Climate Change and the Wine Business

It is difficult to over-state the potential impact of climate change on the global wine sector. Recently, I was part of a panel on this topic. My task was to get a handle on how climate change is likely to impact the business side of wine. I developed an analytical framework to consider this question based on the concept of material risk. I wasn’t able to develop my ideas fully during the brief webinar, so I will do so in this space over the next two weeks.

Unpacking the Wine Product Chain

How will climate change impact the wine business? This is a hard question because the wine product chain is global and complicated and because climate impacts can be foreseen at all the product chain links.

One approach — and a good one — is therefore to develop a taxonomy of effects.  Start with nurseries and vineyards (an obvious climate impact point) and move to the cellar, where water availability is key, then through logistics — getting necessary inputs into production process and the final goods to market — and then distribution, sales, and final consumption. Climate change is a factor, either directly or indirectly, at each and every stage.

This is already pretty complicated, but we need to consider direct effects, financial effects, and regulatory responses and their costs. Indirect effects and what we might think of as counter-party impacts add more complexity.  No wonder the Porto Climate Chain conference featured speakers on so many elements of wine production, distribution, and sales. You can’t really address climate change and wine without taking a broad, deep perspective.

Many of the Porto participants were justifiably proud of their contribution to addressing climate change, but in my remarks I challenged them to do more. You need to own your product chain, I said, and take responsibility for whole process. If not you, who?

A Material Risk Approach

Stephen Rannekleiv of Rabobank and Robert Swaak of PwC joined me on that Porto panel and each made an important contribution. Rannekleiv, as he often does, focused on concrete steps that his bank,  its clients,. and other groups were taking to address climate change issues. Swaak, who is now CEO of another big Dutch bank, ABN AMRO, made an important point about climate change risk.

Because the climate change impacts discussed above are complex and uncertain, they are properly considered business risks. Businesses confront lots of risks in their operations, some more tangible than others, and they are expected to reveal and analyze them so that investors understand the business implications.

Confession: reading what firms have to say about risk in their annual reports is one of my guilty pleasures (along with reading really really negative wine reviews). Often the risk analysis is hidden in the back pages of annual reports, almost always in fine print. But it is always there because regulators are serious about requiring businesses to reveal to investors the risks that they are taking. You cannot evaluate risks and return if you don’t know the risk.

I like to think of these risk disclosure statements as being like the fine print you are given when you get a new prescription drug. Do you worry about possible side-effects? If so, be careful about reading drug disclosure statements because it can make imagination go all out of control. Lots of bad things can happen, although the probabilities are low enough relative to the benefits to justify a drug’s regulatory approval.

Swaak’s point in Porto was not just that climate change poses risks, it was that these are material risks — risks that can affect the material operations of the firm — which is a more serious category that requires deeper consideration and fuller disclosure. Swaak hoped that that this status would encourage firms to take climate change more seriously because they would be accountable to their investors for this actions or inactions.

As the Wall Street Journal reported yesterday, the Biden administration’s Securities and Exchange Commission is poised to require the firms its regulations cover to make their climate-change disclosures more comprehensive. The era when climate change risks could be over-looked may be coming to and end.

The Risky Business of Wine

Swaak’s Porto insight made me realize that one way to assess the likely effects of climate change would be to view them through the lens of material risk. Analysis of the material risk sections of corporate annual reports is one way to learn what climate change risks businesses see ahead of them and perhaps also what they are doing to prepare for them. At the very least it is a way to see if climate change is taken seriously.

I admit that this is not deep analysis. The firms might be myopic and not see climate change risks clearly. And there may be differences in the priorities listed in the report and those reflected in their actions. Getting values, priorities, and actions aligned is a universal problem, not limited to just corporations or to climate change.

As an article in the current Economist newspaper suggests, disclosure won’t by itself solve climate problems, but the requirement is at least an incentive to move away from climate-damaging practices and investments. With this in mind,  I made a quick study of four wine sector firms which I had hoped to discuss in that webinar. The four are

(1) Constellation Brands, a very large beverage alcohol company and at one time the world’s largest wine maker.

(2) Treasury Wine Estates, a firm with global interests and product chains.

(3) Tesco, the largest wine retailer and so a key product chain link.

(4) Amorim, the largest cork closure producer, known for its sustainability commitment.

What did my analysis reveal? Come back next week to find out.

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Videos of the Porto Climate Change conference presentations mentioned above are available. Click on these links for presentations by Mike Veseth, Stephen Rannekleiv, and Robert Swaak.

Memo to CNN: Searching for Italian Wine?

Dear CNN,

Sue and I have been watching the CNN original series “Stanley Tucci: Searching for Italy.” Tucci visits six Italian regions, talks with the people, enjoys the food, and tells some stories. Maybe it is because of the pandemic, but there is something very satisfying about following Tucci on his journey. You might want to check it out.

Tucci starts his Giro d’Italia in Naples and then moves on to Rome, Bologna, Milan, Tuscany, and Sicily. The title suggests that he is “Searching for Italy.” Will he find it? Not if he thinks that Italy is a single thing with a single cuisine, because that Italy has never existed. But if he is willing to accept that Italy is its regions — and I am sure he is — then he’ll be fine and so will we.

Searching for Italian Wine

The chapter on Italy in my book Around the World in Eighty Wines is a Tucci-esque search for Italian wine. My quest to find one wine that can represent all of Italy’s wines comes tantalizingly close to success at one point, but ultimately I realize that Italian wine is impossible. There are only the wines of Italy’s regions. No wonder the Italian wine map is perhaps the most complicated in the world.

So it seems to me that Searching for Italian Wine would make a great series for the same reasons that Tucci’s program is so popular. But what would a program about Italy’s wines be like? Walking though beautiful vineyards is great and makes good video, but you can only do that so often before it gets a bit old. Ditto for visiting cellars, inspecting barrels and tanks, and wondering at the majesty of shiny new pneumatic presses and speedy bottling lines.

Watching wine being made isn’t as interesting as watching food being made for some reason (perhaps because it takes so long) and in any case Tucci’s producers seem to realize that there’s a limit to how many times they can show onions being diced or pasta being rolled and cut.  So instead they show the hustle and bustle of markets — that never gets old to me — and focus on real people, who they are, what they do, and how they define and are defined by the local products and food. That’s a model that works every time, if you don’t lose sight of your goal.

Searching for Italy and Its Wines

This leads me to my main point, which is that Tucci’s Searching for Italy could be the perfect Italian wine show if it just brought wine more fully into the frame (note: I write this before the Tuscany episode has been aired). Wine shows up all the time in Searching for Italy, but it is just something the people drink with the food, never an important element of the story. Wine in Italy is so much more.

The Bologna episode is a case in point. Yes, the Prosciutto, Mortadella, and Parmigiano Reggiano cheese are amazing. We were fortunate to enjoy them almost every day when I taught at the Johns Hopkins School of Advanced International Studies Bologna Center a few years ago. Our apartment was on a little alley called Via Pescherie Vecchie in the heart of the heart of the famous central market area. It is an inescapable element of the city’s life so naturally it was on Tucci’s Bologna itinerary. Here’s a video of a visit to this street to give you a sense of the place.

So what do  you drink with these intensely local products? Well, wine of course, but there is a particular local wine that we think is magical. It is called Pignoletto and it is so local that I doubt you will easily find it anywhere else. As I wrote ten years ago after a return visit to our old neighborhood …

Pignoletto is a dry white wine grown only in the hills outside of Bologna. “Lively, crisp, aromatic” is how Jancis Robinson describes it in her Guide to Wine Grapes. Pignoletto is distinctly Bolognese — grown there, made there and I think that every last drop of it is consumed there, too, since it goes so well with the rich local cuisine (almost as if they evolved together … which I guess they did).  It would be hard to beat the simple meal of salumi, cheese and bread that we had with a bottle of Pignoletto frizzante at Tamburini‘s wine bar in the Bologna central market.

The food and this wine evolved together in Bologna. No wonder they are such a perfect match. And they say something about the importance of place in a footloose world, don’t you think? It would have been easy to include this wine (and some others, too) in the Bologna episode, CNN,  and your viewers would have thanked you for opening this door to Italian wine, food, and culture.

Dear CNN: Who Ya Gonna Call?

So, CNN, you are probably wondering who can help you take Searching for Italy to the next level by adding the magic of wine to the mix? Well, our team here at The Wine Economist stands ready to lend a hand (and pull a few corks) and we have no end of ideas for season 2 in the Veneto, Friuli, Alto Adige, Piemonte, Liguria, Sardinia — and that’s just getting started! Let’s take that Italian map and search for Italy and Italian wine in every corner.

Italy is a mosaic of people, places, wine, food … and wine, too. Let’s work together to tell the story of Italian wine in context, one beautiful region at a time.

Sincerely,

The Wine Economist team

OTBN 2021: Open That Bottle of Armenian Wine

We celebrated Open That Bottle Night (OTBN) 2021 on Saturday with a pandemic-mode Zoom gathering of the usual suspects. We shared stories, honoring the tradition, and felt good about being together even if we could not also share the particular bottles of wine we brought to the party. Next year. Fingers crossed!

Usually the wines we select for OTBN are a backward glance. They remind us of people, places, or events that live in our memories and are released when glasses are poured. This year was different. Sue and I recently received samples of wines from Armenia from Storica Wines, an Armenia wine import company.  We’ve never been to Armenia. Never tasted the wines. OTBN was our excuse to pop the first cork, look ahead not behind, and imagine a future Armenian adventure.

First Taste of Armenian Wine

Wine has a very long history in Armenia just as it does in neighboring Georgia. Armenia calls itself the “birthplace of wine,” while Georgia fancies itself the “cradle of wine.” Georgian wine, as I have written here, is getting lots of attention just now. Perhaps Armenia will be next? That’s a question we will discuss in more depth in a future column. The focus for today is our OTBN discovery.

The particular wine we opened is the Keush Origins Brut traditional method sparkling wine. It is made from native Armenian grape varieties: 60% Voskehat and 40% Khatouni. The grapes come from 60 to 100-year old ungrafted vines grown at over 5000 feet elevation in the Vayots Dzor region. Does that get  your attention. Extreme wine!  Voskehat is Armenia’s most important white grape variety and is used to make many styles of wine. Khatouni seems to be relatively rare, even in Armenia. I couldn’t find a listing in the encyclopedic Wine Grapes volume.

Wine Gets Personal

Wine is about people as much as grapes and that’s true in this case, too. The Keush Origins Brut was one of the Armenian wines highlighted by our friends Dr. Matthew Horkey and Charine Tan in their handy book Uncorking the Caucasus: Wine from Turkey, Armenia, and Georgia,  so it was satisfying to imagine that we were tasting it for the first time with them.

Matt and Charine were impressed with the Keush Origins wine they tasted — it was the first release of this wine. But it is easy to tell that they were also quite taken with its maker, Vahe Keushguerian. who is profiled in the book. Keushguerian, in turn, is obviously taken with Armenia and its wine industry’s potential. They write that

Vahe is committed to reinvigorating Armenia’s wine culture. By using DNA technology to identify grapes found in abandoned monasteries and villages, then cultivating those grapes in his nursery, Vahe and his team have been rediscovering historic wine grapes and bringing them back to life.

We will have more to say about Armenian wine’s past, present, and future in a few weeks when we’ve had time to open the rest of the sample bottles.  In the meantime, what about the Keush Origins OTBN sparkling wine?

Wine’s Superpower

Well, no one comes to the Wine Economist website for wine ratings or tasting notes, but we enjoyed the Keush Origins Brut from Armenia quite a lot. Dry, of course, and mouth-filling. Easy to drink and enjoy and paired very well with cheese, meats, and Sue’s home-made focaccia. Looking forward to opening the other Armenian bottles in our small stash.

Let me close with some reflections on OTBN 2021. Open That Bottle Night 2020 was the last in-person gathering we had before everything closed down last year and distancing and isolation defined social relations. We hesitated a bit about shifting the meet- up online. A Zoom OTBN might honor the tradition, which is important to us, but it wouldn’t be the same. In the end we decided to move ahead and see what would happen.

And I am glad we did. Wine brings people together — that’s one of its superpowers — and it did so again even if we couldn’t actually share the wine, only a screen, some stories, and good company. I was surprised at how much this moved me and am grateful to our friends for making this possible.

Here’s the wine list from OTBN 2021. Thanks to Dottie and John for inventing OTBN and keeping its flame alive. Cheers!

  • Tempus Cellars 2015 Cabernet Sauvignon, Walla Walla
  • DePonte Cellars 2014 Pinot Noir, Oregon
  • Opus One Winery 1989, Napa
  • Chengyu-Moser XV Winery, 2017 Rosé of Cabernet, Ningxia, China
  • Keush Origins Brut, Armenia

Keush Origins Brut is imported by Storica Wines. 

Book Review: The Wines of Georgia

Lisa Granik MW, The Wines of Georgia (The Infinite Ideas Classic Wine Library, 2020).

The wines of Georgia are having a moment, and it is about time. Wine is very old in Georgia, the cradle of wine, but Georgian wines are relatively new on the markets here in the United States, as Georgian producers pivot from dependence on Russia and former Soviet states and work hard to develop markets in the UK, EU, US, and China.

The push into new markets comes at a difficult time because pandemic restrictions have limited travel by charismatic Georgian producers, who represent their wines so well in person, and have shuttered or crippled many restaurants where hand-selling of the wines would be very effective.

We are fortunate, therefore, to have this new book by Lisa Granik MW to spread the word and build momentum for Georgian wine in the post-covid world. Granik tells us that she’s written a reference book, which readers can dip into as needed and read in any order that pleases them. This is partly true. The second half of the book, which presents information about each specific wine region, certainly fills the reference book bill. I am very impressed by the attention to detail and deep scholarship I see here. A wonderful resource for any who wants to take a deep dive into Georgia’s wine industry.

The first half of the book, on the other hand, is a compact primer on Georgia and its wines that I’d recommend to anyone who wants to get a basic understanding of this topic. The chapter on wine culture, with its explanation of the supra wine feast tradition, was fascinating. We attended a couple of supra feasts when we visited Georgia a few years ago for a United Nations conference and Granik’s analysis helped me understand a few fine points I missed at the time.

I was especially interested in the history chapter. Georgians are proud of their long history — dating back thousands of years — but I admit that I am even more interested in the history of the Soviet days and the transition to the market economy. I was not disappointed both with the main narrative and with the detailed footnotes (which are conveniently placed where they belong — at the foot of the page, not the back of the book).

One thing that I asked when we were there, and apparently it is not an uncommon question, is why grape vines are mostly planted on valley floors in Georgia and not on the hillsides as you might expect? The answer goes back to the Soviet days. Quantity and cost were paramount and hillside vineyards did not lend themselves to machine harvest and cultivation.

The chapter on native wine grape varieties is best seen as a reference because there are so many of them that it is hard to remember the names after a while, but I enjoyed reading through the descriptions, focusing especially on the main varieties.. Granik lists the grape varieties alphabetically: white grapes from Akhaltsikhuri Tetri and Avasirkhva to Tsolikouri and red grapes from Adansuri to Usakhelouri.

Granik’s accounts of the places we visited and the people we met in Georgia rang true and went beyond what we learned while we were there. Granik is obviously a fan of Georgia and its wine, but not an uncritical booster. She doesn’t hold back in discussing problems and challenges where she finds them. Her final chapter, where she pulls together challenges and opportunities, is required reading. Highly recommended.

Kiwi Malbec? Signature Wines & the Dutch Disease Effect

Some people like to define wine regions by their signature grape varieties. New Zealand = Sauvignon Blanc. Argentina = Malbec.  You know what I am talking about. So what should you think of a Kiwi Malbec like the one shown here? Read on to find out.

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What do you think of when I say Malbec? Well, there are lots of things that could come to your mind, but I expect that Argentina or Mendoza are at or near the top of your mental list for this term. Malbec is Mendoza’s signature wine grape and it tends to dominate the region’s image.

Signature Wines & the Dutch Disease

This is convenient from a marketing standpoint — it is good to stand for something in the world’s congested wine markets. Here in my home state of Washington, for example, we make great wines from many different wine grapes and we sometimes yearn to have a defining variety like Argentina or our neighbor Oregon with its famous Pinot Noir.

But signature wines have a downside, which I have compared to an economic condition called the Dutch Disease. Sometimes when one sector of an economy becomes particularly successful the result isn’t a tide that lifts all boats, but rather a sort of whirlpool that drags the other sectors down.

Thus Argentine Malbec’s great success makes it more difficult for other interesting wines to get attention. Personally,  I always look for Argentine Cabernet, Semillion, Cab Franc, and Syrah, for example, and there are some wonderful Chardonnays and high-elevation Torrontes, too. But I imagine they are tougher to sell than good old Malbec. The signature wine rises high, but can cast a deep shadow.

New Zealand and the Dutch Disease

Now consider New Zealand wine. What comes to your mind? Chances are that Marlborough Sauvignon Blanc comes first, with Pinot Noir from Central Otago on the list for many. I’m a big fan of these wines, but the Dutch Disease dilemma applies here, too. Other wines and other regions don’t get the attention (Rodney Dangerfield would say they don’t get the respect) they deserve because of the signature wine phenomenon.

So what would you think about a Hawke’s Bay Sauvignon Blanc or a Gimblett Gravels Malbec? Well, I hope your interest would be piqued at the very least. Sue and I visited the Hawke’s Bay area (think Napier on New Zealand’s north island) several years ago, where we were fortunate to meet with Steve Smith MW of Craggy Range. He helped us understand this interesting region and introduced us to the Gimblett Gravels’ rocky dry river bed terrain that makes me think of alluvial fan terroirs such as To Kalon in Napa Valley or The Rocks District of Milton-Freewater in Oregon. Hawke’s Bay is warm enough to make great wines from Bordeaux grape varieties (of which Malbec is one), which are unexpected for those who haven’t fully explored New Zealand’s varied wine scene. The Gimblett Gravels is a special case within that special case. Fascinating.

Now Hear This!

Which brings us to some wines we’ve been for fortunate to be able to sample during this pandemic period. Daniel Brennan is an American who came to New Zealand in 2007 with the intent to focus on Pinot Noir. But somehow the people and terroir of the Hawke’s Bay region captured his attention, which is something Sue and I can appreciate. We stayed with a modest grower/winemaker family in the Esk Valley during our visit and got a deep sense of the people and place.

Brennan makes 11 different wines under the Decible and Giunta labels (including a Pinot Noir from Martinborough). We had the opportunity to sample three of them: the 2019 Decibel Crowethorpe Vineyard Hawke’s Bay Sauvignon Blanc, 2020 Giunta Malbec Nouveau, and 2017 Decibel Gimblett Gravels Malbec.

The Sauvignon Blanc broke through some of the stereotypes about Kiwi Sauv Blanc, with more savory notes than you might expect. The Malbec  Nouveau was just what you want from a young wine like this: fruity, juicy, easy to drink and enjoy. The Gimblett Gravels Malbec featured a line bright acidity that tied together fruit and tannins in ways that evolved in the glass over time. The acidity made it different from most of the Argentina Malbecs we’ve tried.

Brennan makes a number of wines that run counter to the signature wine stereotype, but his passion for Pinot Noir is undiminished. He hosts a popular podcast called Vintage Stories that spreads the word about Kiwi Pinot and the people who craft it.

I’m a Pinot fan, too — and I hope to taste Brennan’s Martinborough wine at some point — but I enjoy these Hawke’s Bay wines because they are distinctive and because they challenge the signature wine stereotype and the Dutch Disease that can go with it. The Gimblett Gravels Malbec forces you to re-think the conventional wisdom about New Zealand … and about Argentina, too, I hope.

Institute of Masters of Wine Webinar: Climate Change & Global Wine Trade

The Institute of Masters of Wine is continuing its webinar series next Wednesday February 17, 2021  with a session on “The Impact of Climate Change on the Global Wine Trade.”

The panel includes

Dr Greg Jones – Chair, Evenstad Center for Wine Education / Wine Studies
Lulie Halstead – CEO Wine Intelligence
Jane Masters MW (moderator) – view MW profile
Mike Veseth – Wine Economist, Professor emeritus of International Political Economy at the University of Puget Sound (Tacoma, Washington)

The session is open to all, but capacity is limited. Follow this link to register. You can track future webinars and view previous ones by following this link.  Hope to see you on the zoom screen!

Anatomy of WineFuture 2021: Think Big

WineFuture 2021, an ambitious virtual wine conference, is just two weeks away and I am excited to be part of the program. The wine industry has embraced the necessary pivot from in-person events to on-line programs, so there are lots of virtual conferences these days. What makes WineFuture 2021 different?

Thinking Big

One distinguishing factor is the expansive vision of the organizers. This program thinks big, with global reach and broad societal focus.  The gist of the program is this: the world is facing not one, not two, but at least four crises and the future — of wine, but not just wine — depends on what we do to address these challenges. The four crises are these.

  • Coronavirus Pandemic Crisis. The global health crisis comes first if only because it is an inescapable fact of daily life today that is likely to cast a long shadow into the future.
  • Global Economic Crisis. The pandemic and policies to address it have pushed the global economy into crisis, which some regions suffer more than others. China seems to be recovering pretty well, for example, while Europe looks likely to slip into another recession in 2021.
  • Inequality and Social Justice Crisis. The health and economy crises have accentuated many serious underlying issues. Inequality and social justice problems are not new, but they, along with the political reactions and social responses to them, have captured our attention.
  • Climate Change Crisis. Climate change is an existential threat and no serious attempt to address other problems can afford to ignore it.

Each of these crises demands our attention. And although there is a natural desire to prioritize the crises and tackle them one at a time, it is important to consider that they are interdependent and can’t really be unstirred, to use a phrase from Tom Stoppard’s “Arcadia.” It is a dauntingly complicated situation. But that’s not a reason to ignore complications and uncertainties. It is a reason to try to unravel the threads to increase understanding so that effective action is possible. That’s what WineFuture 2021 is about.

Beyond Davos Man

Looking through the many sessions and keynote talks it occurs to me that this is the sort of ambitious agenda that I normally associate with the World Economic Forum, that insanely expensive gathering of the global elite that takes place every winter in Davos, Switzerland (except this year, of course, because of the pandemic). What’s different about WineFuture 2021 is that it focuses on the wine industry, of course, and is open to a much broader audience and pressing practical concerns. “Davos Man” has become a derogatory synonym for a certain insulated attitude toward the world and its problems. I don’t see much evidence of Davos Man at WineFuture 2021 … and that’s a good thing.

So what is it about wine that provokes ambitious projects like this? I pondered this question a couple of years ago at the equally ambitious Porto Climate Change Leadership Conference. Maybe it is because wine is an agriculture product, and so rooted in nature in a way that finance capital and some manufactured goods are not? Maybe it is because so many of the largest and most important wine firms are family businesses, which bring a generational perspective to their thinking. Maybe it is wine’s special ability to bring people together — especially thoughtful people like Adrian Bridge, who was instrumental to the Porto project, and Pancho Campo and David Furer, who are the organizing forces for WineFuture 2021.

And then there’s this. WineFuture 2021 will benefit three non-profit initiatives, with funds from the program plus an auction of items donated by speakers going to the charitable causes. The non-profits are SOS Cape Town, which works to address water issues in South Africa, The Porto Protocol, which promotes sustainability in wine, and North Bay Jobs with Justice, which supports initiatives to improve worker conditions in California.

Unfolding Wine’s Future

The four day conference begins with analysis of the challenges, then dives deep into particular areas of concern, focusing on workable solutions, before gazing ahead to the future. Here is how the first day unfolds.

Francis Ford Coppola opens the show — and with his experience in film I know he will do this in dramatic fashion. Coppola is famous for his cinema work, of course, but also for his important efforts in wine and for the values that guide his many and varied efforts. The first formal panel, moderated by the wine industry’s most famous MD — Laura Catena — will address the inescapable topic of the health crisis.

The second panel examines at the economic crisis. I’m speaker and moderator and am delighted to have Rabobank’s Stephen Rannekleiv, South Africa’s Carina Gous, and Professor Eugenio Pomarici of the University of Padova join me for this discussion.  Together we plan to break down the economic impacts and reactions in ways that generate useful insights. We are followed by important panels on reviewing and reversing discrimination, how to deal with the unexpected, and then a keynote by UNESCO Director General Irina Bokova.

The program on days 2, 3, and 4 follow with more important programing by global leaders and wine industry luminaries including keynote talks by Pancho Campo, UNWTO Executive Director Manuel Butler, and OIV Director General Pau Roca. Click here for a list of all the speakers and here for the complete program.

WineFuture 2021 is kind of a big deal. It thinks big, acts big, and seeks to set a high standard for the wine industry as we move  into the future. I am proud of the wine industry for its support of and commitment to big ideas and big initiatives like this one.

Three Things I Learned at the Unified Symposium’s “State of the Industry”

I’m the luckiest person I know and one aspect of my good fortune is that I have had the opportunity to moderate and/or speak at the Unified Wine & Grape Symposium‘s “State of the Industry” session each year since 2012. Last week’s program was therefore my tenth appearance on the “State of the Industry” panel. How time flies!

Each year’s session brings together leading wine industry experts to talk about key trends and opportunities, recognize unresolved problems, and celebrate success. No wonder the big room (see photo above from a few years ago) is packed  with industry leaders from around the world each year — until 2021, of course, when the pandemic moved us on-line.

I get a ringside seat for both the formal presentations and the backstage banter and discussions. I always come away with fresh ideas and a better understanding of the wine industry. Herewith a few observations from the 2021 program.

#1 Elusive Market Balance 

A year ago one of the biggest concerns in California and Washington state was the structural surplus of wine grapes and bulk wine. With new vineyard acreage coming on-line,= a couple of big harvests already in the tank, and demand hitting a plateau, growers were encouraged to take a realistic look at their options and proactively manage supply until demand had time to catch up.

The market is much closer to balance as we enter 2021 and the big bulk wine hang-over seems to have receded. The 2020 harvest was short in California and Washington, too. The market hasn’t flipped, but  things have tightened up constructively.

But that structural surplus is still there. The short term balance is more about a short crop and smoke taint issues more than long term strategies. And price is a factor, too, with coastal fruit selling for California appellation prices in many cases. That’s supply and demand, of course, but it only works in the long term if costs adjust to the new price realities.

#2 The Mandela Rule

“They say that time changes things, but sometimes you have to change them yourself.”

I first encountered this saying when I was on a speaking tour in South Africa. I heard it attributed to Nelson Mandela, which pleased me, although the interweb thinks that Andy Warhol said it first. Either way, it seems to apply to today’s wine industry.

Jeff Bitter of Allied Grape Growers advocates a proactive approach to the supply side of the market, for example. Last year he called for growers to take a hard look at their vineyards and pull out marginal vines sooner rather than later. Better to turn the page than to leave fruit unpicked when prices drop too low or demand dries up.

Cost can be addressed, too, at least in some market segments. Higher yields don’t necessarily mean lower quality any more. The same is true for machine harvesting, which addresses both cost and labor availability issues.

There is still a lot of work to do, but it has been inspiring to see the industry rise to the occasion of all the challenges that we face in these “perfect storm” times of pandemic and recession.

#3 Pathways to Success

The “State of the Industry” panel concludes with a brief presentation by market guru Danny Brager where he spotlights “best of the best” wine firms that have been especially successful in the previous  year. The awards are modeled on the Olympic games awards, with bronze, silver and gold medals. It is always fun to try to guess who will get the prize.

The specific criteria for the gold medal means that it generally goes to big firms that have achieve high levels of both absolute and relative sales growth. This years winners were  Riboli Family, Delicato Family, Deutsch Family wineries. If you are familiar with these firms you know that they are very different in terms of their product lines and marketing strategies. Their success proves what Jon Fredrikson always told us when he was on the State of the Industry panel: there are no one-liners in wine.

This point is even clearer if you look at the wineries that received silver medal recognition this year.  Regional, national, and international wineries. Iconic brands alongside firms that fill private label needs.

What do they all have in common? Wine, of course, but it is obviously more than just fermented grape juice that connects this diverse list of successful wineries. Let me make this a discussion question. Give this some thought and leave a comment below with your ideas.

I don’t want to discount the hardships that many wine businesses have faced. I know a number of wineries, distributors, and sellers that have been forced to close their doors or dramatically reduce operations. I wish there was more support available for these businesses and that counter-productive policies like the U.S. wine tariffs could be reversed quickly. But Danny Brager’s lists of most successful wineries suggests there are still good opportunities for growth if you are in the right place and the right time with the right products and strategy.

#4 Bonus insights

Bait-and-switch alert: there were a lot more than three key points presented at the State of the Industry session last week. Herewith a few of them in quick-fire bullet format.

  • Cab Bubble Deflates? One of my concerns in recent years is that Cabernet Sauvignon has been over-planted and that the bubble would eventually pop. Well, it looks like the Cab bubble is losing pressure, at least in California (I’m not sure about Washington state) as some vines are being replaced with other grape varieties.  But …
  • Pinot Noir Over-Inflated? All the attention to Cabernet may have hidden irrational exuberance in Pinot Noir plantings. Is this a bubble ready to burst?
  • Sauvignon Blanc the Next Big Thing? Sauvignon Blanc sales have been growing steadily for many years. Initially this phenomenon was associated with New Zealand wine imports, but now it seems to be a broader trend. Will growers move out of over-supplied Cab and Pinot and away from Pinot Grigio to Sauvignon Blanc?
  • It’s a War Out There. Both Danny Brager and Jon Moramarco made an important point about the nature of competition strategy. Wine, beer, and spirits are all segments within the broader beverage alcohol category. It is typical to think about competition within each segment: wine vs wine, beer vs beer, etc. It makes sense that you would target customers of close substitutes for incremental sales. But really the bigger war is between and among the segments: wine vs beer (wine does well here) and wine vs spirits (a tougher battleground). Overall beverage alcohol sales have been and likely will be flat, it is a battle for market share.
  • And the Winner is …  Hard seltzer! Hard seltzer sales have boomed in recent years and continued to rise during the pandemic, the fastest-growing slice of the beverage alcohol category. What’s the appeal? Single serving size. Low calorie, low alcohol. Maybe even a healthy image (because they have low alcohol, hard seltzers feature nutritional labels that most wine brands don’t have).  The low alcohol sweetish wine segment has done very well — Stella Rosa sales have boomed, for example, and Indiana-based Oliver wines have thrived here as well.

That’s all for now. Looking forward to 2022 when (fingers crossed) we will be able to meet in person in Sacramento in the new and improved convention center.

2021 Wine Scenarios: Good, Bad, or Ugly?

What will the wine world look like a year from now?  Will our assessment of 2021 be good, bad, or ugly? Last week’s Wine Economist column briefly explored a “Roaring Twenties” scenario that is making the rounds both for wine and for the economy generally.

The Roaring Twenties theory holds that the pandemic has created pent-up demand for all the things that we’ve had to sacrifice in the last year but that will soon become available again. Parties and celebrations. Gatherings in bars and restaurants. Travel and tourism. They won’t all necessarily come roaring back at once, but the rebound will be substantial and be fueled by a corresponding rebound in economic activity.

The Roaring Twenties scenario is what I call a “ceteris paribus” (holding all else constant) theory. That is, it assumes that pretty much everything remains the same except that the covid vaccine lets people come out and play. With interest rates pegged near zero, fiscal stimulus doubling-down, and financial markets soaring, the good times will surely roll, or at least that’s what some hope and others firmly believe.

The Wheel’s Still in Spin

But it is important to keep in mind that a lot of positive events have to line up all at once for this to happen. I was reminded of this by the cover of The Economist newspaper’s The World in 2021 issue, which features a casino slot machine device (and not a crystal ball) as its symbol. The future isn’t written and waiting to be perceived is the message here. There is a lot of risk and uncertainty ahead.

The future, whatever it turns out to be, won’t be just one thing. It will be the combination of what happens on the politics wheel, the economics wheel, the public health wheel, the environment wheel, and so on. Our experience in 2020 shows that these wheels can sometimes align in terrible ways — think pandemic, recession, wildfires, and social and political unrest. There is even the chance of problems in one area cascading through the system in a vicious cycle.

We might feel we deserve the happy flip-side of things in 2021, but the odds of a golden Goldilocks outcome are longer than we’d like. We should  anticipate problems as well as potential good times. Not trying to be unnecessarily gloomy — just realistic.

To simplify, let’s imagine that 2021 depends on four variables or spinning wheels: public health, economy, politics, and the possibility of “black swan” wild card events Clearly there are many different possibilities for public health.  The hope for very fast roll out of vaccines is no longer realistic, although there is a sense that officials are learning quickly about troublesome bottlenecks. Fingers crossed …

Attention is focused on vaccines, but the virus surge continues in many regions with record case counts and deaths. It isn’t clear how quickly vaccination can overcome community spread and whether this third infection round is the last or will be followed by more surges or echoes of this one into the future.

Spinning the Economic Wheel

Clearly a lot is riding on where the public health wheel settles, especially for the travel and hospitality sectors, which are economically important both in general and for the wine industry. Then there is the economy wheel. to consider.

The relatively strong economic recovery in the United States is built on heroic levels of government support, which will end at some point, but when? Will monetary authorities hold their nerve and keep the spigots open as the economy begins to open? Will fiscal stimulus continue to preserve incomes and employment? What about the high levels of debt that corporations and governments have taken on?

This will depend to a certain extent on politics. Each of the major economies is currently experiencing its own unique brand of political instability or crisis. It is easy to imagine scenarios where political crisis in one country creates contagious economic or social problems elsewhere. Here in the United States there is widespread disagreement about what a good political result would look like. Many observers, for example, were happy when it looked like Republicans would control the Senate and gridlock would prevail. Gridlock, to this way of thinking, would mean that only the most moderate policy actions would prevail.

The Curse of the Black Swan

Now, with Democrats in the White House and majorities in the House and Senate, more aggressive policies are possible, at least in theory. Is this good or bad? Opinions vary according to political persuasion and the particular programs considered. So you can see that ceteris is unlikely to be paribus in 2021. And that doesn’t take into account any “black swan” wild cards that might be on the deck.

A Black Swan event is something with very low (but not zero) probability, but very high impact. The covid pandemic of 2020 is a good example of a Black Swan event. The possibility of a global pandemic, originating in Asia and spreading through international travel vectors has been known for some time. Indeed several of my university students studied the situation in the aftermath of earlier Asian pandemics and a number of government- and non-government agencies worked on detailed response plans.

It seemed pretty clear that there would be a problem eventually, but the particular path and specific consequences were not clear. Looking back it appears that countries that had previously experienced such a pandemic took the possibility more seriously and acted more decisively than others did. In any case, the low-probability event happened and the cost has been very high.

Black Swan Inflation

Inflation is the Black Swan event I most worry about for 2021. (Although I am not sure which kind of inflation — see Neil Irwin’s recent New York Times column.)  Most economists acknowledge that there is a chance of an inflation spike is 2021 or 2022, but most assign a very low probability to the threat. Nothing to worry about. And probably they are right. However …

Literally trillions of dollars (and other currencies) have been pumped into the global economy recently and so far inflation in general has remained very low  Governments and businesses have borrowed enormous sums at the resulting low or even negative interest rates. A resurgence of inflation would push interest rates higher and alter dramatically the economic landscape.

In a way, an inflationary surge would make the covid pandemic crisis a bit like the oil crisis of the 1970s. The initial impact of the oil crisis was harshly disruptive, but the long term effects, including both high inflation and the draconian policies needed to contain it, were challenging, too, and cast a long shadow over global events.

Good, Bad, or Ugly?

So you can see that the Roaring Twenties is just one of many possible economic scenarios and, even if it comes to pass as many hope, there are still many possible pathways and denouements. Good, bad, or ugly? Too soon to tell.

I know that some people believe that wine is immune to economic cycles, but wine businesses are businesses with debts, interest payments, counter-party risks, and so on. What happens to the economy happens to all of us in one way or another and it is wise to think about the possibilities.

Times are changing and perhaps that’s as much as we can confidently predict. This kind reminds me of an old Bob Dylan song. Listen up!

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Return of the Roaring Twenties? Anatomy of Wine’s Next Chapter

Will wine’s next chapter be characterized by continued crisis and austerity? Or is a return of the Roaring Twenties on the cards? Herewith some thoughts about the changing wine market and where it might be going next.

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I became an economist because I’m interested in change and economics provides a logical framework to study cause and effect. I gravitated to the study of wine economics as I began to learn more about global wine markets and saw in them case studies of the sort of dynamic forces that fascinate me.

There are many ways to think about the economics of change. The first formal model that I discovered in my first year university economics course was the “cob web model” of agricultural markets, which explains why some markets are in constant flux and seldom static or idle. Under some conditions markets will gradually converge to equilibrium, but sometimes they can blow up! Change is the rule, not the exception. It is no surprise that the cob web model applies to the wine market as the Turrentine Brokerage wine business “wheel of fortune” aptly illustrates.

The Dynamics of Change

I studied globalization for many years and developed an analytical framework to help me understand global change. It isn’t original by any means and doesn’t apply to every situation, but it is a way of thinking that helps me work things out. Here’s a way to think about change. Start with a dynamic force, the source of change. Could be a change in policy, technology, or even nature. The dynamic force stimulates responses in the form of actions, which attempt to accommodate or exploit change. The actions further disrupt existing systems and bring forth reactions to both the initial change and the actions it produced. If the reactions are strong enough, they can produce another wave of change.

Change. Action. Reaction. Change. Once you think about it  you start seeing these forces everywhere.

The Wine Wars Scenario

If you’ve read my book Wine Wars you can already see how this analysis can be applied to the wine industry. Globalization is the dynamic force in this case and it comes in many flavors and has many impacts both positive and negative. Globalization has spread wine around the world and fostered the exchange of international investment (think Chandon China), expertise (think Flying Winemakers like Michel Rolland), and grape varieties (Rkatsiteli in the Finger Lakes of New York, Gruner Veltliner in Australia’s Adelaide Hills, Chardonnay and Cabernet just about everywhere).

Globalization brings a world of wine choices to your doorstep, inducing many actions is response. The one that I focused on in Wine Wars was the commodification action. With so many choice at so many price points, consumers can feel overwhelmed. Risk and uncertainty discourage wine consumption, so a logical action is to simplify wine. I identified “the Miracle of Two Buck Chuck” as a particularly successful example of this action. Consistent commercial quality wine plus low price backed up by Trader Joe’s bulletproof reputation equaled a phenomenon. Two Buck Chuck gave millions of Americans the confidence they needed to try wine and to enjoy it. It helped democratize wine, if you see my point.

But not every attempt at commodification grows the wine pie the way that TBC did. And sometimes simplification can go too far, as the current hard seltzer phenomenon attests. It is no wonder that there is a reaction that I called “the revenge of the terroirists.” The reaction also took many forms, with the natural wine movement just one highly visible aspect.

What Next?

We have experienced a lot of change in the last 12 months in terms of the pandemic and the resulting economic crisis. This prompted a flood of actions ranging from dramatically aggressive monetary policies and fiscal stimulus packages to lockdowns of bars, restaurants, cities, regions, and sometimes whole nations. It’s been a “K-shaped” situation: some people have profited from the pandemic syndrome while others struggle and sometimes fail to hang on.

Now there is relief in sight with the emergency release and slow roll-out of vaccine. How will people react when the dark clouds begin to lift? I have argued that we are unlikely to see a sudden return to what we used to call “normal” life. You cannot simply flip a switch and bring back business and lives that have disappeared.

The Punch Bowl Overflows

But not everyone shares this cautious view and there are plenty who look forward to a “Roaring Twenties” of fast growth and exuberantly high times as Financial Times columnist Martin Sandbu recently noted in an op-ed titled “Goodbye virus-ridden 2020, Hello Roaring Twenties.” One hundred years ago the world was traumatized by a bloody world war and the devastating Spanish flu. When the fog cleared, people looked around and decided it was time to celebrate — to live for now since tomorrow is always uncertain.

From a financial standpoint, there is reason to think that the twenties might roar, at least for a while. I used to teach my university students the conventional wisdom that it was the role of the Federal Reserve to take the punch bowl away just as the party was really getting rolling. But these days central banks are pledging to keep interest rates very low and easy money available far into the foreseeable future.  It is easy to see how this could pump up a bubble (for bears) or sustain solid growth (for bullish types).

Sandbu writes that

Public health restrictions have disproportionately hit the more hedonistic end of the consumption spectrum: what we have stopped doing is eating together, drinking together, entertaining one another and going on holiday together. Vaccine-induced herd immunity will, quite literally, make it OK to party again. And my goodness will we have reason to party.

It is not just the numbers that point to a consumer boom; behind them lies something less tangible but yet more convincing. You do not have to be an economist, only human, to understand the desire to let loose, get together, and take risks after a year of cautiously locking down at home and distancing ourselves from one another.

This scenario suggests a roaring decade for wine, too, as the travel and hospitality sectors take flight. It won’t be a simple reset, however. As any Marty McFly fan can tell you, the future changes when you tweak its past.  But the wine sector should share the good times in Sandbu’s roaring economy scenario.

There are no guarantees, however. The roaring 1920s didn’t end very well. The current economic expansion depends upon both good health policy and good economic policy. What happens when fiscal stimulus ends, as it much eventually, and the monetary punch bowl runs dry? What will the receding tide reveal?

And then there is inequality to consider. Sandbu notes that

What all this calls for are measures which ensure that everyone feels the economic and social system has their back. A dark underbelly was, of course, also as much a feature of the previous Roaring Twenties as the glitz of its Great Gatsby surface.

The economy and the wine economy, too, have been K-shaped so far, with some sectors rising sharply while others struggle or fall. That’s not a recipe for sustainable growth.