Unsustainable? Anatomy of California Vineyard Economics

April 18, 2023 By in economic crisis, Economic impact, wine, wine markets 9 Comments

The April 2023 “Vineyard Issue” of Wine Business Monthly features articles that address many different important winegrower issues. I find W. Blake Gray’s analysis of “Prices Don’t Pencil Out for Growers Who Saw Production Costs Double” particularly interesting because it deals with a problem that I wrote about earlier this year in a Wine Economist column titled “Margins? What Margins? The Big Squeeze in Winegrowing 2023.”

Red Ink Harvest

The Wine Economist column was provoked by a conversation with some California growers at this year’s Unified Wine & Grape Symposium and connected the dots linking their observations with Vinpro data presented a few weeks earlier for South Africa. Only 9 percent of South African winegrowers earn a sustainable return on their vineyard investment.  A little more than half break even or earn small nominal profits, but not enough to sustain continuing investment. And almost 40 percent reported losses. And the margin gap is getting wider.

My California grower friends said their situation was not much different from the South Africans and, indeed, this is a problem I have seen around the world, although not typically backed by the sort of data that Vinpro collects for the South African industry.

The two simple strategies to claw back margins are to reduce yields to try to raise quality and therefore price or to reduce unit cost by increasing yields. South African growers have found it difficult to raise prices enough to make the first strategy work, so many are focusing on higher yields. But it is not as simple as that, the California growers told me, because sometimes buyers won’t allow higher yields and, in any case, some older vineyards just aren’t set up to make high yields possible.

Losing in Lodi

W. Blake Gray’s article digs deeper into the California situation, specifically for District 11, the San Joaquin Valley North, which includes Lodi. He quotes Aaron Lange of Lange Twins Family Winery and Vineyards in Lodi, for example, who explains that average grape prices are lower now than they were 25 years ago (despite higher costs throughout the production chain). Lodi Cabernet Sauvignon, for example, sold for an average of $695 per ton in 2022 according to the UDSA grape crush report. It sold for an average of $794 in 1997. The figures for Chardonnay grapes are $627 in 2022 versus $774 in 1997. That, my friends, is a big squeeze.

Is it possible to increase yields enough to break out of the big squeeze? Gray provides data from a 2021 UC/Davis study of the District 11 situation that suggests that higher yields can sometimes, but not always, solve the problem. At a price of $650 per ton (which is close to the average current Chardonnay and Cabernet prices), for example, the Davis study calculates a $156 per acre profit at 12 tons per ace and a $780 per acre product at a yield of 13 tons, but losses at lower per-acre yields.

The situation is only a little different at a price of $750 per ton. Profits ($633 per acre) appear at a yield of 11 tons per acre, rising to $2080 at a yield of 13 tons. But yields below 11 tons per acre still generate red ink even with the higher price.

Lower prices make things much worse. At a price of $550 per ton, no level of yield between 7 tons and 13 tons generates a profit. It’s red ink all the way down.

Unsustainable Yields

These data and reports make me wonder if winegrape growing is economically sustainable for many producers in District 11 and similar regions and these doubts are heightened by Gray’s interview with Jeff Bitter, the President of Allied Grape Growers (and a grower himself). Bitter notes that the economics of winegrape growing have made it difficult or impossible to focus solely on grape production.

Why continue to farm grapes? Some farm winegrapes because it is what they want to do (a “lifestyle” choice), Bitter suggests at one point, or because the alternatives are unattractive. There are a lot of factors that define the situation, including market conditions in different regions (Central Valley, Central Coast, North Coast) and farm size. There is money to be made in winegrapes under the right circumstances, but there are plenty of losses, too, and it is easy to understand why generational transitiions among growers are often in doubt.

When we talk about sustainable winegrowing, we usually focus on the environmental impacts, but Gray’s article suggests that we need to take the issue of economic sustainably more seriously, too.

Thanks to Wine Business Monthly for all the great articles in this issue and to W. Blake Gray for his focused report on the vineyard margin problem and the economic issues facing growers generally.

America’s Wine Regions: Mainly Mendocino

April 11, 2023 By in emerging wine regions, wine, wine markets 1 Comment

The American wine scene is incredibly deep and wide. There are thousands of wineries (more than 11,000 in 2023, according to Wine Business Monthly) producing tens of thousands of different wines with prices ranging from two bucks to several hundred dollars.  Wine is produced in every state and the District of Columbia, too.

Spoiled for Choice

This explosion of American wine is noteworthy for many reasons, especially in the context of history. Don’t forget that commercial sales of wine were illegal during Prohibition and are still heavily taxed,  regulated, and often discouraged in many parts of the country.

The widespread production of wine is also challenged by what the economist Robert H. Frank called The Winner-Take-All Society in his book of the same name. When consumers have a choice (and wine consumers have an incredible abundance of choice), it is natural for them to begin to look for the best choice and to focus on that once it is identified. (Wine critic numerical scores reinforce this process, of course). Add in the band-wagon effect as transmitted through the internet (think Yelp rankings of winery visits) and pretty sonon attention is firmly focused on a relatively small number of favorites with most of the rest left behind.

It was easy to see the Winner-Take-All effect when Frank’s book was published in 1995. It is easy to see it now, too, and it represents one of several powerful forces for consolidation in the wine industry. There may be more than 11,000 wineries all across America, but most of the wine is made by a small number of large wineries in California. The winner doesn’t take it all in terms of market share, but lots of smaller wineries struggle a bit for market traction and attention.

Think Local. Drink Local.

Sue and I try to seek out local wine producers when we travel and we are fascinated by what we discover. A recent Wine Economist column on Arizona Wine Revisited has inspired us to highlight Mendocino County, California. It isn’t a new wine region — quite the opposite! But, sitting just north of the bright lights shining on the Napa and Sonoma valleys, Mendocino has suffered from the downside of the winner-take-all situation.

Jancis Robinson and Linda Murphy summed up one part of the Mendocino story in their 2013 book on American Wine. 

Only in the last two decades has Mendocino County won acclaim for its wines; previously it was known for selling its grapes outside the county. In the early 1900s Mendocino didn’t have railroads or river systems with which to deliver finished wines to San Francisco, where they could be sold. So growers transported their fruit by wagon to the Italian Swiss Colony co-op in Asti (Sonoma County), where they were ” lost” in large, inexpensive blends. … Those discouraging days are finally over.

Some of those early Italian Swiss Colony wines cited Sonoma, Napa, and Mendocino (great billing!) as the source of the grapes. But that, I think, was before the advent of American Viticultural Areas and their regulations. Soon these wines were designated “California” and Mendocino sort of fell off both the label and the consumer radar. The wine wars became brand wars and brand Mendocino struggled.

But, as American Wine notes, Mendocino is back. Although lots of Mendo grapes are still “exported” to other parts of California to make popular wines, home-grown producers are getting recognition, too.

Sue and I sampled wines from three Mendocino producers during a pair of “Mendocino weeks” at our house: Husch Vineyards, Graziano Family of Wines, and Ettore Winery. Although this only scratches the surface of Mendocino wine, these wines show some of the many faces of the region.

Both Sides Now: Husch Vineyards.

Husch Vineyards dates from 1968 and became the first bonded winery in Mendocino’s Anderson Valley in 1971. The Oswald family purchased the operation in 1979 and it has stayed in the family ever since.

Husch wines show two distinctly different faces of Mendocino County. The Anderson Valley’s cooler climate yields elegant Pinot Noir, Chardonnay, and a Dry Gewurtztraminer with a loyal following. Warmer inland vineyards produce Cabernet Sauvignon, Merlot, Old Vine Zinfandel, and Chenin Blanc grapes among others.

The wines are impressive, but the Dry Gewurtztraminer, off-dry Chenin Blanc, and Old Vines Heritage red wine blend of Petite Sirah, Zinfandel, and Carignane from the historic Garzini Ranch vineyard, are special favorites. We are fans.

All in the Family: Graziano Family of Wines

If Husch Vineyards is old by contemporary California standards, Graziano, founded in 1918, is positively historic and makes a point to honor its history in its wines. After 70 years as  growers, Greg Graziano started making wine, too, in 1988. I think he realized his grapes were too good to let them disappear into other wineries’ big vats. The wine family today includes four labels: Saint Gregory, Monte Volpe, Enotria, and Graziano.

The Saint Gregory wines exploit cooler vineyard sites and include Pinot Noir and Pinot Meunier. The Graziano wines, on the other hand, highlight the old vines planted by the family in warmer spots, including the California classic trinity of Zinfandel, Petite Sirah, and Carignane, plus a lovely Chenin Blanc.

The Monte Volpe and Enotria labels honor the family’s Italian heritage with wines made from traditional Italian grape varieties such as Sangiovese, Vermentino, Negroamaro, and Aglianico (Monte Volpe) and Arneis, Dolcetto, and Barbera (Enotria).

Obviously, the wines are very different from one another, but they share a certain undeniable family resemblance that I characterize as “Italian sensibility.” What do I mean by that? Well, Italian wines are just different, with their lifted acidity and the way they call for food to pair with them. Greg Graziano is the dean of Mendocino winemakers and I think the winery and its distinctive sensibility is likely to stay “all in the family” for decades to come.

Fresh Faces: The Ettore Winery

Mendocino continues to attract and inspire winemakers. Ettore Biraghi is one of the fresh faces on the scene. Born in Lombardy, Ettore began his winemaking career in the Italian-speaking Swiss canton of Ticino. He owns, with business partner Franco Bruni, Tenuta Agricola Luigina winery in Stabio, Switzerland. Ettore visited California in 2015 to learn about its vineyard regions and discovered Mendocino. His winery opened in 2019 and the first organic wines were released a year later.

We have tasted two of Ettore’s wines. The Cabernet Sauvignon, from Sanel Valley Vineyards vines of 21 to 29 years of age, would compete very well in a lineup with Napa Valley Cabs of twice the price (Mendocino wines in general are very good value  for quality). We also sampled the Chardonnay “Zero,” which is made without added sulfites using a process called “Purovino.” I thought it was a bit weird and didn’t much remind me of Chardonnay, but Sue thought it was interesting. More research required.

Mendocino has a long history and, I think, a bright future. As noted above, we have just scratched the surface, but it is a start and we encourage you to pick up where we left off.

Watch for a series of occasional columns about America’s wine regions. Colorado and Michigan are next on our agenda.

Book Review: Wine Education for a Diverse Wine World

April 4, 2023 By in book reviews, Masters of Wine, wine Leave a comment

A comprehensive guide to wine education for a diverse wine world: “Leary’s Global Wineology” reviewed by Pierre Ly.

In “Leary’s Global Wineology: A Guide to Wine Education, Mentorships, & Scholarships” (Hibiscus Panama, S.A. 2022), Charlie Leary presents a clear, comprehensive resource for anyone interested in pursuing wine education from beginner to expert levels. The book is well-organized and covers programs for every budget and purpose, in both academic and non-academic settings, and in many countries.

The brief introduction defines wine studies and provides informative facts and figures on different types of wine jobs, and average salaries in each. The “Big Five” chapter offers the most detailed program descriptions because it is dedicated to the most famous and highly sought-after trade certifications, like The Court of Master Sommeliers (CMS) and the Wine and Spirit Education Trust (WSET). Beyond these, throughout the book, I found the presentation of each program concise yet detailed enough for readers to assess content, rigor and learning outcomes, so they can decide whether a course is worth exploring further. Many readers, especially those with a more casual interest or professionals on a budget, will be interested in chapter 7, which focuses on free online programs. The author even suggests excellent curriculum ideas to take these courses in an organized way as if you were in school.

While the comprehensive coverage of all types of wine programs alone makes the book worth buying, I was impressed with the author’s treatment of diversity, equity and inclusion in wine education, to discuss issues like bias, racism and sexism. This is important because criticisms of the insularity and lack of diverse representation in the wine industry have gained more visibility in recent years. I appreciated that the author did not include this as part of program descriptions, but instead used it as a framework, encouraging readers to “be aware of any program’s historical background and biases.” These are systemic issues that are not limited to problems affecting a single program, such as the recent CMS scandals, which the author also discusses.

I would recommend that users of this guide take the time to look at chapters 1, 2 and 9, before using the table of contents to explore the specific programs they are interested in. Chapter 1’s history of wine studies offers a concise, yet thorough comparison of different wine education providers’ backgrounds and agendas, as well as reflections on the insularity of the wine trade and its continued lack of diverse representation. As the author notes, this is not to take away from the high value-added of their programs, but to help readers understand the issues they might face if they enter them. Interested readers can go deeper by exploring Leary’s references like wine writers Elaine Chukan Brown and Julia Coney.

Both chapter 2’s presentation of scholarships, and chapter 9’s coverage of mentorship programs, include several organizations focused on increasing BIPOC and women’s representation in the industry, like Bâtonnage, Vinequity, and Wine Unify. Finally, chapter 9 is addressed to wine education professionals as a starting point to reflect on their work to become more inclusive, and to incorporate more discussion of environmental and social issues in their curricula. For the past decade, I have been teaching a college course that Mike Veseth invented, The Idea of Wine, that invites students not just to know more about the product, but also to see how wine can help us understand big picture societal questions. It is aimed at college seniors, most of whom come with almost zero knowledge of wine. While students are excited about vineyard and wine production knowledge, what catches their attention in the end is the bigger picture. In chapter 9, Leary discusses wine’s connection to topics like climate change, the slave trade, fair labor practices and racism, and suggests they could be incorporated in wine education.

Chapter 4’s coverage of other international programs is excellent, if necessarily limited so as not to make the book over a thousand pages long. Given the importance of China (a very important market for WSET), more programs could be included. To make the book more useful for Chinese readers, it would be useful to mention other options, notably university degrees offered by the School of Enology at Northwest Agriculture and Forestry University near Xi’an, and at the University of Ningxia. The School of Enology (which, besides viticulture and enology, offers wine appreciation and wine business courses) is important enough to be included among degree programs in chapter 5 or 6.

The book is written in English, so it includes more programs taught in that language. However, the author did include some programs in other languages, but they are difficult to locate. It would be helpful if future editions of the book could include a list of non-English language programs, organized by language and page number, either at the beginning of the book or in an appendix. Additionally, it would be great if there was interest in translating the book to cater to local interests. Finally, while the issue of program costs is discussed at length in chapter 2 (which is about scholarships), it would be beneficial to include a column in program summary tables throughout the book that shows the prices of the programs.

Overall, Leary’s Global Wineology provides not only a comprehensive guide to just about anyone interested in wine education, from those seeking basic consumer knowledge, to advanced wine professionals looking to boost their credentials. Perhaps any knowledgeable person could have compiled such a list. But what makes the book stand out is the author’s thought-provoking coverage of wine education’s current and future, and its critical eye toward areas for growth, making the book relevant to wine educators as well. Highly recommended for wine enthusiasts and professionals alike.

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Pierre Ly is Professor of International Political Economy at the University of Puget Sound and author, with Cynthia Howson, of Adventures on the China Wine Trail.

Arizona Wine Revisited

March 28, 2023 By in wine, wine markets, wine tourism 1 Comment

It has been 15 years since our last visit to Arizona to check out the wine scene (our report appeared in an early Wine Economist column), so it didn’t take much to persuade us to go back to see how things have changed.

Our first trip was based out of Tuscon, near the main vineyard areas in the southeast of the state. This time we traveled up north to scenic Sedona to explore Arizona’s newest AVA, the Verde Valley. Our visit was interrupted by that big winter storm that swept across the country last month and threatened to block our way home. But all’s well that ends well — we were able to start our fieldwork in Sedona and end it in Old Town Scottsdale, which is home to many tasting rooms.

Here is our report, starting with some broad facts about Arizona wine and then drilling down a bit into specifics.

Bigger and Smaller

The Arizona wine industry is both bigger than you think and smaller than you might imagine. Arizona now has 108 wineries according to the January 2023 issue of Wine Business Monthly. That includes 90 bonded wineries and 18 “virtual” wineries. Virtual wineries? Yes, this is a growing trend. These are wine brands without vineyards or their own winemaking facilities. About 1000 of California’s nearly 5000 wineries are virtual operations. And virtual wineries account for almost 300 of the 900 total wineries in Oregon.

Arizona ranks #17 among U.S. states based on the number of wineries — bigger than you might have guessed. But the individual wineries tend to be small. Arizona Stronghold Vineyards, for example, is the largest winery in the state with an annual production of about 20,000 cases.  Total production for the state is about 350,000 cases a year, we were told. If that’s correct, that means all Arizona wineries taken together make about as much wine as Daou Family Estates or JUSTIN Vineyards and Winery (data from Wine Business Monthly).

Lattitude versus Elevation

One reason you might not expect Arizona to be a wine state is its latitude. It can indeed be very hot in Arizona, which is why snowbirds flock there in the winter. But elevation compensates for latitude in Arizona much as it does in Mendoza, Argentina.

Wine grapes grow well in Arizona at elevations between 3500 and 6000 feet. Most of the vineyards are in the southeast near Willcox and about 75% to 80% of the grapes are grown there. But other parts of the state have active winegrowing, too, including the Verde Valley near Sedona.

Arizona wine is a premium product — there is no such thing as Arizona Two Buck Chuck. Lack of scale is one cause of higher cost, of course, but basic supply and demand play an important role. The amount of vineyard acreage has not increased as fast as the number of wineries seeking grapes. So grape prices have risen and wine prices along with them. We heard several people talk about $3000 per ton grape prices, for example, and that means $30+ bottle prices.

The vineyards are smaller than you will find in many regions and tend to be planted with many different grape varieties, further limiting economies of scale. I don’t think Arizona has a “signature” wine grape variety, although Syrah and GSM-style blends seem to be on every tasting room list. One reason for the kaleidoscope of grape varieties is just that Arizona is a young industry still in the experimentation stage.

Free to Choose

Another factor, however, is probably that making wine in Arizona means being free to do what you like to a certain extent. In Napa Valley buyers expect to find Cabernet Sauvignon. Ditto Malbec in Mendoza. In Cottonwood or Jerome, on the other hand, you can follow your personal preferences.

One source of this freedom is the fact that a lot of Arizona wines are hand-sold direct-to-consumer. Arizona wine sales regulations allow small wineries greater freedom for direct sales, so many focus on tasting rooms and wine clubs. Several wineries, for example, have tasting rooms in Willcox, Scottsdale, and Cottonwood. Scottsdale is a big tourist destination and Cottonwood is just a short drive from popular Sedona.

Local Market Focus

In part because of the scale issues and local regulations, most Arizona wineries focus on in-state sales through their direct channels. There is a lot of work to do to make Arizona wines more visible within Arizona before taking on bigger markets. Sue and I thought that on-premise sales might be a good way to spread the word, but neither Sedona restaurant we tried had Arizona wines on their list.

One manager shrugged when we asked about the situation. Too costly, he said. I can appreciate that problem. Once you apply restaurant markups to Arizona wine that visiting diners might not have heard of, it could be a tough sell.

But not impossible, as we discovered at lunch at a great Mexican restaurant in Scottsdale. They featured Chateau Tumbleweed wines in their by-the-glass program to support local producers. We tried a Mourvedre-forward GSM blend called Dr. Ron Bot and it was terrific with our meals. We appreciated that the Arabella Hotel where we stayed in Sedona featured Arizona wine tastings for guests.

Arizona Highlights

We enjoyed our brief visit to this part of Arizona wine country. Highlights included …

Arizona Stronghold

  • Arizona’s largest winery is small (by California standards) but mighty. The wines we sampled were delicious and we were very impressed with the entrepreneurial spirit. Arizona wines are relatively expensive for the reasons noted above, but somehow Arizona Stronghold manages to produce a good-value line of wines called Provisioner that includes “Float Tripper Sipper” canned sparkling wines that are a perfect complement to the Arizona outdoor lifestyle. Very impressive.

Page Spring Cellars

  • The Verde Valley is a great spot for outdoor activities and for wine tourists, too, with several wineries and even more tasting rooms. But with most of the vineyards down south in the Willcox area, there are not many classic destination wineries with vineyards, cellars, and tasting rooms. Page Spring Cellars has it all plus an outstanding restaurant. No wonder it attracts thousands of visitors each year for the wine, the food, and the experience.

Carlson Creek Vineyards

  • A winter storm prevented us from visiting the tasting room in Cottonwood, but we learned a lot about Carlson Creek Vineyards in an hour spent at the Old Town Scottsdale tasting room. The place was really buzzing on a weekday afternoon and the wines were among our favorites of this visit. If you visit Phoenix and don’t check out the wine scene in Old Town Scottsdale you are missing a bet!

Caduceus Cellars / Merkin Vineyards

  • Caduceus Cellars and Merkin Vineyards are projects of Maynard James Keenan, the frontman for rock groups including Tool. Some celebrity wineries are vanity projects or over-hyped branding exercises, but wine clearly is the central element here. We weren’t able to visit the winery in Jerome, but the Merkin tasting room in Old Town Scottsdale is a popular stop for both food and wine. Sue and I shared the signature charcuterie platter perfectly paired with Caduceus Nagual del Agostina, a white wine made from 80% Vermentino and 20% Malvasia Bianca from the Agostina block vineyard in the Verde Valley’s Cornville district. That’s a blend of grapes you might not expect to find in Arizona, or anywhere else, but it really worked. Arizona is full of surprises like this!

Cove Mesa Vineyard

  • Cove Mesa’s tasting room is in Cornville, with newly planted vineyards nearby. Cove Mesa is another example of a winery trying lots of different grapes, including a new planting of Assyrtiko.

The Arizona wine industry has come a long way in the 15 years since our first visit. It will be interesting see what the future holds. In the meantime, keep Arizona wine on your radar!

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Thanks to the wineries, hotels, and restaurants that hosted us or helped us with our research. Special thanks to Melissa Rein Lively for organizing our visit.

The Wineries:

Accommodations:

Restaurants:

Manias, Panics, Crashes, and Wine

March 21, 2023 By in economic crisis, wine, wine markets 1 Comment

One of the highlights of our visit to the Catena winery near Mendoza a few years ago was the opportunity to spend a few minutes in Nicolas Catena’s private study. Catena was an economics professor before he returned to the family wine business to guide it through the turbulent wine markets of the time and I was interested to see what was in his library (and on his mind) from those days.

As I scanned the bookshelves I was struck by the fact that, back in the late 1970s and early 1980s, Catena and I were following the same news reports and reading the same research, including books such as Charles P. Kindleberger’s classic Manias, Panics and Crashes: A History of Financial Crises. Relevant reading then and now, too, don’t  you think?

This Time is Different?

It is easy to imagine that financial instability, including manias, panics, and crashes, is something that happens in other places to other people at other times, but the recent banking crisis in the United States (and elsewhere) brings the problem clearly to our attention, especially given the involvement of Silicon Valley Bank (SVB), an important part of the U.S. wine industry’s financial ecosystem,

It has always been the case that financial instability potentially affects all types of businesses and,  as Professor Catena understood all too well, the wine business. But, as I argued in my book about the global financial crisis, it is easy to ignore risks, forget the lessons of crises of the past, or to simply conclude that “this time is different.”

Financial instability is baked into the cake, as they say. Crises are a durable feature of modern capitalism so businesses are unwise to ignore potential risks, both direct (the risk that someone who owes you money can’t pay) and counter-part risk (the risk that someone who owes money to someone who owes you money can’t pay).

Wine’s Minsky Moment

It is possible to argue that the four most relevant economists of the 20th century were Schumpeter, Keynes, Friedman, and Minsky. Joseph Schumpeter studied growth. John Maynard Keynes helped us understand unemployment. Milton Friedman’s ideas of money and inflation are very important. Schumpeter, Keynes, Friedman — these are names you might know. What about the fourth, Hyman P. Minsky?

This is a Minsky moment because his work examined instability and crisis, which he thought were an inherent part of the financial system. I first studied Minsky when I was writing my book Selling Globalization. Using Minsky’s analysis, I argued that globalization was more fragile than most scholars believed because it was built, fundamentally, on the unstable foundation of global finance. People thought I was crazy as I worked through my ideas … and then the Asian Financial Crisis hit!

How do financial crises start? And how do they end? Like Tolstoy’s unhappy families, each is different in the details, but Minsky established a general seven-stage pattern that is a good guide. I will paste an excerpt from my book Globaloney 2.0 below so that those of you interested in the details can follow along. Pay particular attention to the distress, revulsion, and contagion stages and see if they sound familiar.

Try to Remember …

So how should the wine industry react to financial crises like the one we are experiencing today? It would be easy to say that crises are a finance problem, not a wine industry problem. Wine just happened to get caught in the cross-hairs this time because of the SVB’s particular pattern of business. What are the odds of that happening again? That’s a fair point. Wine loans had nothing to do with the bank’s collapse.

My view is a little different. Financial crises are a wine problem because wine is a business and businesses are necessarily disrupted by unstable finance. Businesses need to take their financial risks more explicitly into account. That goes for wine businesses, too.

I don’t think that wineries in Argentina have forgotten this lesson, mainly because they have suffered repeated and severe crises (the current 100+ percent inflation rate suggests another crisis in on the cards).

The wineries who found their accounts at SVB frozen for a few days (because they exceeded the $250,000 limit to FDIC insurance that applied at the time) will not quickly forget this lesson, although I wouldn’t be surprised if the memory eventually fades once “normal” operations are fully restored. That’s one of the reasons why Minsky moments like this return.

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Excerpt from Chapter 2 “Financial Globaloney: Safe as Houses” in Michael Veseth, Globaloney 2.0: The Crash of 2008 and the Future of Globalization (Rowman & Littlefield, 2010).

The leading authority on the theory of financial crises is Hyman P. Minsky, an economist who never received the respect he deserved within the profession because his theories challenged the orthodoxy that markets are generally quite stable (I will have more to say about this later).i Every financial crisis is different in the details (and not all bubbles or potential bubbles actually burst), but there is a family resemblance that Minsky explains as the seven stages to a financial crisis.ii

The first stage is called Displacement and it represents a change in expectations. It could be a new invention, discovery or government policy or it could be simply a change in expectations about the future. Whatever it is, Displacement creates a new object of speculation and at least some insiders rush in to take advance of the news.

Displacement happens all the time, of course. That’s why the stock markets go up and down every day and every hour of the day and every minute of every hour. People constantly react to real news, fake news and changing expectations. So there are a million little potential financial bubbles filling the market like fizz in a glass of Champagne, rising up and popping all the time. But some of them are a bit more substantial and gather the attention of both insiders and outsiders. It is hard to predict in advance when it will happen, but when it does a speculative bubble starts to form.

Minsky’s second stage is called Expansion. More and more money begins to focus on the speculative object, whatever it is – gold, silver, real estate or even tulip bulbs. The market can expand in several different dimensions. The most obvious, of course, is through money creation. When central bankers expand the money supply, as they sometimes do, they may expect that new funds will flow pretty much everywhere, but sometimes they are disproportionately diverted to particular investments fueling bubbles.

Leverage is another source of expansion. Leverage refers to the use of borrowed funds (other people’s money) to increase the return on your money. Suppose you have $1000 and you believe that XYZ Corporation’s stock will double in the value in the next month. You could invest your $1000 and, if you are correct, earn a $1000 profit, a 100% return. Or you could take your $1000 and borrow $9000 to invest $10,000 in total. This would be a leverage ratio of nine to one. If your expectations are fulfilled, the profit would be $10,000 on your $1000 investment (minus whatever interest costs you had to pay). Instead of a 100% return you would receive something approaching a 1000% return. Leverage is a wonderful thing when it works, but it is of course very risky. Just as you can earn much more than your initial stake you can also lose much more.

Expansion also takes place as the population of potential investors grows. Insiders (people with specialized investment knowledge) are joined by well-informed amateurs and then rank amateurs who sometimes just follow the herd based on what they read on the internet or hear from friends and co-workers. Water-cooler investors, I guess you could call them. The movement from professionally managed employee pension funds to individually managed 401k and similar retirement instruments has facilitated this sort of expansion in many countries. It is easy to belittle the ill-informed financial decisions that “blind capital” makes, but highly paid geniuses do not always out-performed them.iii

Finally, expansion can occur if the speculative object draws the attention of international or even global investment markets. Interconnected global financial markets are capable of focusing enormous sums on particular speculative objects, with predictable results. It is as if a giant magnifying glass focused the full power of the sun on some object or creature. Destruction seems assured, but first comes the heat.

Expansion does not always produce a crisis because investors can be fickle. There is always something new to consider, always a million different things to displace expectations and the funds that fuel expansion now can quickly withdraw and move on. The markets can achieve a state that Minsky calls Euphoria, however, if attention remains focus and expansion sustained. Euphoria produces a sense that investors can do no wrong. It is impossible to make a bad decision, since the general rise of the market covers any poor individual choices.

Economic logic simply evaporates in the Euphoria stage. Logic warns to buy less as price rises. Euphoria whispers that rising prices today are harbingers of even higher prices now – time to buy! And buy even more as those future price increases appear. The buying binge and the higher prices they produced are indeed self-fulfilling prophecies, which are the best kind. Sometimes Euphoria just fizzles out, but sometimes it can be sustained, especially if expansion from whatever source is maintained.

Distress comes next in the classic seven stage scenario. Distress is the moment when insiders begin to believe that the market cannot be sustained. Doubts creep in and alternative scenarios are reviewed. The market may pause or slow or the collapse could begin.

Revulsion follows as some investors begin to act upon their doubts. Insiders head for the door first, often leaving with substantial profits in their pockets. Others follow, causing the Crisis stage. The self-fulfilling rising price prophecy of Euphoria is reversed as lower prices trigger sell-offs that drive prices even further down. Everyone wants cash in this market, but it is hard to come buy. Who will lend in a falling market? Who will buy when prices are falling to fast? Someone does, obviously, but at much lower prices.

Crisis is often accompanied by the seventh stage, Contagion. The crisis in one market spreads to others. Contagion can happen in several ways. Sometimes the bubble in one market expands to others and all collapse at once. This was the case with the Peso Crisis of the 1990s. Unlucky investors, drawn to Mexico by the prospect of NAFTA gains, ended up putting money into many Latin American markets, all of which surged and then collapsed together. They called it the “Tequila Hangover” effect.

Leverage creates another contagion vector. As prices fall, leveraged investments go “under water” and speculators are required to put up additional funds. Since credit is hard to come by in the crisis stage, there is often little choice but to sell off good investments to cover losses on increasingly bad ones. Thus the Russian financial crisis of 1998 triggered contagion in Brazil as speculators sold off Brazilian investments to cover their rouble losses.

Finally, contagion can take place as credit markets freeze up generally. Businesses that are accustomed to ready access to credit (for themselves or their customers) are shocked as liquidity disappears. Economic misery spreads from the financial sector to the so-called real economy as declining wealth and restricted credit affect change buyer and seller behavior.

This is how a classic financial crisis unfolds. Not every crisis goes full term, of course, and the damage when they do is not always substantial. But as Kindleberger explained 30 years ago and Reinhart and Rogoff’s study has more recently confirmed, major damaging financial crises happen often enough to be considered a common feature of international finance. So no one should be surprised when these markets behave as they so frequently do.

i John Kenneth Galbraith is another economist whose status outside the profession was much higher than within it due to his failure to his unorthodox views.
ii See chapter 2 of Kindleberger Manias, Panics, and Crashes.
iii Walter Bagehot coined the term “blind capital” to refer to uninformed but enthusiastic amateur investors who are drawn into speculative bubbles.

Wine Book Reviews: Two Perspectives on Italy and Its Wines

March 14, 2023 By in book reviews, Italian wine, wine 1 Comment

How you think about Italy and its wines depends upon how you approach them. Herewith are brief reviews of two recent books that take very different viewpoints.

Italian Wine Unplugged 2.0 by Stevie Kim, Attilio Scienza, et. al. Mamma Jumbo Shrimp, December 2022.

Italian Wine Unplugged 2.0 is a key part of Vinitaly International Academy’s program to draw attention to Italian wine’s wonders through education. As Stevie Kim writes in the Foreword, the idea is to take wine enthusiasts and help them become experts and, I think, also ambassadors for Italian wine to the world.

It is a big job and so this is a big book. More than half the 450+ pages are devoted to “must-know” profiles of the wine grape varieties native or traditional to Italy. We begin with the most well-known families of grapes and move to important regional varieties and, finally to brief profiles of lesser-known grape varieties from Abrostine and Abrusco to Wildbacher and rare varieties from Abbuoto to Zanelo There is a lot of fascinating information here. Not as comprehensive as Ian D’Agata’s Native Wine Grapes of Italy, but clear, useful, and complete

A smaller section provides overviews of each region, linking denominations with associated grape varieties. A section titled “Science” features a major essay by Professor Attilio Scienza on the origins and evolution of Italian wine grapes. Prof. Scienza’s analysis is noteworthy for its interdisciplinary approach, blending DNA data, for example, with information distilled from ancient myths. It is a detailed study — you’ll need to put your smartphone away and concentrate — but very interesting.

I especially enjoyed reading Sarah Heller MW’s brief essay on “How to Taste Italian Wine.” Heller argues that Italian wines are misunderstood or underrated because they are simply different from the wines of Bordeaux and the Napa and Barossa Valleys that have shaped wine-tasting standards and expectations.

“This state of affairs is largely the result of the global hegemony of two wine value systems that poorly suit Italian wine.” One system is based upon the virtues British critics see in the best Bordeaux wines. The other derives more from characteristics of New World wines (I suppose we might associate this with Robert Parker’s influence, but I think it is more than that).

Italian wines are easy to overlook because they don’t fit either of these taste profiles. Italy is an exception and Heller proposes that “Italian Exceptionalism” be embraced and promoted by focusing on an appropriate value system. Fascinating.

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Rick Steves Italy for Food Lovers by Rich Steves and Fred Plotkin. Avalon Travel Books, January 2023.

Italy for Food Lovers is also Italy for Wine Lovers. Why? Well, it is hard to think of Italy or Italian food without the wine that naturally goes with it. Wine is food in Italy, don’t you think?

But there is also this: the core of this book, co-authored by Rick Steves and Fred Plotkin, is Plotkin’s classic 700+ page guide to Italy for the Gourmet Traveler, which takes Italian food and wine very seriously indeed.

The idea is to take Plotkin’s book, first published in 1997, which has not been revised in almost a decade, and both update and streamline it for today’s Italy-loving audience. Plotkin knows Italian food and wine like the back of his hand. Rick Steves knows Italy, too, offering his list of 100 favorite restaurants alongside Plotkin’s list of fifty. Steves is especially good at helping people take the first step, gaining confidence along the way so that they can learn and love the journey.

Wine is pretty much everywhere here. There’s a chapter on wine, of course, and major sections on local wines in each of the regional profiles. The treatment is not nearly as comprehensive as in Plotkin’s classic guide or — obviously — as  Italian Wine Unplugged 2.0. But that’s not what this volume is about. This book is all about getting started in some cases or taking the next step in others. It will help travelers to Italy embrace local wines with unfamiliar names and appreciate the whole experience.

If you already know the wines of Italy very well, you might not learn much here, but you will probably still find it interesting. If you don’t know Italian wines, well here’s a fun place to start. Either way, this is a good gift idea if you have family or friends heading off to Italy for the first time.

Chutes and Ladders: Wine and the Premiumization Game

March 7, 2023 By in wine, wine markets, wine price 6 Comments

I believe that the games we all played when we were younger taught us valuable lessons, both about life in general and life in today’s wine industry in particular. Risk, for example, taught us to be strategic in analyzing any situation. Checkers and chess taught us to think beyond the next move or the one after that, to anticipate our competition’s reaction to each possible action.

Monopoly, of course, prepared us for the wine industry’s continuing consolidation with big getting bigger at every level — retail, distribution, winery, and vineyard.

Up and Down

Chutes and Ladders (or Snakes and Ladders for some of you) is the game to play if you want to get a sense of the premiumization game that is a distinct characteristic of the wine industry today. Chutes and Ladders is a race to get from the bottom of the playing field to the top. You can climb up one step at a time, but ladders sometimes zoom you to a higher level. That’s great, but there are also chutes that send you tumbling down again.

Wine businesses have been encouraged to play the Chutes and Ladders game because the growth in the market has ratcheted upscale with surprising speed since the global financial crisis. Sales of wine at lower price points have languished or declined. The growth zone has shifted to higher and higher price points (which entail lower and lower volumes). The sweet spot in the wine market is a moving target. Talk about Risk!

Sometimes it seems like if you are not climbing the ladder you must be falling down the chute. Growth-seeking wine brands must keep climbing market ladders as the sweet spot shifts, but (to mix metaphors) it is hard for a tiger to change its stripes. Once a brand has established an identity, it is dangerous to cut prices and difficult to raise prices. Climbing the premiumization ladder can be a roll of the dice.

Early Mover Disadvantage

I have seen this with some European wines that entered the US market back in the day when market conditions were different, It is hard for them now to change stripes. Take the popular-priced red wines of Valpolicella, for example. These were once some of the best-selling imported wines on U.S. shelves and still do very well, but the bargain prices that drew attention back then no longer make the same impression.

Montepulciano D’Abruzzo faces some of the same challenges. Buyers may think of good value, not high quality when they see this wine, which is a problem if spending growth is focused on higher price points.  When we were doing research for our trip to Abruzzo last year, for example, most of the Montepulciano d’Abruzzo wines we found were in the “good value” category — a legacy of the region’s early successful entry into the U.S. market.

The low point came when we found a popular brand of Montepulciano d’Abruzzo in a Grocery Outlet store selling for just $5.99 per 1.5-liter bottle. Not the image you want to see, especially since the region has so much potential.

Climbing the Ladder

We found excellent wines during our trip to Abruzzo. We were especially impressed by the small wineries of Villamagna DOC, for example, and the Cantina Frentana cooperative showed that quality and quantity could go hand-in-hand.

We’ve recently been sampling the Villa Gemma line of wines from  Masciarelli, and they are terrific. The Montepulciano d’Abruzzo Riserva 2017 is an example of a wine that can help redefine the category.

The classic-level Masciarelli wine sells for $12.99 at the upscale supermarket down the street and for just under $10 at a local big-box alcohol superstore. That’s a good price point, but with premiumization moving the ladder, market growth seems to be shifting up a level. Hence a focus on super-premium Villa Gemma and wines like it to take advantage of premiumization without sacrificing the existing profitable market.

North and South

Here in the U.S., we have the tale of Washington state’s Chateau Ste Michelle, which prospered just a few years ago when the sweet spot for wine sales growth was $8 to $10. The wines are very good, but they were pigeonholed by their price point and now the market has shifted higher.

New Zealand wines present the other side of the situation. New Zealand entered global markets at what were then surprisingly high prices. New Zealand’s average export price for still wines was for some years the highest in the world (remember that world wine flows include vast quantities of inexpensive bulk wines, which are not part of the New Zealand portfolio).

Having entered the US market at a higher price point, New Zealand wine (mainly Sauvignon Blanc) has benefited from each upward shift so far. But, seeing the writing on the wall, some Kiwi producers are getting ready for the next ladder climb. For example, we have recently sampled wines from Babich, which seem to be intended to scale the next ladder.

The Babich ladder begins with the classic Babich Marlborough Sauvignon Blanc and then climbs through Black Label, Family Estates, Select Blocks, and Winemaker’s Reserve tiers. Babich is a well-known champion of sustainable wine-growing and this is part of the brand ladder. The classic that we sampled was certified Sustainable and the Select Blocks wine was made with organic grapes.

The classic wine and the Select Blocks were very different  from each other when we tried them — as they should be. The classic was a refined variation on the now-familiar Marlborough Sauvignon theme. The Select Blocks wine was even more elegant and perhaps defines a new category — which is great in terms of product differentiation. But it didn’t say “Marlborough” to us as much as we’d liked.

How High is Up?

How much longer will the premiumization game of Chutes and Ladders last? And who will the eventual winner be? The wine market is like a dynamic pyramid and the volume of wine is smaller at the top of each ladder compared with the one before.

Like the housing bubble of a few years ago, this process doesn’t seem sustainable. That means that Stein’s Law probably applies: if something can’t go on forever … it will end.

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Note: Masciarelli has released a special wine, Pecorino Castello di Semivicoli 2022,  with proceeds to raise funds to support a charity that assists the parent of autistic children. Bravo, Masciarelli family!

OTBN 2023 Report: What We Opened on Open That Bottle Night

February 28, 2023 By in wine 1 Comment

Open That Bottle Night, which is celebrated on the last Saturday of February, is the holiday where you pull out wines you have been saving for the right occasion and pull their corks (or twist the screwcaps) to liberate the contents. The purpose of wine is to make us happy, so why wait?

This year our usual OTBN crew wasn’t able to all gather together, so Sue and I organized a sort of “distributed OTBN” over three nights. Here, as is our custom, is a report of what we opened and what we discovered.

OTBN 1: Dinner with friends featuring Sue’s famous Bologna-style veal meatballs.

  • Mascarelli Villa Gemma Montepulciano d’Abruzzo Riserva 2017. Probably the best Montepulciano d’Abruzzo we’ve tried to far.
  • Grace Vineyards (China) Tasya’s Reserve Aglianico 2012. Still fresh after eleven years! Really interesting and delicious. Congratulations to Judy Chan and the Grace Vineyard team.

OTBN 2: Appetizers with a good friend featuring mushroom risotto balls.

  • Nelion Winery (Cyprus) Ofthalmo 2014. Couldn’t wait to open this. Still tight and took a while to open in the glass. Dark fruits slowly emerged. Brought back great memories.

OTBN 3: Dinner with friends on the “official” OTBN evening.

Sue decided that it was time to open some of the Sherry in our cellar to share with friends who weren’t all that familiar with this wine style. She was inspired by samples of the Amontillado and Cream Sherry.

Appetizers: Marcona almonds, basque cheese, acorn-fed Iberico ham, and Jamon Serrano.

  • Laurent-Perrrier Champagne “La Cuvée” Brut
  • Bodegas Yuste Aurora Amontillado sherry

Pasta: Sue decided that this was also “Open That Jar Night.” We hardly ever buy pasta sauce at the supermarket because we make our own from Sue’s garden tomatoes. But we’ve been sampling imported pasta sauce products from Botticelli and were impressed with authentic homemade flavor (and the ingredients list, which looked like what you would use at home).

We’ve been saving a bottle of the Tomato, Porcini Mushrooms, and Truffle sauce to open on OTBN, served with “Trecce” Pasta di Gragnano IGP, which was pretty much made for this sauce.

  • Chateau de Beaucastel 1990. An amazing wine. Still fresh after 33 years. Layers of flavor. What a treat. And a great foil for the mushroom and truffle sauce. Memorable!

Cheese course (Mirforma “Tête-à-tête de Moine” raw cow’s milk, Switzerland; Alta Langa “La Tur” cow, goat, sheep, Italy; Cypress Grove “Midnight Moon” pasteurized goat milk aged Gouda, Netherlands; Papillon Roquefort, raw sheep milk, France):

  • Gonzalez Byass Leonor Palo Cortado 12 years

Dessert course (almond cake):

  • Bodegas Cesar Florido Cruz del Mar Cream Sherry
  • Gonzalez Byass Necras Pedro Ximenez Sherry

You might notice that we opened four different Sherry wines — what’s that about? Well, first of all, we really like Sherry and every sip brings back fond memories of a trip to Spain where we spent an entire day learning about Sherry thanks to the good people at Gonzalez Byass.

Add to this the fact that Sherry is the perfect OTBN wine. Most people don’t open that bottle of Sherry because they don’t even buy it. They think of Sherry the same way they think of Port — that sickly sweet stuff that grandma drinks at Christmas. The world of Sherry is deep and wide (and inexpensive for the quality). Our OTBN tasting only scratched the surface.

When was the last time you opened a bottle of Sherry? If it has been a while, maybe you need to do something about it soon.

This concludes our OTBN 2023 report. If one OTBN is good, three are even better. Is there ever a bad time to open that bottle?

Free the Wines! Open that Bottle (or Jar?) Night 2023

February 23, 2023 By in Uncategorized 2 Comments

Opening a bottle of wine is an occasion. Think about the rituals, traditions, and specialized equipment associated with wine and the act of drinking it. I love the traditions, but sometimes finding the right occasion to pull a cork can be a problem.

We all have a few bottles of wine that we think of as special in some way and that require a special occasion to be released. But, for various reasons, that special occasion never seems to come around and so the bottles sit, gathering dust. What a shame!

Dorothy J. Gaiter and John Brecher identified the problem way back in 2000 and created an annual holiday they call “Open That Bottle Night.”   OTBN falls on the last Saturday in February (February 25, 2023 this year). That’s when all those wines we’ve been meaning to open (but haven’t found the right occasion) are released for us to enjoy.

OTBN is our favorite wine holiday. You can read about some of our experiences through the years as reported in Wine Economist columns.  Are you going to celebrate OTBN 2023?  If so, what wines are you going to liberate from their glass prisons?

Sue is organizing our modest celebration this year and, while I can’t reveal the wines she has chosen just yet, I can tell you that her plans include several small bottles and one jar. A jar?  Yes, a jar. Not a jar of wine (although that would be interesting, too), but a jar of something else that, in the spirit of OTBN, needs to be opened, and what better occasion than this!

Best wishes to you all and Happy OTBN. We’ll report on our celebration in a few weeks. In the meantime, use the comments section below to tell us your plans.

Arizona Flashback: Desert (Not Dessert) Wine

February 21, 2023 By in emerging wine regions, wine, wine tourism Leave a comment

Sue and I are in Arizona this week, exploring a wine region near scenic Sedona that is completely new to us. Look for a full report in the coming weeks. In the meantime, we thought you might be interested in this Flashback from 2008, which reports on a previous Arizona wine expedition.

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Desert (Not Dessert) Wine

Wine Economist / March 28, 2008

I spent Friday in the Arizona wine country – south-west of Tucson near Sonoita – with my “research assistants” Michael, Nancy, and Sue. I thought that I would learn something from talking with winemakers here, and I did, but it wasn’t exactly what I expected. Here is my report.  …

A Working Hypothesis

My hypothesis going into this research was that the wines themselves would be a bit problematic, as emerging region wines often are, and that the biggest challenge would be in the vineyard not the cellar — growing wine grapes in the high desert.

Our first two winery stops quickly made me change my mind about the quality of Arizona wine. The wines at Dos Cabezas WineWorks were intense and flavorful, with a spicy complexity that surprised me. I am not a wine critic, so I will not bore you with amateur tasting notes and doubtful ratings, but we were very impressed with these wines and bought some to give as gifts to Arizona friends who did not know about Arizona wine. Todd Bostock, the winemaker, really knows how to draw flavor from Arizona (and some California) grapes. Todd is working with Dick Erath in addition to his own projects and I think this collaboration bodes well for Erath’s Arizona wines, when they are ready, and for the region’s reputation.

Our second stop was Callaghan Vineyards. Kent Callaghan’s wines were strikingly good. We noted the depth and distinctive character of these wines, particularly the Tempranillo- and Petit Verdot-based blends but also a Mourverdre, Syrah and Petite Sirah blend. These wines were different from Bostock’s and gave us a hint of the potential range of Arizona wine styles. Kent let us taste some library wines and the question, can Arizona wines age well, was answered in the affirmative. We bought wine and had it shipped home, which is I suppose the highest praise a wine consumer can provide.

We visited one other winery, a new one that I won’t name, that made the sort of wines that I originally expected to find – what I would describe as immature wines showing wood in the wrong places. They served to put Bostock’s and Callaghan’s achievements in context. It is possible to make very good wine in Arizona, but it’s probably not easy.

The Globe in Your Glass

Wines have started to appear from many regions not on the list of “usual suspects:” India, Thailand, Peru and Brazil, for example. Brazilian wines actually make a cameo appearance in the film Mondovino, but not in a way that makes them seem in any way part of the classic tradition of wine.

It is possible to grow wine grapes at unexpected latitudes, but special conditions are necessary. In Arizona it is the desert at an elevation of about 4500 feet, where summertime highs are only in the 90s and the temperature at night can drop by 35 degrees. Elevation compensates for latitude. This advantageous diurnal variation along with lots of sunshine and rocky red soil are a good recipe for wine if you can add the right amount of water – not too little or too much.

Climate is not the problem I thought it would be and I think some of the wines we tasted displayed that mystical terroir that is the holy grail of wine critics. But climate change is a problem and that’s the unexpected story here. (I’ve written about climate change and wine in Chateau Al Gore.)

Kent Callaghan told me that the climate seemed to him to have changed significantly in the last 18 years. He reported recent crop yields of just a ton an acre for some varieties due to unfavorable weather. Some of the plantings of the classic varietals that showed promise earlier now seem misplaced so he has started slowly to change over to grape varieties that are able to produce consistent quality in the evolving environment.

This helps explain the use of California grapes for a few wines I tasted (to compensate for low Arizona yields) and the effective use of unexpected varietals (Tempranillo from Spain and Petit Verdot, a Bordeaux blending grape). Having learnt to make good wine in Arizona, winemakers like Callaghan have had to learn the process all over again with new varietals. In this regard I think they are perhaps ahead of the curve – winemakers all over the world will have to adjust to climate change in the decades ahead.

I understand that the Erath Arizona vineyard is being planted with many different varietals. It sounded to me like an experimental vineyard when I heard the list of plantings, but I think there is more than guesswork involved. I expect that Erath, Bostock and Callaghan and other talented winegrowers will figure out what Arizona’s terroir is meant to produce. It will be interesting to track Arizona’s progress and see how its wines fare in a world where the environmental givens are shifting and the market conditions becoming increasingly diverse and competitive.

Wine and Wine Tourism

The wineries I visited are all relatively small with limited distribution, so don’t expect to find these products at your local shop. Production is limited to a couple of thousand cases, even with the use of California grapes to fill in the gap left by low local yield, and sales are mostly cellar door. The winemakers I spoke with are beginning to develop wine clubs and internet sales facilities, but most of the product is sold face-to-face. Restaurant placements, if done well, can help build reputation, but there is not much money in it for a small winery. And output isn’t usually big enough to fill a distributor’s pipeline. All of this may change in the future, of course, but for the present it is a craft industry. The future of Arizona wine, at least in the short run, is local not global.

And that is not necessarily a bad thing because exploiting the local is an important strategy and it seems to me that Arizona has a good potential for wine tourism. The world will probably come to Arizona wine before the wine is produced in sufficient volume to venture out into global markets.

The country around Elgin and Sonoita is strikingly beautiful and closer to Tucson than Napa Valley is to San Francisco. It is already a desirable day-trip destination from Tucson because of its bicycling and horseback riding opportunities. All you need is wine (and food) to complete the deal. The wine is already there, as we learned, and the food, too, but the word hasn’t leaked out. That, I think, is about to change.

Note: Thanks to Michael, Nancy and Sue for their help with this report and to Joyce at Dos Cabezas and Tom Bostock and Kent Callaghan for taking time to talk with us.