Winberis

European wine growers choose long term strategy

Happy Day!

According to Just-drinks.com, European wine growers are rushing to apply for subsidies to rip-up non-economic vineyards.  What was one of the most contentious elements of a reform package designed to drain the EU's "wine lake" seems to have become quite a well regarded option.

France and Spain (amongst others) have long had the problem of producing far more wine than either country could hope to market.  This problem has created:

• social rifts as evidenced by CRAV, a group which emerged in response to the brutal economics of producing the relatively non-descript wines of the Mediterenean coastal regions. 
• a bottomless pit for EU subsidies which could happily be used for developing new markets for European wines as opposed to industrial distillation. 
• a situation where good wines from large apellations like Cotes du Rhone suffer from consumer backlash toward the BOGOF specials they've had at one too many art openings

Now it seems:

• "If all the requests were granted, the Commission would have to more than double its compensation budget for 2008, from EUR464m (US$598m) to EUR1bn"
• "We can only accept about 45% of the demand this year"
  
• "Applications from Spain amounted to 9% of the country's vines"
• "Up to 175,000 hectares of EU vines are to be grubbed over the next three years as part of the EU wine reform process"

Here's to a rise in the average quality of wine in Europe!  (and an end to the produce / distill death spiral)

Thoughts on Bordeaux En Primeur

A friend of mine recently posited the following query, and I find it to be a worthwhile topic, certainly one with a current relevance:

“What are your thoughts on Bordeaux En Primeur?  With a fair amount of controversy surrounding the entire process, do you think this centuries old system will survive?

I've been working on a project on futures wine market (mainly bordeaux) and my research has forced me to believe that there are serious shortcomings in the system, especially the distribution channel.  Would you agree that we are not going to see a huge shift from the present pricing policy considering the fact that new markets, led by Russia, China & India are going to fill up any voids created in the traditional western markets?

While we are at it, does the relegation of these fine wines to mere commodities like cotton, coffee and pork belly bother you?”

I think we need to pay attention to where pricing power exists in the en primeur value chain.

We can safely assume that the First Growths, plus their right bank equivalents will continue to be in great demand in the medium term.  I think we can also surmise from the 2006 and 2007 vintages, that they will sell en primeur despite vintage quality.  This is a great place to be in the market.

We have also seen that companies that occupy places with more modest market presence have come under a great amount of price pressure in the last few vintages, specifically since 2000-2001.  In these more modest strata, retailers have more pricing and distribution control and are able to set the pace.  Price increases for the '05 vintage have been eroding, and plenty of wine remains in the market.

I believe that this market polarization will continue.  The best strategy for brands like Lynch Bages, etc. which straddle the line between the top and the middle, will be to try to make the leap in perception of quality/scarcity while they can.  The middle of the market will reap few of the rewards available to the top.  Spending now will, I believe put these companies in a much stronger position going forward, with healthier margins providing worthwhile returns.

As for whether I regret this state of affairs?  Bordeaux has been largely a commodity producer for its whole history.  This region began by producing anonymous bulk wines for foreign markets.  Chateau brands came much later and don't represent a "normal" state of affairs, or a "manifest destiny". I believe that 90% of the production of Bordeaux will head back to its history as anonymous wine for export. French government policy of supporting economically nonviable production will only exacerbate this situation. So no, I don't see any gross injustice.