Is sustainable winegrowing sustainable? Yes. But there are headwinds and challenges to overcome before this expanding movement will achieve its full potential. Here’s my report.
Sustainability is a powerful movement in northeast Italy where Sue and I participated in a program sponsored by the Consorzio Collio. I spoke on a roundtable panel on sustainable winegrowing’s many sides. One of the other speakers had recently converted his family vineyards to organic viticulture and he talked about the experience and his commitment to sustainable winegrowing.
A hand went up. Now that you are spending less on chemicals and so forth, a journalist asked, will be you passing along the cost savings to consumers?
Wow — I didn’t see that question coming. Implicit in the query was the assumption that organic or sustainable wines should be cheaper than other wines, not simply better for the environment. Most winegrowers, however, hope that sustainable practices will be rewarded in the market place — that consumers will be willing to pay higher prices for sustainably-produced wines, not demand a discount. Environmental sustainability needs to be economically sustainable to survive.
Survey Says …
I would like to say that wines that are certified as sustainable or organic or biodynamic do command a price premium, but I don’t have the data to support this broad conclusion. Wine is a complicated product category and it isn’t easy to compare sustainably-produced wines with similar wines made using conventional practices in order to extract the existence and size of a general price differential (more about this below).
Much of the research on this subject, therefore, has involved surveys that ask consumers how much they hypothetically would be willing to pay for sustainablly-produced wines compared to others.
A good example of this research is a study that Sonoma State Professor Liz Thach MW reported in 2017, which is the source of the graph above. The survey sample of 301 wine consumers, which was weighted towards women (74%) and Millennials (65%), found a generally strong willingness to pay more for wines with sustainable certifications.
Recently Lullie Halstead, CEO of Wine Intelligence, presented the results of a larger study of U.S. wine drinkers that both reinforced a strong willingness to pay and uncovered significant generational diversity among Gen Z, Millennial, Gen X, and Baby Boom consumers. Millennials in the study, for example, were more than twice as likely as Baby Boomers to say they would be willing to pay a $5+ sustainability premium while 43 percent of Boomers said they wouldn’t pay any extra at all.
The study suggests that consumers would be willing to pay about $3 more per bottle for a sustainably-produced wine. What do you think? How much more would you be willing to pay?
Walking it Back to the Vineyard
Since it is hard to determine if sustainable wine actually receives a price premium in the market, I decided to work backwards. If sustainable wine sells for an average $3 premium, then sustainably-grown grapes should sell for a premium, too. How much? The Law of 100 holds that in general if grapes cost $1000 per ton more, then the wine has to sell for at least $10 more per bottle ($1000/100) to pay the bills. It’s a back of the envelope sort of calculation — a long way from rocket science, but useful here.
Working backwards, the Law of 100 rule of thumb suggests that a $3 higher bottle price should translate into a maximum of $300 per ton grape price premium. That could be a substantial incentive for winegrowers to farm sustainably depending on the region.
What is the sustainable premium for wine grapes? Once again it is hard to generalize because there are all sorts of special cases in grape contracts. But I consulted two well-connected California colleagues and the answers they provided were very consistent. In general, sustainably-farmed wine grapes receive a premium of $15-$25 (average of about $20) per ton. That’s a lot less than I was expecting. It implies a very small potential bottle price premium — nothing like the $3 survey result.
Some contracts provide a premium up to 7.5 percent, I’m told, which can be valuable depending on the underlying grape price and yield. In many cases, however, the premium is exactly zero. Grape buyers specify sustainably-farmed fruit, but are not willing to pay extra for it. Bottom line: growers generally farm sustainably because these are sound practices, not (yet) for the money.
Why is the Sustainability Premium So Low?
Why is the sustainable grape premium so low? One answer is that premiums are low because it is a buyers’ market for some grape categories these days. With surplus grape supplies and wine in tanks from previous vintages, buyers don’t pay more because they don’t have to. That is bad news for growers in the short run but better news in the long run because the supply-demand imbalance is likely to adjust over time and perhaps improved prices will follow.
A second answer is that the grape premium is low because the premium for sustainable wines is low — much lower than the $3 per bottle estimate. How can this be? Are the survey-takers fibbing? Well, sometimes people do give “aspirational” answers to survey questions. But there’s another answer. Consumers may be willing to pay more for sustainable wines, but they can’t tell for sure which ones they are.
Organic and biodynamic are very clearly defined wine terms (although consumers may not fully understand them — especially biodynamic), but sustainable does not have a single meaning or certification standard. Most of the regions we visit have their own sustainability certification programs, each tailored to local conditions. So the term sustainable shows up a lot and doesn’t always mean the same thing. This is one reason why it is hard to calculate the price premium for sustainable wines.
My colleague Danny Brager tells me that his team at the Nielsen Company tries to track sustainable wines (by their measure they account for about 2.1 percent of the table wine market by value, growing at a fast 8.1 percent rate), but the lack of a clear definition means that anything that has “sustainable” on the label gets counted. That’s probably as good as most consumers can do because they don’t fully understand the difference between certified and non-certified wines or the variations among certification programs themselves. But it makes deeper analysis difficult.
Why Can’t Wine Be More Like Fish?
The term sustainable is popular in part because of this ambiguity. I found one wine that boasted “Sustainably Dry Farmed” on the front label. On the back label I learned that this meant that the vines were actually irrigated (which seems like the opposite of dry farming to me) … but only as necessary to sustain the vines themselves. The fluid nature of the term “sustainable” makes all the difference.
Does that mean a one-size-fits-all certification program? No. I actually think that the fact that there are many regional sustainability programs is a good thing, even if it confuses consumers a bit, because it increases the proportion of the industry that adopts sustainable practices.
Sue points out that consumers support sustainable practices in other sectors when they understand them and appreciate their importance. Sustainable fisheries are important, for example, and many retailers and restaurants make a point of featuring sustainably-harvested seafood. The existence of different certification programs doesn’t seem to diminish the impact.
What? How? Why?
We meed to make sustainable wine as transparent and appealing as sustainable fish. Perhaps the key is to focus less on the what and how — what we are doing (certification) and how it is done — and more on the why. The why is pretty clear when it comes to sustainable fisheries. Maybe we can make the why of sustainable wine clearer, too.
Sustainability would be more sustainable from an economic standpoint if we could communicate better with wine buyers so that the sustainability premium is greater and trickles down to growers better than it does today. Sustainable sustainability? That’s a goal worth pursuing.