customers and the product chain that connects them with your business. Based on recent quarterly reports, for example, it looks like selling wine into mass market Walmart World’s part of the retail spectrum, where both the retailer and its clients seem to be really feeling the squeeze — is much different from selling wine into high income Costco World, where the squeeze is still on but the impact seems more moderate. So far.

Wine and the Dollar: Big Mac Index Update

August 2, 2022 By Mike Veseth in exchange rates, wine, wine markets 3 Comments

The Economist newspaper’s most recent analysis of global exchange rates was released a few days ago and the results are noteworthy, especially for those of us in the wine trade where exchange rates are an important factor in both import-export flows and in the cost of imported bottles, corks, equipment, etc.

No News is News?

Exchange rates are in constant motion — most currency values change at least a bit — and sometimes quite a lot more! — on a daily basis. It is a fact of life in international trade and finance. But sometimes there is a strong secular movement that shakes things in a big way and the recent sustained rise in the U.S. dollar’s value is a good case in point.

There are dozens of forces that can shift exchange rates — I used to joke that the worst job in the world was the person who had to write the “exchange rate” headline for the Wall Street Journal every day because he or she had to boil down dozens of factors into a few words. I remember one headline that read “Dollar Rises on No News.”

There is plenty of news right now to explain the dollar’s appreciation relative to most of the world’s currencies and the most important explanation are rising U.S. interest rates that the Federal Reserve has implemented and is expected to continue this year. Rising interest rates attract short term investment funds from abroad. The dollar strengthens as the investment funds pour in until the point (to simplify quite a lot — experts please forgive me!) where the dollar is so expensive that the risk that it will reverse course and fall exceeds the interest rate premium that it earns.

Econ 101 Impacts

That’s what is happening now and the Econ 101 impact is that the strong dollar makes imports relatively cheaper for buyers in the U.S. but makes U.S. exports more expensive for foreign buyers. Imported wine will be cheaper because the currencies used to buy them are cheaper in dollar terms. U.S. wine exports will face a headwind because the strong dollar raises their cost to foreign-currency buyers.

A strong dollar is not, therefore, particular good news for U.S. wine businesses that compete with imports or have export aspirations. It is, however, potentially good news for U.S. importers of foreign wine and the owners of U.S. brands that rely upon bulk wine imports to fill their bottles, boxes, and cans. This bit of good news has been tempered recently, however, by international trade logistics issues that make imports more costly and delivery less reliable. The dollar’s value is just one factor in the complex web of wine trade.

The interest rate effect diverts the dollar from what is called the purchasing power parity (PPP) level, which is the exchange rate where the currency’s buying power is the same inside the U.S. as it is on the international markets. A currency that is at or close to its PPP level does of itself distort trade. If you have travelled abroad and thought the prices there were a lot cheaper (or more expensive) than back home, you have encountered a PPP distortion.

Big Mac Index Update

The Economist calls its Big Mac Index a “lighthearted” attempt to estimate the PPP level of exchange rates in order to see which are over-valued and under-valued using the ubiquitous fast-food hamburger’s price in local currencies as the foundation of analysis. It seemed like a silly idea when first revealed back in 1986, but the Big Mac Index has proved to be fairly accurate overall in its assessments. More often than not, major currencies have tended to converge over time towards their Big Mac PPP exchange rate.

So take a close look at the table at the top of this page (click on the image to enlarge it). The U.S. dollar is so strong that there are only a small number of major currencies — Switzerland in particular — that are over-valued relative to it. Most other currencies, including the Australian dollar, Argentine peso, and Chilean peso — are undervalued, which means their wine exports have an exchange-rate based competitive advantage in the U.S. market.

The euro is undervalued as well, but by much less than I might have guessed given that its value has tumbled toward dollar-euro parity in recent weeks.

The Economist has also released an updated Big Mac index shown here, which is adjusted for differences in per capita GDP. The idea, in simple terms, is that many prices (especially for non-traded goods and services) will be higher in countries with higher income levels, so PPP settings need to take this into account.

Argentina and Hemingway

This adjustment is significant for some countries, as the table above shows. The Argentina peso, for example, is now calculated to be very much over-valued, not under-valued, and I think this is probably accurate. A Financial Times article published last week reports that peso’s black-market rate, which had been steady recently at about 200 pesos per dollar (compared with the official rate of about 130 pesos), has suddenly plunged toward 350 pesos. Such a shift is often a sign of a developing currency crisis. Will the peso do a “Hemingway” — first decline slowly and then suddenly collapse? Stay tuned.

The currencies of Australia and Chile along with South Africa are still under-valued after the GDP adjustment, but the euro is shown to be over-valued, suggesting that, further depreciation is possible.

The U.S. is experiencing historically high inflation just now, which by itself would argue for a PPP-driven decline in the dollar’s value. But other major currency countries are having the same problem. And, in any case, rising U.S. interest rates, for as long as they last, will likely keep the dollar strong in the medium term.

The Bottom Line?

The bottom line? These are tricky times for exchange rates, with inflation pulling one way and interest rates the other. The dollar could continue to strengthen or, as expert Barry Eichengreen argued in a recent Financial Times, column, reverse course and fall.

Wine businesses that are sensitive to exchange rate changes need to be cautious indeed. You cannot control the exchange rate, but there are ways to hedge against unfavorable shifts using either forward exchange markets (you lock an exchange rate today for a set transaction in the future) or foreign exchange options (giving you the option to make a purchase or sale at a fixed future price).

Hedging is important if a business has significant costs or revenues in a foreign currency. Recent earnings reports suggest that some large and sophisticated businesses have not fully hedged their positions, however, with the result of unexpected earnings (or costs) due solely to exchange rate adjustments on otherwise stable transaction.

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What is a “Hemingway?” I have coined this term to characterize a particular pattern of decline. One of the characters in Hemmingway’s The Sun Also Rises is asked how he lost his fortune. Slowly and then suddenly, he replies.

Quality by Design at an Abruzzo Cooperative Winery

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

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

Abruzzo Lighthouse

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

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

Preserving Vineyards and Grape Varieties

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

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

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

Stronger Brands, Higher Margins

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

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

Get the Incentives Right

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

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

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

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

Necessary But Not Sufficient

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

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

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

Is Abruzzo the Next Big Thing for Italian Wine?

July 12, 2022 By Mike Veseth in emerging wine regions, Italian wine, wine, wine markets Leave a comment

Is the Abruzzo region the next big thing in Italian wine? That’s the question on our minds here at Wine Economist world headquarters after returning from a media tour of Abruzzo last month. The tentative answer is that Abruzzo has the foundation needed to move up to the next level in the Italian wine hierarchy. Abruzzo is on the rise — let’s see how far it can go!

Abruzzo By the Numbers

From the standpoint of volume, of course, Abruzzo is already a big thing. Abruzzo boasts 33,000 hectares (over 80,000 acres) of grape vines, of which more than half are planted to its signature red wine grape, Montepulciano. Total production is 3.2 million hectoliters or more than 35 million 9-liter cases of wine each year. About a quarter of the wine is designated DOC.

There are more than 250 wineries in this region. With more than 6,000 grape growers it is obvious than many of the vineyards are quite small. No wonder, then, that cooperative wineries are very important here (as they are in most of Italy and Europe generally).

The “Good Value” Curse

Montepulciano d’Abruzzo and Trebbiano d’Abruzzo wines are produced in large quantities and are available world-wide. But, as I wrote a few weeks ago as we were preparing for this visit, the wines entered the U.S. market years ago at what were then the “sweet spot” price points. As the market has moved up to higher price tiers, however, Abruzzo’s wines (like those of Chile) lagged behind s bit, recognized for their good value rather than great quality.

Indeed, I remember stumbling onto a big 1.5 liter bottle of Montepulciano d’Abruzzo by a well-known producer at a local Grocery Outlet discount store a few weeks ago. It was priced just above the Two Buck Chuck level. Not the best advertisement for Abruzzo wines!

The Abruzzo wine producers have adopted a strategic plan to raise the profile of their wine region (the media tour, which included journalists from North America, Europe and the UK, and Asia was part of that program). One small step that I think will be important is to establish a stronger Abruzzo identity by unifying some of their classification systems and adopting the logo you see above. This sort of strategy worked very well for Sicilian wines and it holds promise for Abruzzo.

Abruzzo Has Much to Offer

Tourism (and not just wine tourism) is one way to strengthen a regional identity in today’s competitive market. How many people do you know who took a Douro River cruise in Portugal, for example, fell in love with the country, and have been buying Portuguese wines ever since?

Abruzzo has a lot to offer tourists who take the time to explore. There are golden beaches on the Adriatic coast, for example, and delicious seafood served at restaurants located in converted trabbochi (extravagant fishing shacks built at the end of long piers).

There is beautiful scenery and charming towns in the hills and mountains, too, with wonderful food including juicy porchetta and tasty grilled lamb skewers. All this with fewer crowds than in the better-known tourist spots. Honestly, Abruzzo is hard to beat once you make the modest effort to get there. Abruzzo’s visibility in the world of wine will rise as more and more people discover its many charms.

Abruzzo Pecorino Potential

But wine regions are ultimately built on the quality of the wines they produce and we come away from our brief visit very optimistic. Part of this, as I will explain over the next two Wine Economist columns, is because of specific efforts to raise quality and create distinctive wines that we discovered. But a lot of it is because of our overall impression of the region’s wines, which I think was shared by many in our group.

The clear favorite among the wines we tasted were those made from the Pecorino grape. These white wines, both still and sparkling, were bright and appealing — alive in the glass for the most part — and seemed to us to be a perfect fit as the U.S. market shifts to white wines, especially Sauvignon Blanc, with a bit more zip than Chardonnay and Pinot Grigio. We also enjoyed fruity white wines made from the Cococciola grape, which has only relatively recently been upgraded from blending grape to a varietal wine. But Pecorino was the star.

Pretty in Pink: Cerasuolo

The other hit with our group was Cerasuolo d’Abruzzo, a darkish rosé wine made form the Montepulciano grape. It was distinctive and delicious — perfect for the warm evenings we experienced. Some producers have been encouraged to make paler versions for the U.S. market because of the perceived prejudice against darker pink wines, but I don’t see the point. Anyone who tries this wine will want more.

So what about Abruzzo’s most important wines — Montepulciano and Trebbiano d’Abruzzo? Perhaps it was because of the heat, but the red wines didn’t impress as much as the whites, although (stay tuned for upcoming Wine Economist columns) we did find some really memorable wines. And, with a few exceptions, the overall impression of Trebbiano was overshadowed by the Pecorino wines.

The Road Ahead

One logical market strategy might be to highlight the Pecorino and Cerasuolo wines, which match so well with trends in the U.S. market, while raising quality standards for Montepulciano and Trebbiano. Indeed, it seems to me, that’s exactly what’s happening now.

But there are still many questions to be answered before Abruzzo’s wine sector can fully achieve its clear potential. Can the cooperative wineries, which are so important here (and were sometimes in the past blamed for low standards), raise their game? And can Montepulciano, the most-planted grape variety, refresh its image? I will address these questions in the next two Wine Economist columns.

The global wine market is almost insanely competitive. The standard is constantly rising. The Abruzzo producers we met have listened to what the market is saying and found a pathway ahead.

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Thanks to the Consorzio di Tutela dei Vini d’Abruzzo for inviting us to visit the region and learn more about it and its wine sector. Special thanks to our friends at I.E.E.M. for taking care of all the logistics and making the visit as smooth and enjoyable as possible.

We are especially grateful to four wineries who generously hosted us during out visit and showed us some of the very best of Abruzzo wines:

Cantina Frentana: A cooperative winery on the move. See next week’s Wine Economist for details.

Agriverde Winery: An award-winning winery seriously committed to environmental goals. Ambitious vision matched by achievement. Keep an eye on this one!

Bosco Winery: Historic family-owned winery that both looks back to tradition and ahead to the future. We could spend all day in the family museum, wandering with a glass of great wine in our hand.

Margiotta Winery: A perfect example of a small family winery making excellent wines. Humble and proud in equal measure. Italian wine at its best.

The Road to Wine Wars II (and a 30% Discount Offer)

June 28, 2022 By Mike Veseth in book reviews, brands, Shameless Self-Promotion, wine, wine markets 6 Comments

My new book Wine Wars II will be released in just a few days on July 1, 2022, and so. in the spirit of shameless self-promotion, let me remind you that you can order Wine Wars II in paperback or e-book format from Rowman & Littlefield, Amazon.com, and other online and bricks-and-mortar book sellers.

Rowman & Littlefield is offering a 30% discount on Wine Wars II publisher-direct purchases for a limited time. Scroll down to the bottom of this page for details.

Tantor Media will release the audio-book version of Wine Wars II (read by Jonathan Yen) on July 19, 2002. It will be available everywhere audio books are sold. Ten hours of fascinating stories about where global wine is going and how it got there.

A Tale of Two Glasses

Paperback, e-book, audio. Wine Wars II is everywhere!

Wine Wars II updates and extends the most important arguments I made in the original Wine Wars and then adds a new set of chapters on Wine’s Triple Crisis. Each “flight” or set of chapters ends with suggested wine tasting so you can consider the arguments using all your senses. What fun!

Here is a brief excerpt from chapter 1 “A Tale of Two Glasses” for your reading pleasure. It talks about the origins of Wine Wars and the development of Wine Wars II. I think it is interesting that the road to Wine Wars II began with a winery visit about forty years ago, when the problems facing the wine business and the economy more generally were a lot like those we confront today.

HOW I STUMBLED INTO THE WINE WARS

People often ask me how I became a wine economist, an economist who studies the global wine markets. The answer is rooted in a particular time and place. Sue and I were still newlyweds, taking a low-budget vacation in the Napa Valley back in the day when that was still possible. We were headed north on the
Silverado Trail late on our last day, pointed toward our economy motel in Santa Rosa, when we decided to stop for one last tasting.

The winery name was very familiar, and I had high hopes for our tasting. If I had known more about wine back then, I would have recognized this as one of the wineries that kicked French butt in the 1976 Judgment of Paris wine tasting. We pulled off the road and went in to find just the winemaker and a cellar rat at work. No fancy tasting room back then, just boards and barrels to form a makeshift bar. They stopped what they were doing and brought out a couple of glasses. If I knew more about wine back then, I would have been in awe of the guy pouring the wine, but I was pretty much in the dark. So we tasted and talked.

I started asking my amateur questions about the wine, but pretty soon the conversation turned around. The winemaker found out that I was an economics professor. Suddenly he was very interested in talking with me. What’s going to happen to interest rates? Inflation? Tax reform? He had a lot of concerns about the economy because his prestigious winery was also a business and what was happening out there in the financial markets (especially interest rates and bank credit, as I remember) had a big impact on what he could or would do in the cellar. Wineries, especially those that specialize in fine red wines, have a lot of
financial issues.

In addition to the initial investment in vineyards, winery facilities, equipment, and so forth, each year’s production ages for two or three years, quietly soaking up implicit or explicit interest cost as it waits to be released from barrel to bottle to marketplace. The wine changes as it ages, but the economy changes, too. It’s impossible to know at crush what market conditions will be like when the first bottle is sold. Wine economics is a serious concern. Few winemakers are completely insulated from the business side, and sometimes the economy can have a huge effect on what winemakers get to make (if they have the resources to stick with their vision) or have to make (if they don’t).

And so a famous winemaker taught me to think about wine in economic terms and to consider that supply and demand sometimes matter as much as climate and soil when it comes to what’s in my wineglass. I should have known.

Although my interest in wine and economics merged on that Napa day, it sat on its lees for a long time, as I waited for an opportunity to link my personal passion with my professional research agenda. The two naturally converged a few years ago when I began writing what turned out to be a four-volume series
on the global economy. My 2005 book Globaloney: Unraveling the Myths of Globalization includes a chapter called “Globalization versus Terroir,” my first attempt to write about wine economics for a general audience. Globaloney argues that complex global processes shouldn’t be reduced to a few simple
images. Globalization and food are more than just McDonald’s, for example, and globalization of wine isn’t just McWine.

The wine chapter in Globaloney gave me confidence that I had more to say about money, wine, and globalization, so I launched a website called The Wine Economist (WineEconomist.com), where I could work out my ideas in public, make connections, and develop a wine voice. After several years and nearly
200,000 words of blog posts, The Wine Economist evolved into the first edition of this book.

THE ROAD TO WINE WARS II

I wasn’t sure if anyone would want to read about the business of wine, but I was wrong. Wine Wars was warmly received by both critics and readers. It turns out that while wine is good, wine and a story is even better, and stories about the business side of wine can be very interesting. A number of wine industry readers have said that Wine Wars helped them connect the dots and see things more clearly. Consumers, who have no particular business connection, say they just like knowing the backstory of their favorite drink.

I’ve spent the last decade on the wine road speaking at wine industry conferences around the world and learning more about wine and the people who make it. It is a tough job, but someone has to do it, and apparently I am that lucky someone! I have recorded my impressions and experiences in hundreds of columns on The Wine Economist.

Wine Wars has been joined by three other books that continue my analysis of global wine: Extreme Wine (2013); Money, Taste, and Wine (2015); and Around the World in Eighty Wines (2017). Wine Wars celebrated its tenth birthday in 2021, and that occasion made me stop and think (as round-number birthdays sometimes do).

The powerful forces that I identify in Wine Wars are still important, but they’ve changed in ways both big and small. Environmental and demographic shifts, for example, re now much more clearly understood as wine industry challenges. There is a lot to think about and to write about. And so I have written this new book, Wine Wars II, which updates the first edition and extends its argument to address wine’s global crisis.

In a way, this journey has brought me back to that dark cellar on the Silverado Trail in Napa Valley, the great wines we sampled that day, and my “aha!” moment when I realized that wine and economics are a perfect pairing. I’ve learned much more about wine and wine economics, and I appreciate now more than ever the many challenges that the world of wine faces. But I remain an optimist, as I show in this book. I still have grape expectations.