Wine and the Curse of the Inverted Yield Curve

August 8, 2023 By in economic crisis, Economic impact, wine, wine markets 3 Comments

These are uncertain times for the global and U.S. economies and for the wine industry’s economy, too. The International Monetary Fund recently released its World Economic Outlook mid-year update and the story it tells can be as optimistic or pessimistic as you want it to be.

Landings: Soft, Hard, Trampoline

The “glass half full” story is that, for the world economy as a whole, inflation seems to be slowing and global growth is slowing, too. But nothing is crashing … yet. That makes the possibility of a “soft landing” scenario seem more likely than it did just a few months ago. Maybe the slowing economies will moderate rising prices without the need for a sharp, job-destroying recession. And perhaps key central banks will be able to halt interest rate increases before they go too far.

A “soft landing” is far from certain, but it might be possible. That’s good news for a dismal scientist like me because one alternative is the “hard landing” scenario, where jobless numbers zoom to bring inflation down (or the “trampoline landing” possibility, where anti-inflation nerves fail and prices jump pop back up again).

Down the Up Yield Curve

These same issues apply here in the United States, where economic growth seems to be holding up better than in some other regions. But concern is especially heightened by a phenomenon called the “inverted yield curve.” A yield curve plots government bond yields from short-term (30 days) to long-term (30 years). The curve normally slopes upwards as in the chart above from 2021, which makes sense since long-term investors should receive higher returns for taking on the risk associated with longer-maturity assets. You can better guess what economic conditions will be like in 30 days than in 30 years, so the 30-year return should be higher.

A lot of attention is paid to the yield curve among investors. The New York Times and the Wall Street Journal publish yield curve charts daily. And Japan’s central bank actually makes yield curve management one of its policy targets.

In this context, an inverted yield curve, where bond yields are lower for longer-term assets as in the recent chart above, is a puzzle and an alarm. It is a puzzle because it is not clear why investors would be willing to lend longer-term for less. Do they think that inflation, which is relatively high today, is likely to be much lower in the future and so the inflation premium necessary to compensate for price hikes would be lower than today?

What? Me Worry?

Or is it because they expect today’s high-interest rates to push the economy into a recession? Falling incomes tend to drive interest rates down because loan demand is less. And a deepening recession would likely force the Federal Reserve to push interest rates back down. Down to the level, the yield curve seems to predict? That’s something to worry about.

And investors are worried because the inverted yield curve has a very strong record of predicting recessions. The economy doesn’t tank immediately, but eventually. Growth turns negative a year or so after the curve inverts and recession alarms go off.

This Time is Different?

So it has been about a year since the yield curve turned topsy-turvy and it is no wonder that investors are getting nervous. Will the curse of the inverted yield curve take hold later this year or perhaps in the first quarter of 2024? Some so believe in the yield curve’s track record that they are positive that bad news is in the offing.

It is dangerous to argue “this time is different” in the face of a theory that has both logic and history on its side, but maybe this time is really different, and that soft landing will happen. After all, how many times in the past have the conditions that led up to the yield curve flip included a global pandemic, supply chain breakdown, massive fiscal stimulus, and a very hot shooting war involving major powers?

So maybe the curse of the inverted yield curve won’t strike the U.S. economy in the near future. A recession is bound to happen eventually and some people will look back at today’s yield curve situation and see cause and effect, but there are just enough wild card shocks to the system in the past few years to make it plausible that the U.S. economy might “stick” its soft landing after all.

This Wine is Different?

That said, it makes sense to consider how a recession might impact the wine sector. After all, even if the U.S. economy avoids a recession, many of the other major global economic engines including Great Britain, the E.U., Japan, and China look vulnerable today.

If we exclude the short, sharp shock of the covid pandemic period, the last sustained recession was about 15 years ago during the global financial crisis. The weak economy affected the wine industry in many ways, but trading down (to lower prices) and trading over (to more casual wine brands) were part of the story. Would that happen again if a recession showed up now?

Yes, I suppose so, at least to a certain extent. But the wine market has changed in many ways since the last big slump. For example, U.S. wine sales growth was still pretty strong going into that crisis, whereas the market is already slack today and a recession could be more damaging.

Luxury Market Woes?

The trend towards premiumization has strengthened, too, which could affect trading down and trading over. The heart of the market has moved to higher price points that may well display different characteristics than before. And of course, wine sales seem even more dependent on a relatively small segment of the total market, so their particular reactions are very important.

The fact that growth in wine sales has become increasingly concentrated in the luxury part of the spectrum is troubling right now. Sales of luxury goods in general surged during the covid pandemic. Cash from government stimullus payments plus the money that wasn’t being spent on services financed a luxury spending spree. Recent financial reports suggest that tighter consumer budgets have brought a lot of this spending to a halt except at the very high end (think Birkin bags). Even Champagne is feeling the squeeze, I’m told.

The wine economy is experiencing lots of stress and uncertainty these days. It would be great if the inverted yield curve turned out to be a false alarm this time. Fingers crossed!

America’s Wine Regions: Surprising Michigan

August 1, 2023 By in emerging wine regions, wine, wine history, wine markets 3 Comments

Sue and I have spent the last two weeks tasting wines from two Michigan wineries, Good Harbor Vineyards and Aurora Cellars (both part of the Simpson Family Estates group). The wineries are located on the Leelanau Peninsula, a short drive from scenic Traverse City.

Michigan wines? Are you surprised? We discovered Michigan wine several years ago at an industry event called Riesling Rendezvous, organized by Ste Michelle Wines Estates, which was a regular stop on top world Riesling producer itineraries in the days before the covid pandemic.

The Riesling Belt

Riesling Rendezvous brought together the makers and their wines from all around the world and it helped teach us that here in North America, there is a northern Riesling belt that runs from Washington state (the Columbia Valley) and British Columbia (Okanagan Valley)  to Idaho (Snake River Valley), Michigan (Great Lakes), Canada’s Niagara Peninsula, and on to New York (Finger Lakes). Great Riesling wines can be found all along this northern belt, so it makes sense that great wines of other types are found there, too.

Michigan wineries always came to Riesling Rendezvous and turned skeptics into fans. Respect! Not everyone has the benefit of the Riesling Rendezvous experience, however, so the very fact of Michigan wine often comes as a surprise.

The idea that American wine comes from California is very strong and there is some logic in it. California’s nearly 5000 wineries produce about 90% of all U.S. wine. California is big in wine; there are lots of vineyards acres, wine producers, and some of the largest winery complexes in the world.

Michigan’s Surprising Wine Industry

Most of the over 6000 U.S. wineries not located in California are small producers that depend on loyal local consumers. The difference in scale means that they are often overlooked and many people, even some locals, are surprised to discover them.

That’s true with Michigan’s wine industry. According to American Wine by Jancis Robinson and Linda Murphy, Michigan’s wine history goes back to the 1600s. French explorers made wine from native grape varieties, and the settlements that followed made wine, too. Eventually, the Michigan wine industry emerged and gained steam in the mid-1800s.

Michigan wine recovered quickly from Prohibition, according to American Wine, but then pretty much collapsed. Why? Competition is the answer. Many early wines were made from Concord grapes, so winemakers had to compete with grape juice companies for grape supplies. Investment in vineyards was limited by the higher returns offered by conversion to apples and cherries. Only two wineries remained in 1970. The long book of Michigan wine history was seemingly writing its last chapter.

But the book goes on. Michigan boasts 233 wineries in 2023 according to the Wine Business Monthly, having experienced steady growth over the last ten years. Michigan ranks #9 among U.S. states in terms of winery count, wedged between North Carolina (205 wineries) and Ohio (329 wineries). Surprised by these numbers? I thought you would be!

Simpson Family Estates

The wines we sampled from Good Harbor Vineyards and Aurora Cellars have roots that go back more than 40 years,  which is a very long time in American wine. Founder Bruce Simpson aspired to make good, affordable wines in Michigan and, after studies at UC Davis, he and his wife Debbie established Good Harbor Vineyards in 1980. The operation remains in family hands today and has grown into Simpson Family Estates, which includes both Good Harbor and the Aurora Cellars wines. Harbor Hill Fruit Farms, which supplies grapes and winemaking services to the family wineries and other winemakers, too, is also family-owned and -operated.

Given our previous experience with Michigan wines, we weren’t surprised that the Dry Riesling and Gruner Veltliner wines we tasted were very good. But the quality of the sparkling wines and the Pinot Grigio caught us a bit off guard, as did the Kiwi-esque punch of the Sauvignon Blanc.

The red wines from Aurora were the real surprise. The Cabernet Franc was terrific and the Blaufrankisch was excellent, with a bit more soft grip than the Cabernet Franc and good fruit flavor, too.

Blaufrankisch (a.k.a. Lemberger) is an under-appreciated grape variety and we are glad to see it getting attention in Michigan. The grape was planted here in Washington state in the early days but is slowly disappearing as vineyards are replanted to more profitable Cabernet Sauvignon. Lemberger sells out at the tasting room, one winemaker told me, but it is hard to sell through distribution.

We were surprised to see Blaufrankisch in Michigan. But then Michigan wine is full of surprises, isn’t it?

A Wine Emissary from Planet Bonny Doon

July 25, 2023 By in wine, wine brands, wine history Leave a comment

Sue and I had an unexpected visitor recently. He said he was an emissary from another world, a place called Bonny Doon Vineyard. He came in peace, bearing two very interesting Bonny Doon wines.

Was I happy to see the visitor? It doesn’t look like it from the photo shown here (and he looks pretty serious, too), but things aren’t always what they appear at first glance.

Wine from Planet Earth

The wines that the emissary brought were very good. Le Cigare Volant is fresh and delicious, a blend of Grenache, Syrah, Cinsault, and a bit of Petite Sirah. “Red wine of California’s Central Coast, USA, Earth” it said.

Le Cigare Orange, the second wine we tasted, is mostly Grenache Blanc with ten percent each of Grenache and Orange Muscat. “Skin-contact wine of the Earth,” the label explained. Nice peach aroma with the bit of tannins that orange wine lovers look for. I think someone has written that this is an entry or gateway orange wine and that’s not a bad description. A wine to appeal to both red and white wine drinkers.

Randall Grahm founded Boony Doon Vineyard nearly forty years ago. Its original mission was to make wines like those in Burgundy, but Grahm quickly shifted focus to Rhone-style wines. The first vintage of Le Cigare Volant was released in 1986 and it has headlined for Bonny Doon line-up ever since.

Flying Cigar?

Le Cigare Volant — the flying cigar? What kind of a name is that? It is complicated, so I will explain.

Grahm is serious about wine, but playfully creative, too. Le Cigare was meant to pay homage to the wines of Chateauneuf-du-Pape. It is a little-known fact that, during the flying saucer craze in 1954, the village of Chateauneuf-du-Pape adopted a law banning alien craft (called cigares volant in French) from landing, taking off, or flying over the vineyards. The label artwork shows a spacecraft casting a beam of light on a chateau and its vineyards. Beaming aliens down? No, I’ll bet they are beaming the wines back up!

Bonny Doon makes excellent wines and is a strong, distinctive brand. When Sue and I heard Grahm talk to a group of wine writers a few years ago, he seemed almost embarrassed by his ability to successfully build brands (he is also the creator of Big House wines, Cardinal Zin, and Pacific Rim wines). But there is no reason that good wines cannot exist along with popular brands.

Tale of Two Brands

Grahm sold off the brand rights to Big House, etc., to fund his various vineyard projects and in 2019 he did the same with Bonny Doon, selling it to WarRoom Cellars. WarRoom Cellars is in the business of building brands and making the brands that it acquires (like Bonny Doon) more marketable.

Brands are very important in the wine business and I will admit that it makes me nervous when brands are bought and sold like properties on a Monopoly board (which happens quite a lot these days). Some of the biggest wine industry transactions of recent years have involved the exchange of brand intellectual property with no vineyards or production assets attached. For example, Constellation Brands paid $285 million in 2016, the The Prisoner brand.

Sometimes brand transactions work out just fine, but I am haunted by the story of Paul Masson, which I recounted in a chapter called “Martians versus Wagnerians” in my book Wine Wars II. Once California’s most expensive wine, Paul Masson’s brand was sold and sold again, eventually becoming a cheap generic jug wine before slipping off the wine market map altogether. (The brand still exists, I’m told, in the form of Paul Masson traditional and flavored brandy). These days the wine is best remembered for its sometimes accidentally ridiculous television commercials featuring a possibly sober Orson Welles.

Good News Travels Fast

In this case, the good news is that the Bonny Doon brand transition seems to have worked out very well. The signature red wine is different, but certainly in the founder’s spirit. It is a bit lighter in weight and brighter, too, but has good fruit and some complexity. Significantly, it is a good deal cheaper, resting comfortably in the wine wall’s current sweet spot of $15 to $20 ($17.99 on the winery website).

It is not the wine that Grahm made when he first created the brand, but it is not ridiculous to think it might be the wine he’d make now if he were starting up today.

So cheers to Bonny Doon and its alien emissaries for making planet Earth a better place for wine lovers.

Portuguese Wine is for the Birds

July 18, 2023 By in Portuguese wine, wine 3 Comments

Portuguese wine is for the birds, or at least that’s what we think at the Wine Economist. The birds? Well, duck is the specific bird we are thinking of and duck rice is the pairing we have in mind. Here are some thoughts on the success of Portuguese wine in the U.S. market and a shortcut if you want to check out the duck rice pairing.

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Jancis Robinson’s recent Financial Times column on the rise of Portuguese wine in the US and UK markets focuses on the importance of personal experience in shaping attitudes toward various wine regions. Portuguese table wines were for years pretty much undiscovered territory for most wine drinkers, except for bright, inexpensive Vinho Verde. Other wines and regions weren’t on the radar because of unfamiliar grape varieties, unfamiliar appellations, or pre-set notions (Douro Valley? You must be thinking of Port!).

Destination Wine

Many wine enthusiasts didn’t even think about Portuguese table wines. But this changed in the last few years, Robinson argues, and many of us agree, with the rise of Lisbon and Porto as tourist destinations. Visitors try the local wines with the local cuisine and are delighted. A light goes on, a door is opened, and suddenly Portuguese wines, unfamiliar names and all, are on the radar.

One great memory that Sue and I have from a visit to Portugal a few years ago was sitting atop a hill overlooking the Douro and having lunch with George Sandeman. The meal featured duck rice (one taste and Sue was hooked) along with wines from Casa Ferreirinha, including the Papa Figos red and white wines shown here. Both wines are blends of native grapes from the Douro regions and both feature a bird, the Papa Figos, which migrates from Northern Africa just about in time for the grape harvest season in the Douro Valley. According to the label:

“Of all the birds found in the Douro, the Papa Figos is one of the rarest. It is a migratory bird with vivid, attractive colors and the female of the species, with its greenish coloring, perfectly symbolizes this unique Casa Ferreirinha wine.”

Voyage of Discovery

Sue and I have been trying Portuguese white wines this summer and having a great time exploring the many possibilities. There seems to be something for every taste and, with the many native grape varieties, it is kind of a voyage of discovery.

For example, the Quinta de Chocopalha Arinto Branco 2020 is made from Arinto grapes from a vineyard northwest of Lisbon. It spent 5 months on the lees before bottling. It was bright and flavorful and would pair well with seafood or your favorite bird.

We recently popped the cap off a bottle of Quinta da Raza Branco Pet Nat, a naturally sparkling wine made from the Trajadura grape variety, which is native to northwest Portugal, It was both fizzy and mellow, with flavors of peach, pear, and apple. A bit cloudy as Pet Nat wines are, it was just the thing to pair with a salad of grilled shrimp, English peas from the garden, and Israeli couscous.

The flying object on the Raza label is a lacewing, not a bird. A side note explains, “The lacewing represents our holistic approach to viticulture. Its efficiency in biological pest control is remarkable.” The wine was surprising and remarkable, too.

My Duck Rice Shortcut

Duck rice is delicious and pairs well with Portuguese wines. There are lots of recipes on the internet, but the basic idea is that you need duck meat, duck broth, and duck fat. And rice, of course. You sauté the rice in the duck fat, cook it in the duck broth, and combine it with the duck meat in a casserole. Duck. Duck. Duck. Rice.

The usual approach is to get a whole duck and cook it in a big pot of water, take off the meat, skim off the fat, and use the broth. For some reason, I find the idea of the whole raw duck and the big pot of water a bit intimidating.

My shortcut is to go to the local Asian market and buy a whole roast duck there (there are at least three places to buy whole or half of a roast duck in the international district of my town). I strip off the meat and the crispy skin, then make stock out of the bones and the fatty skin. The rest is according to the standard recipe. It is delicious. And great to serve with your favorite Portuguese wine!

Italian Wine and the Paradox of Scale: Three Case Studies

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

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

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

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

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

Location, Location, Location

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

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

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

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

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

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

Sharecropper Roots

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

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

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

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

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

Strength in Numbers

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

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

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

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

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

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

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

Independence Day Flashback: Have Some Madeira?

July 4, 2023 By in history, Portuguese wine, wine, wine history 1 Comment

Today is the day we raise a glass to celebrate American independence and our friends and neighbors sometimes ask what wine is appropriate for this occasion. There are many possibilities. Sparkling wines are traditional for celebrations and pair well with picnic fare. We often favor Zinfandel because America is a nation of immigrants and,  while the Zin grape is not native to the United States, it has found its home here. Or perhaps a wine made from the Norton grape, a hybrid first grown in Richmond, Virginia, about 100 years ago? Tough to choose!

Today’s special Flashback Wine Economist column makes the case for Madeira, perhaps the most American wine of them all even though it isn’t produced in the United States. Why Madeira? Read on. And happy Independence Day to all.

Have Some Madeira?

Wine Economist (November 13, 2018)

It is in a way the most American of wines, even though it comes from a Portuguese island off the African coast. When it came time to toast the signing of the Declaration of Independence in Philadelphia, this is the wine that filled the Founding Fathers’ glasses.

Workers at the Liberty Hall Museum in New Jersey recently discovered three cases of the stuff dating from 1796 — too young to be the wine that Franklin, Jefferson, and Adams raised for their toast, but old enough that they might have sipped it a few years later.

Oh, Madeira!

Madeira (because you have already guessed the name of the wine I’m talking about) has a glorious history here in the United States. Once upon a time, you could find it prominently displayed on the top shelf of any reputable drinks shop, it was that popular. But when I went looking for a bottle at my local upscale supermarket I had to go deep into the corner where the fortified and dessert wines are kept and then stoop down to the bottom shelf.

O, Madeira. How far you have fallen!

But looks can deceive and Madeira is alive and well even if it’s not as prominent as it was in 1776. Madeira was America’s wine back then in part because America didn’t make much wine of its own and imported wine often suffered badly on the long sea trip from Europe to North America.

Live Long and Prosper

Madeira’s secret was (and is) its unique production process, where the wine is both heated and oxidized. The wines used to be conditioned by sending the barrels on round-trip ocean voyages in hot cargo holds. The movement of the ship and the heat below deck did the job very well.

Now it’s done shore-side in the lodges. The wines start with high acidity (the island soils are part of that) and end up both fresh and nearly invincible. A bottle of Madeira has a very long half-life after it has been uncorked. You’ll certainly drink it up before it goes off.

There’s not a lot of Madeira wine produced, which is one reason you don’t see oceans of it in the shops.  Vineyard land is not plentiful on Madeira — about 500 hectares in total cling to the steep mountainsides. Just enough to provide raw materials to eight producers.1928

France is the number one market for Madeira wine, where it is a popular aperitif (France is the top market for Port wines, too, for the same reason). Tourists visiting Madeira enjoy enough of the wine there to make it the number two market followed by Germany, the UK, Japan, and the United States. U.S. demand has been slowly ratcheting up in recent years, now accounting for about seven percent of total production.

You Don’t Know What You’re Missing

Sue and I traveled to Madeira about a year ago and learned a lot by visiting Blandy’s and Justino’s, two of the most important producers. We were fortunate to be invited to refresh our memories last month at a seminar and trade tasting in Seattle. We tasted the range of Madeira wine types including the one pictured here from 1928. Here are some impressions from that experience.

If you haven’t tasted Madeira in a while, you need to get to work. Chances are you’ve forgotten the balance and lifting acidity that characterize the wines. These aren’t  sticky sweet fruitcake wines, (although there is such a thing as a Madeira cake,  which is meant to be eaten with a glass of Madeira.)

You can make Madeira as simple or complicated as you like — it is up to you. By far the majority of the wines are sweet or semi-sweet 3-year-old blends. Sweetish or drier — those are your basic choices. Drier Madeira, like Fino sherry, is pretty versatile and might surprise you.

Only small amounts of aged Madeira is made from white grape varieties like the Sercial in the photo and these wines have very distinctive characteristics that anyone who wants to take a deeper dive would appreciate. Because the wines basically last forever once opened, you can pull the cork on several different ones and enjoy the kind of comparative tasting that we experienced in Seattle without being anxious about finishing up the bottles before they go off. On-trade readers take note!

Madeira was once the Big Thing in American wine. Is it The Next Big Thing today? No — can’t be. There’s not enough of it to go around. But it is a unique wine of time and place that deserves a closer look.

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Special thanks to Bartholomew Broadbent for his help with this column.

The Hedgehog & the Fox: Discovering the Wines of Lugana DOC & Garda DOC

June 27, 2023 By in Italian wine, wine, wine markets, wine tourism Leave a comment

Today’s Wine Economist is inspired by Isaiah Berlin’s famous essay “The Hedgehog and the Fox.” The fox knows many things, Berlin wrote, drawing on an ancient Greek parable, but the hedgehog knows one big thing.

People are like that, don’t you think? And there are wine regions like that too. The Lugana DOC on the shores of Lake Garda in Italy, for example, reminds me of the hedgehog, with its clear focus on one important wine. The Garda DOC, on the other hand, is home to many different ideas of wine. It is the fox.

Please read our report below and see if you agree — and which wine critter you find more appealing.

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Lake Garda in the Italian north is one of Europe’s great summer playgrounds. No wonder visitors flock there from all over Italy and from Germany and Switzerland too. There is something for everyone. The lake itself for watersports, of course, along with beaches and campgrounds, theme parks, and more. The local economy benefits from the region’s understandable popularity and so does the local wine industry. I’ll bet both were hit hard when covid restrictions put a lid on tourism. They seem to be booming now.

The Lake Effect is Strong

Wine, not theme parks, was the focus when Sue and I joined a group of journalists from Germany and Denmark for a tour co-hosted by the Lugana DOC and Garda DOC consortia. The fact that the program embraced two overlapping but very different wine regions made this an unusual adventure.

Burton Anderson acknowledged the impact of Garda tourism on the Lugana wine industry in his classic 1990 guide The Wine Atlas of Italy,

Its success has been attributed to the fact that it is white and comes from the well-frequented Garda resort of Sirmione, but the real point in its favor is its graceful personality that appeals to both novices and to people who take wine seriously.

The wines are shaped by the combination of the Turbiana grape variety, also known as Trebbiano di Lugana, plus the beneficial lake effects, and the subtle variations in vineyard geology that result from glacial activity that made this region fairly flat but far from homogeneous. The Lugana DOC wines, as I wrote a few weeks ago, balance salinity against minerality in ways that please and provoke further investigation.

A Visit to Cantina Ottella

Although restricted to just one grape variety, we found tremendous variety in the Lugana DOC wines. A memorable visit to Cantina Ottella opened our eyes to the possibilities. Ottella is a project of the Montresor family, who have been making wine here for four generations. Michele Montresor showed us the winery with its fantastic modern art collection and then we began with the wines. Picked early, the Turbiana grape variety makes sparkling wines that are justifiably popular. Picked a little later, in September, the Lugana DOC wine showed the salinity and minerality that defines it so clearly.

The next wine caught our attention. Le Creete is harvested later, in October, from old vines from a single vineyard. It was complex and even more interesting than the wine before. The Riserva was elegant, with well-integrated oak. An amphora wine dedicated to Michele’s father Ludovico came next. Stunning in its complexity. Then, finally, a Lugana DOC from the 2007 vintage, to show that Lugana can age elegantly and develop gracefully. Quite an experience. And proof, if we needed it, that Anderson was right when he said that these Lugana wines have what it takes to interest experienced wine enthusiasts even as they delight beginners.

Foxy, but in a Good Way

Cantina Ottella is famous for its Lugana wines, but they also produce wines with grapes from their vineyards in other local appellations. The evening before our visit, for example, we ordered one of their Garda DOC red wines called Campo Sireso with dinner. It was a blend of Corvina Veronese, Merlot, and Cabernet Sauvignon from the Garda wine zone. The wine was fantastic and caught our attention.

The “fox” Garda wine zone is very different from Lugana’s “hedgehog.” Approved grape varieties for Garda include both native grapes (Cortese, Trebbiano, and Garganega whites and Corvina and Marzemino reds, for example) and international varieties, too (Chardonnay and Sauvignon Blanc whites and Cabernet and Merlot among others on the red side).

This means, of course, that Garda has something for everyone who comes to visit Lake Garda in the summer months and the existence of red wines is perhaps especially appealing to visitors from Northern Europe who might have a particular preference for red wines.

But Garda’s fox-like character also means that it has more trouble defining its identity in export markets, which is a shame since the wines can be very good indeed.

Sue and I were fortunate to be able to visit several wine producers who have adopted different market strategies. Come back in two weeks for these “hedgehog” and “fox” case studies. In the meantime, next week’s Wine Economist will feature a special “Independence Day” flashback column.

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Many thanks to the Lugana DOC and Garda DOC consortia for hosting us for this visit. Thanks, as well, to the wineries on our brief tour who generously gave us their time, knowledge, and very good wines! The winery list includes La Moretti, Ottella, Azienda Zenato, Cascina Maddalena, Ca” Maiol, Borgo la Cuccio, Colli Morenici, Bulgarini, and Perla del Garda. If you see wines from any of these producers on a shop shelf or wine list, please give them a try. You won’t regret it.

Pogo’s Dilemma and the Future of Prosecco Superiore

June 13, 2023 By in Italian wine, wine, wine markets 2 Comments

Pogo’s Dilemma is the theme of this week’s Wine Economist. Pogo’s Dilemma? It is a reference to Walt Kelly’s famous cartoon where the character Pogo reflects, “We have met the enemy and he is us.” Sometimes life is like that, or at least it seems that way to me for the successful winegrowers in the Prosecco Superiore region.

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As last week’s Wine Economist explained, the Conegliano Valdobbiadene Prosecco Superiore DOCG region in north-east Italy is a remarkable success story. The historic home of Prosecco in Italy (and the source of some of the finest wines today), Prosecco Superiore DOCG is in an enviable situation. Nearly every hectare of available vineyard land is planted, yields are pretty much at the maximum, and the wines sell out at attractive prices. There are not many wine regions that can compare.

By the Numbers

Here is the story by the numbers. Prosecco Superiore DOCG had 8,683 bearing hectares of grape vines in 2022, which produced a total of about 103 million bottles of wine and €634 million in revenue for the 2127 producers and growers (including seven cooperatives).

Italy is the top market for Prosecco Superiore DOCG wines, accounting for about 60 percent of sales. The top five export markets are the UK, Germany, Switzerland, Austria, and the United States (Canada is next at #6).

You might be surprised to see the U.S. below Switzerland and Austria on this list. The U.S. sometimes seems to be awash with Prosecco. You see it everywhere on store shelves and restaurant lists. Surely the U.S. drinks more Prosecco than the export numbers suggest?

Prosecco vs Prosecco

Well, yes, Americans are great fans of Prosecco, but only about 3 million bottles of it are Prosecco Superiore DOCG from the Conegliano Valdobbiadene region. The rest is from the much larger Prosecco DOC zone or, like the big-selling Kirkland Signature Prosecco, from the Asolo Prosecco region. These wines can be very good and are generally less expensive. They pretty much dominate the U.S. market with many of the top-selling brands either distributed by U.S. wine companies (think Gallo’s La Marca brand) or sold under their labels. There is a Cupcake Prosecco, for example, a Barefoot Bubbly Prosecco, and now even a Prosecco from NBA star James Harden.

Prosecco DOC is ubiquitous in the U.S. market, but Prosecco Superiore DOCG can be hard to find. You really have to look for it. But the effort is worthwhile. I have organized comparative tastings of different Prosecco wines a couple of times and the Prosecco Superiore DOCG wines always make people smile and ask for more.

Prosecco DOC and DOCG wines are made with the same grape variety, Glera, using the same production techniques. The DOCG zone’s terroirs account for the wine’s distinctive qualities. It maybe isn’t a surprise that consumers who understand the difference between the wines are following the premiumization path toward Prosecco Superiore DOCG. Interestingly, producers told me, as Prosecco Superiore markets mature consumers tend to shift from the Extra Dry style that is so popular with Prosecco DOC wines to Brut and even Extra Brut Prosecco Superiore.

A Good Life (and its Discontents)

Life is good in the Conegliano Valdobbiadene region, but that doesn’t mean there aren’t plans to move ahead. The goal is not so much to sell more wine (yields are maxed out) but to increase margins on the wine and generate new revenue sources through expanded wine tourism offerings. Wine tourism suffers a bit today from limited infrastructure and the nearby presence of Venice. Venice doesn’t give up her tourists once they arrive at the lagoon (day-tripping to the wine country doesn’t really happen), which makes an emphasis on destination wine tourist facilities critical.

Raising margins means raising prices and this is never easy, even for a wine like Prosecco Superiore, which seems undervalued for the quality it delivers. One part of the problem is competition, which tends to discourage price increases. The Prosecco Superiore producers compete with each other in every market, of course, and compete with other Italian sparkling wine producers for the key domestic market. Here in the U.S., sparkling wines from around the world compete with each other for room on wine shelves and space on restaurant wine lists.

The biggest competition for Prosecco Superiore wines here in America and perhaps in other export markets, too, are the generally less expensive Prosecco DOC wines. These wines are popular, heavily promoted by importers, and have consumer-pleasing quality. Prosecco Superiore’s efforts to increase price are limited, in other words, by the good value that Prosecco wines represent. And, of course, most U.S. consumers don’t really get the DOC vs DOCG thing. Prosecco is Prosecco to them.

When is Prosecco Not Prosecco?

This is where Pogo’s Dilemma (we have met the enemy and he is us) comes in. Many producers of Prosecco Superiore DOCG wines are also producers of Prosecco DOC wines (made with grapes from the DOC zone, not the DOCG zone). So, in effect, they are their own biggest competition when it comes to price increases. The better the DOC wines, the harder it is to boost DOCG prices.

The Moretti Polegato family, for example, owns Villa Sandi, a top Prosecco Superiore DOCG producer. Their wine was featured on the by-the-glass list at a top Verona restaurant we visited. But the family also owns La Gioiosa, whose DOC wines are often found on supermarket shelves. The family strategy seems to be to continue to raise the quality of all the wines rather than thinking about one versus the other and seize other opportunities that make sense, too.

For example, you can enjoy a glass of Prosecco at the Villa Sandi wine bar at the Venice airport, or have an excellent meal and perhaps spend the night at Locanda Sandi in Valdobbiadene. The Pogo effect isn’t really a problem in this case.

Smaller producers and those who focus exclusively on DOCG wines must consider different strategies. the family-run Vincenzo Toffoli, for example, produces 250,000 bottles including both Prosecco DOCG and DOC wines from their 20 hectares of vines. Although 95 percent of the wine is sparkling, the family is also exploring the region’s still wine heritage, including sweet passito wines, a delicious dry passito red Colli di Conegliano Refrontolo DOCG, and a ripasso Marzemino Veneto IGT.

The wines of Col Vetoraz are as spectacular as the tasting room view of the steep Valdobbiadene vineyards. Great wine, just don’t call it Prosecco. Prosecco, according to Col Vetoraz and several other producers, has degenerated into a generic term, defined by the big producers on the plains, which doesn’t capture the special quality of their wines. So they’ve banished Prosecco from their labels and literature. The wines they make are Valdobbiadene DOCG. Simple as that.

Refusing the Prosecco name seemed crazy to me at first, but maybe it is a reasonable response to the Pogo effect. If Prosecco is often sweetish and cheap, then maybe a drier luxury wine should have a different name, even if it is one that Americans might be afraid to pronounce. It certainly might work for some producers in their domestic market. Or at least that’s what came to mind when we were shopping for Prosecco Superiore DOCG wines at a big shop in Verona. You can see how the wine display was labeled in the photo.

Sue and I were impressed with the creativity and innovation we encountered during our visit to Conegliano Valdobbiadene Prosecco Superiore DOCG. It is a magical wine from a magical place and the magical people who make it are bound to find solutions to Pogo’s Dilemma.

Anatomy of Italian Wine Industry Success

June 6, 2023 By in Italian wine, wine, wine markets Leave a comment

Economics is sometimes called the “dismal science” and I guess it is true that the Wine Economist is often focused on the problems that the wine industry faces (see the recent column on California vineyard profitability, for example).  So it is a pleasure to write about two wine regions in Italy that have achieved rather remarkable success.

The regions I want to highlight here are Conegliano Valdobbiadene Prosecco Superiore DOCG — home of many of Italy’s best sparkling wines — and Lugana DOC on the shores of Lake Garda, makers of one of Italy’s most distinctive white wines. Although the wines of the two regions are very different, the sources of their success have some things in common. Why are these regions successful? What challenges do they face? Read on.

Wine and Words

Sue and I came to Italy as guests of the Conegliano Valdobbiadene Prosecco Superiore Consorzio to participate in the first edition of a wine literature festival called Co(u)ltura Conegliano Valdobbiadene held in the scenic and historic Castello San Salvatore di Susegana. It was two days of author interviews, masterclasses, walk-around wine tastings, and more that drew a large and appreciative crowd. A highlight was the special recognition of five young Italian writers whose essays on this region were collected and published for the event. (The photo at the top of this column shows a fantastic video-mapping demonstration.)

Sue and I took advantage of this opportunity to meet with winemakers and Consorzio officials and learn as much as we could about this dynamic wine region. When the festival was over, we changed locations to join a small press tour organized by the Lugana and Garda wine consortia. The result was a very revealing set of experiences.

Signature Grape vs Taste of the Place?

I am not sure that anyone has ever thought to directly compare the Lugana DOC and the Conegliano Valdobbiadene Prosecco Superiore DOCG (henceforth Prosecco Superiore DOCG) regions the way we found ourselves doing, but it is an interesting exercise. Although the wines are completely different in terms of sensory and market characteristics, there are still interesting shared qualities that are worth considering.

Each region is best known for wines made from a single grape variety. Glera is the go-to grape in Prosecco Superiore DOCG, producing several variations of sparkling wines as well as traditional still white wines that you can find if you look for them. Lugana DOC is built on the Turbiana (a.k.a. Trebbiano di Lugana) grape variety, which is made in several styles of still white wines and sparkling wines, too.

You might think these wines would be defined by their signature grape varieties, but you would be wrong. These are wines of place. The Lugana DOC wines are different from the many Trebbiano wines you will find in Italy and the particular climate and especially geology of the Lugana region at the south end of Lake Garda has a lot to do with it.

The Prosecco Superiore DOCG wines are distinctive, too. Although you can see the family resemblance in many cases between the Prosecco Superiore DOCG wines and similar wines made from Glera using the same processes from the Prosecco DOC and Asolo DOC zones, to my taste the DOCG wines are often brighter, more alive in the glass. They always make me smile.

The wines of Lugana DOC are distinctive, too, and for a long time, I found it hard to describe them. But a masterclass we attended led by the brilliant Constantino Gabardi has given me the words I need. The Lugana DOC wines are not so much defined by fruit as we often think for white wines, but by salinity and minerality held in tension by acidity. It is a different idea of wine than I am used to and so it is no wonder I find the Lugana wines so fascinating.

In both cases, the land and the grapes interact to create a complicated but fascinating experience. The landscape between the wine towns of Conegliano and Valdobbiadene is varied and stunningly beautiful, which is why, I suppose, it has been designated a UNESCO World Heritage site. Vineyard regions are often pretty, but these vineyards are special — even more spectacular than the Douro Valley. The dramatic landscape terroir is reflected in the wines. Fruitier, they say, in the more rolling hills near Conegliano. More structured on the sharp peaks and valleys near Valdobbiadene.

The area around Lake Garda is beautiful, but it is nothing like the stunning Valdobbiadene landscape. Yet the more subtle variations here matter a lot. The balance and dynamic interaction of Lugana DOC wines stem from the land, in this case, the complicated geology that was left behind as glaciers scraped the landscape eons ago. The soil is very different at lower elevations closer to the lake and the wines reflect this and the balance of salinity and minerality that is so attractive in the glass is the result.

Victims of their own Success?

Both regions have achieved great success and are developing strategies to climb even higher on the wine wall in the future. Having navigated the shifting market tides of the Covid era very well, producers in Prosecco Superiore DOCG find that they have hit a plateau. Virtually every available hectare of potential vineyard land is planted (to Glera for the most part) and yields have been effectively maximized. The challenge is not so much to produce and sell more wine, but to better differentiate the wines in the market to increase margins.

Lugana DOC producers are also victims of their success to a certain extent. The Turbiana grapes that go into Lugana DOC wines sell for several times the value of other grapes in the region, creating a prosperous environment for producers. Lugana is effectively differentiated and benefits from its reputation. The potential problem, I was told, is that just a few export markets dominate sales. What happens, one winemaker asked me, if tomorrow Germans decided they don’t like Lugana wines so much?

The Prosecco Superiore DOCG producers hope to raise margins. The Lugana producers who to expand and diversify their markets. Neither of these tasks is easy in today’s competitive marketplace, but then there was nothing easy about getting to their current high plateau, either. Watch for additional analysis of these two fascinating regions in the weeks to come.

Four Faces of Wine and Sustainability

May 31, 2023 By in Shameless Self-Promotion, sustainability, wine 2 Comments

I made a virtual visit to Umeå, Sweden last week to accept (via video) the Gourmand award that my book Wine Wars II: the Global Battle for the Soul of Wine received as an outstanding contribution to the analysis of wine and sustainability.

Wine Wars II is one of four books that received this special award and I think it is revealing to consider them together to appreciate the complexity of the sustainability and wine issue.

As I understand it, sustainability is all about the tension between and among seemingly opposite poles and the need to navigate the force fields thus created.

First, Sustainability is a global concern (think United Nations Sustainable Development goals), but it is a battle that must be fought one locality at a time. Think global, act local. (One scholar coined the term “glocal” to describe this situation, but I avoid it since it sounds like my cat coughing up a hairball.)

The first pair of books on the award list, Manifeste Chateau Cheval Blanc and  Agroecologie: Quatre Saisons du domaine de l’Apocolypse  examine the problem from the local level in France and Greece respectively, giving us a look at how global principles are translated into local practice, with attention to the specific challenges and opportunities.

Science and business are often seen as opposite sides of the sustainability issue, too, but is this the case? The second pair of books explores this tension in two very different ways. Jamie Goode’s book on Regenerative Viticulture  takes a scientific approach to sustainability, developing a toolkit to be applied thoughtfully to specific situations to make viticulture more truly sustainable.

If business and its profit motives are the enemies of sustainability, what can drive wine firms to adopt the tools and follow the examples that the first three books listed here provide? My answer in Wine Wars II is risk. Adopting sustainable practices may come at a cost, but not taking action is costly too and wine businesses are increasingly being forced to confront those costs both in the field and on their business accounts.

Climate change creates material risks that businesses must report and attempt to manage and it is informative to see what wine sector businesses see as the most important risks and what they are doing to address them.

But there is most to consider from the economic perspective. Sensible practices in the vineyard and cellar are only truly sustainable if they are also economically sustainable. The final section of Wine Wars II explores wine’s “triple crisis” (environment, economy, identity) and tries to help readers think clearly about the complicated issues the wine industry faces today.

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Many thanks to Edouard Cointreau and the Gourmand awards team, both for the specific recognition for Wine Wars II and for their efforts to draw attention to the many faces of wine and sustainability. Congratulations and thanks, too, to Pierre Ly who accepted the award certificate for Wine Wars II. Adventures on the China Wine Trail, by Pierre Ly and Cynthia Howson, also received a Gourmand award at the ceremony.