Wine, Globalization, and the End of History

December 5, 2023 By Mike Veseth in globalization, Unified Wine & Grape Symposium, wine, wine history Leave a comment

I have been thinking a lot recently about how much things have changed since the 1990s and what the future might look like in this light. The event that has provoked this unexpected thoughtfulness is the upcoming Unified Wine & Grape Symposium, which will be the 30th edition of what has become North America’s largest wine industry gathering.

A Golden Age?

Looking back at the program for the first Unified, it is clear that the American wine industry was worried about the future. It must have seemed like obstacles and headwinds were all around. Problems in the vineyards. Rising foreign competition. And concerns about both government regulation and uncertain consumer demand. One session was titled “Who Isn’t Drinking Wine and Why.” That’s a question we are asking again today.

Looking back it is easy to appreciate these concerns (because they never really go away). What folks back then didn’t realize, however, is that they were in some ways at the start of a wine industry golden age. Baby boomers were entering peak wine-buying years. The economy was growing, fueling the rising interest in wine. The “French paradox” infused popular culture with the idea that wine (especially red wine) was actually good for you because of its role in the healthful Mediterranean diet. Wine made you feel good, it was good for you, and you could afford to drink it. What could be better?

Things have changed a lot since the 1990s and some of those changes contribute to the challenges that the industry confronts today (and that we will strive to address at Unified 2024).

The Globalization Effect

This makes me think about other ways the world (and the wine world) have changed over these 30 years. Globalization was gaining speed in the 1990s, for example. It was controversial (think NAFTA debates and the Seattle WTO meeting riots), but eventually (when China joined the WTO, for example) it was seen by many as an inevitable tide, an irresistible force.

No one thinks globalization is inevitable anymore. The Global Financial Crisis made investors aware of the risks of international market contagion. The supply-chain disruptions of the COVID era made “nearshoring” an awkward but understandable concept. And now political tensions and uncertainties have driven “friendshoring” trends.

Economic globalization hasn’t collapsed. But it is different. Globalization was a powerful force in wine in the 1990s, too, as patterns of production and consumption around the world shifted and international wine trade volumes rose. They kept rising, too, as the graph above (taken from the most recent OIV global wine report) shows, until about 15 years ago, when the volume of wine exchanged across borders reached a plateau. (Click here for a pdf of the OIV report).

The value of the international wine trade has continued to rise, as the graph below shows, due to the general premiumization trend. The pattern of global wine trade has changed, too, both in terms of shipping patterns (think the sharp Australia-China shifts) and the commodity composition of shipments (packaged goods versus bulk wine, for example).

The End of History Effect

One of the forces that powered economic globalization was the collapse of Communism, which opened up a world of trading and investment opportunities. We called it “The End of History” after the famous book by Francis Fukuyama. History was ideological conflict, Fukuyama argued, which was all over. The liberal order was the only story left to tell.

Wine had its own “End of History” in the 1990s, although it understandably got less attention. The history of wine was defined, more or less, by Old World notions of appellations and terroir. Burgundy was Burgundy and Pinot Noir made anywhere else wasn’t the same. Ditto for Bordeaux and Cabernet Sauvignon. New World producers might purloin Old World titles to market their wines (remember Gallo Hearty Burgundy?), but no one was fooled.

Jancis Robinson’s 1995 BBC television wine series was an important part of the movement to rewrite wine history. She didn’t organize her tour of world wine as you might expect — Burgundy, Bordeaux, the Rhone, the Loire. She sorted things by grape variety — Pinot Noir, Cabernet, Syrah/Shiraz, Sauvignon Blanc — and featured New World wines and producers alongside familiar Old World names.

Not everyone was convinced that the new history was valid. My favorite scene was where Robinson poured a glass of New World Pinot Noir and asked a famous Burgundy producer what she thought. The winemaker scowled at her glass and proclaimed that Oregon shouldn’t make something like this. They should find their own terroir, she said, invoking that mystical French phrase almost like a curse. Oregon on the same stage as Burgundy? It’s like the end of history. What next?

However, the curse was cast in the opposite direction. Not for the most famous names of Burgundy and Bordeaux, but for producers with less well-known names from less-recognized appellations. The fact that they were defined by their place turned out to be a disadvantage in the global wine world where grape variety was the new lingua franca. ( I am smiling at the irony of this phrase even as I type it.)

The baby boomer consumers that everyone was chasing didn’t grow up understanding appellations, but they rather quickly came to understand grape variety and to define their wine world that way. Thus the wines of emerging global powers New Zealand and Argentina became known for their signature grape varieties more than the particular regions that grew them. No one asked if France or Italy had a signature grape variety (a good thing, because they obviously don’t). But other regions asked the question themselves and decided that the lack of a grape of their own was all that was holding them back.

The End of History in terms of ideological conflict hasn’t exactly worked out. Old divisions have reemerged and new ones have arisen. There is plenty of conflict to go around and history endures.

History has returned to the wine world, too. Wine defined by grape variety was the great leveler and helped open up the world to wine. But today, with the market at a plateau, product differentiation is the name of the game, and claiming terroir is one strategy. AVAs are popping up all over in response.

Golden Age Worries

The golden age of the 1990s didn’t last for wine, but that’s how golden ages work. What’s interesting is that the golden age was already upon us before we realized it (and ended before we knew it, too).

I wonder what’s ahead for wine? My friend Kenneth Boulding used to say that history doesn’t repeat itself, but sometimes it stutters. Something to think about! Another golden age? Hard to see how the stars could align to make that happen. But I don’t think many people saw that golden age on the horizon either.

Wine and the Falling Dollar

August 29, 2023 By Mike Veseth in Economic impact, exchange rates, globalization, wine, wine markets Leave a comment

There are good reasons why it has been a while since I last wrote about wine and the dollar’s foreign exchange value. A lot of things have shaken up the pattern of wine sales here in the U.S. market, especially the channel-shifting that occurred during the covid pandemic and uneven return to what we laughingly call “normal.”

Many factors shaped the pattern of international wine imports and exports, too, especially supply chain bottlenecks that saw the cost of container shipments zoom up by a factor of ten (when you could find a container) and have now settled back down to roughly pre-pandemic levels.

Falling Dollar, Bouncing Dollar

The exchange rate has been a factor in the wine market through all of this, but it wasn’t really the important factor in most cases. The dust has settled enough now, however, that we need to think about the dollar’s value once again.

Although the situation can vary from currency to currency, the overall trend for the U.S. dollar in the last year has been down (see the graph above of the USD versus the EUR). The dollar fell sharply through the end of January and has bounced up and down a bit but has been in a downward trend since then.

A cheaper dollar makes imports more expensive since each greenback buys fewer units of foreign exchange. U.S. exports benefit because a cheaper USD means a lower cost to foreign buyers. It takes a while for the impact of an exchange rate change to be felt, but if the change is sustained, the impacts eventually come around.

Falling Dollar in Perspective

What should we make of the recent dollar decline? One good source of analysis is the Economist magazine’s “Big Mac Index” of currency values. The clever folks at the Economist have found that comparing the local currency costs of Big Mac sandwiches in different countries can provide insights into exchange rate conditions. Some currencies are “overvalued,” which means that they buy more Big Macs (and other stuff) abroad than they do at home. Market forces should push these currencies down in relative value over time.

That, more or less, is the story of the dollar in the last year. The dollar’s relatively high value encouraged some Americans to travel abroad and those who stayed home to buy lots of imports because the dollar’s strength made foreign things seem cheap. Inevitably, as they sold dollars and bought foreign currencies, the dollar fell in value relative to those currencies.

The dollar’s fall is a bit surprising because U.S. interest rates have been rising steadily this year and that usually creates an incentive for foreign investors to buy up dollars, offsetting the trade effects. But many other countries have boosted their interest rates, too, so the investment impact is less than you might expect. Perhaps the combination of the downward overall trend plus the periodic interest rate increases account for some of the trampoline bounce shown in the graph at the top of the page.

Where does the dollar stand today? As of August 3, when the Economist report went to press, the dollar was about four percent undervalued compared to the Euro, so it is not unreasonable to expect a bit of a bounce. It was seven percent undervalued relative to the Argentina peso, but I suppose that is using the semi-fictional official exchange rate. There is a special cheaper ARS rate for wine designed to encourage exports and of course, the black market rate is even lower.

Incredibly, the official ARS-USD exchange rate, which was approaching 300 pesos per dollar when the Economist report went to press, is now hovering around 350 peros per dollar after a sharp devaluation in response to destabilizing election results. (The exchange rate on the street is nearly twice as many pesos per dollar as the official number.) The graph below shows how quickly conditions have deteriorated for Argentina’s currency.

Over and Under

If the exchange rate isn’t a big factor in U.S. wine trade with Europe (but probably is a factor encouraging imports from Argentina because of the special exchange rate), then what about the rest of the world? The Economist study suggests that Southern Hemisphere wine producers have an exchange rate advantage when exporting to the U.S. market because their currencies are undervalued.

The New Zealand dollar, for example, is undervalued compared to the USD by 9.7 percent. This makes their popular wines even more competitive in the Sauvignon Blanc category, which is one of the few parts of the wine market that has experienced growth recently. The Australian dollar is undervalued by ten percent.

Undervaluation is the flip side of overvaluation. The currency is relatively cheap on the foreign exhange market, so foreign buyers get a good deal, but imported goods and services are more expensive. Both sides of the coin involve trade-offs. You get cheaper imkports if your currency is overvalued, but better export performance if it is undervalued.

Chile’s currency is undervalued by 16.7 percent in the Economist study, with the number for the South African rand an incredible 49.7 percent. Such large currency distortions are potentially very important in parts of the wine market where cost differences are critical.

Export Market Impacts

The analysis above has focused on how the exchange rate affects U.S. imports of wine, but it is important to note that American wine producers also compete with foreign producers (who also compete with each other) for exports to other countries, especially the Eurozone and Great Britain. The value of major southern hemisphere currencies is so low, if the Economist analysis is correct, that the dollar needs to fall a good deal more to make American wines competitive abroad. That’s not likely to happen.

What does the future hold? In the long run, over-valued currencies should fall in value and under-valued ones rise. But lots can happen long before the long run arrives, so don’t hold your breath. I will check in again on this topic when the next Economist report is released.

Two New Guides to Global Wine

October 4, 2022 By Mike Veseth in book reviews, globalization, wine 1 Comment

Two new guides to the global wine scene are scheduled for release next Tuesday, October 11 and this coincidence of release dates provides an opportunity to compare their different approaches and to consider the problems that such books necessarily confront today.

Hugh Johnsons’s Pocket Wine Books 2023 (general editor Margaret Rand) is the latest annual edition in this best-selling series. The new third edition of Wine Bible by Karen MacNeil is as big as Hugh Johnson volume is slender. Both books are jam-packed with information and insights. Both are addictive page-turners that reflect all the creativity, attention to detail, and pure hard work that has gone into their production. No wonder they are so successful.

A global wine guide has got to be exceptional to succeed these days. Consider the challenges that authors and editors face. First is the vast domain of the topic. Fifty years ago the world of wine was pretty big in theory, but much smaller than today in practice. New Zealand wines existed, for example, but you might not need to talk much about them. Who would ever encounter a kiwi wine outside of kiwi-land?

Now, of course, wine production takes place in more places and efficient wine trade brings an enormous number of the bottles to our doorsteps. More wines from more places made in more styles with more different wine grape varieties. Incredible.

How is a book supposed to approach such a huge topic? And how can a book compete with the internet, which can provide smartphone-equipped wine enthusiasts with vast storehouses of wine data? A physical book simply has to have a lot going for it to find a market in the smartphone era, don’t you think?

And then there is the problem of readership. Physical books and e-books there to be read, but more and more people want to listen to information instead of reading it. Podcasts and audiobooks are very popular today. When I checked the Amazon sales figures for my wine books back in August, for example, and I think the audio-book versions usually topped the tables.

My books might have had more listeners than readers during the peak summer weeks, but my books have lots of stories and so lend themselves to audio narration. Reference books and guides might not be as easy to transform from printed word to spoken voice.

You probably have earlier editions of both these books on your bookshelves, but it is worth considering their different strategies for capturing the world of wine in print.

The Hugh Johnson Guide takes a sort of pointillist approach, with lots and lots of very short entries in each of the major sections such as vintage reports, wine grape varieties, food and wine pairings, ten wines to try in 2023, and so on. The chapters on wine producing countries take the same approach, featuring lots of star-rated thumbnail producer reviews. The classic Old World regions — think Burgundy and Bordeaux — get special attention.

The Wine Bible takes a more broad-brush approach, with many of the same topics and topics covered, but in a more flowing narrative style with many of colorful illustrations. The Wine Bible encourages deep reading and focused study more than browsing. The Hugh Johnson chapter on Washington State, for example, has short sketches and star ratings of more than 60 wineries while The Wine Bible focuses on the stories of just eight iconic producers that help define the region. Both approaches are useful — it depends on what you are looking for.

Both books confront the inevitable question of where do you stop? The world of wine is so broad today, how much coverage should emerging countries and regions receive given the obvious constraints of the book format? There is no right answer to this question, but I admit that I was a little disappointed in the Hugh Johnson treatment of Asia and especially China, which received less space on the page than New Jersey. The Wine Bible’s treatment was more in line, in my view, of China’s current and potential position in the wine world.

The Wine Bible and Hugh Johnson’s Pocket Wine Book both have a lot to offer and much that is new. Wine enthusiasts are fortunate to have these great guides to global wine.

Wine Book Review: Britain, Imperialism, and the Wine World They Created

April 5, 2022 By Mike Veseth in book reviews, globalization, wine markets Leave a comment

Jennifer Regan-Lefebvre, Imperial Wine: How the British Empire Made Wine’s New World. University of California Press, 2022.

Imperial Wine is a serious academic study of how imperial economic, political, and social relations between Great Britain and three of its colonies — South Africa, Australia, and New Zealand — shaped their wine industries and New World wine more generally from the time of the first plantings through to today.

This is an argument that I am glad to see examined in depth. In my books Wine Wars and the forthcoming Wine Wars II I nominate Great Britain as the center of the wine universe, so powerful, I think, is its influence on wine and the wine trade.

Australia and New Zealand were British colonies that developed wine industries that were shaped to a great extent by the ebb and flow of trade with the United Kingdom. Although South Africa and its wine industry have roots in Dutch colonial trade, the decades under British rule had powerful effects.

It is a fascinating study, but I admit that I struggled at times because I really wanted this to be a book about wine first and foremost and the author is really focused on imperialism, with wine used as a lens. I think that authors earn the right to define their works, so I cannot really complain. This is a story that can be told several ways.

Most people will be surprised at the poor reputation of Australian wines in the UK market in the early post WWII period, for example, given how popular they are today. There are many ways to demonstrate this, but the author highlights a lame Monty Python joke that compares and aroma of Aussie wine to the smell of an Aborigine’s armpit, which invites a discussion of imperial racist attitudes in the post-colonial era.

“Some wine lovers might protest that colonialism is a distant historical footnote to the history of wine, and that dredging up colonial history is a buzzkill, a weary intrusion on our enjoyment of wine,” the author writes in the concluding chapter, suggesting that she’s run into people like me before. “Can’t we just enjoy a glass of wine without someone introducing controversy? Is colonial history designed to make wine lovers feel guilty?” Imperial Wine, the author argues, makes the case that ignoring the history of wine distorts our understanding of both it and the complicated processes that have shaped it.

Fair point. Understanding the forces that conditioned what is in your wine glass, how it is made, and who it is made for deepens the wine experience, don’t you think? And that includes the forces of empire and the long shadow that they cast.

The author’s deep dives into historical documents drew me in again and again. During World War II, for example, Old World wine pretty much disappeared from store shelves, replaced for the most part by “colonial wines” from South Africa, Australia, and Algeria (not a British colony, but a colony nonetheless). The author traces changing wartime wine patterns though a study of the detailed records of the King’s College off-license store, called the buttery, which provided wine for fellows and sold it to students. Algerian red wine and South African sherry sold well to penny-pinching students, who would turn their backs on colonial wine after the war in favor of the French wines returned to the market.

Imperial Wine teaches wine enthusiasts about the role of empire in shaping the wine world of the past, present, and probably the future, too. And it teaches students of imperialism that the influence of those forces continues even in something as seemingly simple as a glass of wine.

Interesting. Well-written. Thought-provoking. I learned a lot. Did Imperial Wine change the way I think about wine? Yes, at least a bit. Well worth your consideration.

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Curry: A Tale of Cooks & Conquerors by Lizzie Collingham is one of my favorite books about cultural globalization. Imperialism is a strong force in this account (which includes historical recipes at the end of each chapter). I was reminded of Curry when I noticed that Collingham wrote one of the cover blurbs for Imperial Wine.

Three Faces of Wine Strategy: Porto Perspectives

September 21, 2021 By Mike Veseth in globalization, Portuguese wine, wine, wine markets 5 Comments

If you walk along the river in Vila Nova de Gaia, just across the Douro from beautiful Porto, you are in the right place to visit the famous Port lodges and sample different types and styles of Port wine. If you dig a little deeper, you can also learn something about the diversity of successful wine industry strategies that these historic firms have deployed.

I’m interested in Portuguese wine because it has experienced rising sales here in the US market while some other countries have struggled and lost market share. And I am interested in wine industry strategies because, as I wrote here last week, the global wine market seems to have plateaued and so everyone wants to know the secret to growth in a stagnant market.

Herewith, for your consideration, three case studies inspired by an imaginary Vila Nova de Gaia excursion.

Taylor’s: Tradition and Innovation

Our first stop is Taylor’s, one of the most famous names in Port wine. Fortified wines, including Port wines, are not the easiest products to sell these days, but Taylor Fladgate, which has been in this business since 1692, is committed to Port and Porto. The Fladgate Partnership’s portfolio of Port brads is broad and deep, including Taylor’s, Fonseca, Croft, and Krohn. No unfortified wines are produced. This focus on its traditional business, however, doesn’t rule out innovation and entrepreneurial endeavors.

Late Bottled Vintage (LBV) Port was a Taylor innovation, for example. I have argued that LBV Port helped rescue and revive the Port trade in the 1970s by giving consumers the experience of Vintage Port without the expense and bother. Taylor’s innovation continues today with its canned White Port spritz, Chip Dry & Tonic, a delicious and refreshing addition to the RTD market that may help consumers see Port wine in a new light.

Taylor’s commitment to Port and Porto is also expressed through its investment in the region’s wine tourism industry. First came the fantastic Yeatman Hotel high on the hill overlooking the Douro next door to the Taylor’s Port lodge. The hospitality investment continued with the redevelopment of luxury Hotel Infante Sagres in central Porto and the Vintage House Hotel in the Douro Valley at Pinhão.

That’s really himpressive … but wait, there is more! The the area of warehouses reaching down to the Douro from Taylor’s were developed into Porto’s new wine tourism destination — the incredibly ambitious World of Wine. Sue and I haven’t visited WoW yet, but we look forward to exploring its many varied experiences when we get back on the road again.

Bravo to Adrian Bridge and The Fladgate Partnership for their bold strategy of doubling down on Porto and Port wine.

Symington: Porto and the Douro

If you continue down the pathway along the Douro and up the hillside a few blocks you will come to Graham’s, part of the Symington Family Estates, with its historic Port lodge and destination restaurant, Vinum.

Symington represents a second face of wine industry strategy here in Porto. They are all-in on Port wine, of course, with four famous brands: Graham’s, Dow’s, Warre’s, and Cockburn’s. But Symington’s reach extends beyond Port to Portuguese table wines including Quinta do Vesuvio, Quinta do Ataíde, Quinta da Fonte Souto, Altano, and Prats + Symington, a partnership with Bordeaux’s Bruno Prats. All the wines but one come from the Douro Valley. Quinta da Fonte Souto is in Alto Alentejo, which is Symington’s first foray outside of its home region.

Sue and I recently enjoyed a bottle of P+S Prazo de Roriz, a red wine made from younger Douro Valley vines that harmoniously balances fruit and minerality — a seriously attractive wine that punches above its $20 price point.

Although the Fladgate Partnership and Symington Family Estates have taken different pathways in wine industry strategy, they share a strong commitment to sustainability. Adrian Bridge is a driving force for climate change action in the wine industry and beyond, for example, and Symington is one of the wine world’s most recognized Certified B Corporations.

Sogrape: Portugal Goes Global

As you walked from Taylor’s to Graham’s along the Douro you passed two noteworthy Port lodges that are part of the Sogrape family, Sandeman’s and Porto Ferreira (Offley Port is also a Sogrape brand). Sogrape, Portugal’s largest wine producer, is an important force in Port wines and in wine generally. It is the producer, for example, of Mateus Rosé, which was once the best-selling imported wine in the US market and remains incredibly popular around the world.

Sogrape’s strategy extends across Portugal’s wine regions from the Douro north to Vinho Verde and south to the Dao and Alentejo. Sue and I are fans of the Casa Ferreirinha Douro Valley wines, including especially the Quinta da Leda, which we love to pair with duck rice.

Sogrape’s strategy differs from both the Fladgate Partnership and Symington family models in that, while its base in Porto and Port is strong, its vision extends far beyond the Douro. It is, in fact, a global vision, as Sogrape’s extensive portfolio extends to Spain (including the famous LAN wines among others), Argentina (Finca Flichman), Chile (Chateau Los Boldos) and New Zealand (Framingham).

It may be surprising that a wine company from a relatively small country should have such a global reach, but remember that this is Portugal and globalization is in its DNA. The Portuguese practically invented globalization and their Port wines are a global icons. Sogrape, with its Mateus Rosé history, seems well prepared to ride the global wave.

Three Faces of Wine Strategy

So what are the take-aways from this wine strategy tour of Vila Nova de Gaia? The first is that there is a lot going on in Portuguese wine these days. If you haven’t thought seriously about Portugal and its wine recently, it is time to give it some attention.

The second point is that there are many routes to success in today’s market, something that is true in Portugal and elsewhere, too. A key seems to be to identify a comparative advantage and make the long-term investments needed to realize potential gains. Taylor’s has invested in expanding Port wine’s reach while investing in Porto and the Douro as a destination –leveraging the power of place. Port and Porto are inseparable — expanding the appeal of one necessarily raises the profile of the other.

The Symington family have adopted a strategy that focuses on the vineyards and communities — the social and physical terroir, with wines that reflect the region and investments that promote social welfare.

Finally, Sogrape leverages the local-global nexus, thinking global and acting local in a very Portuguese tradition.

What do these firms have in common besides Port and Porto? Well, they are all three family businesses that think in generational terms. That long-term perspective makes it possible for the sort of strategies we see here to succeed.

Global Wine Trade: Headwinds, Obstacles, Distortions

July 27, 2021 By Mike Veseth in Economic impact, exchange rates, globalization, wine, wine markets 1 Comment

Wine has become one of the world’s most globalized consumer goods. The OIV estimates that 45% of all wine crosses at least one international border on its way from producer to consumer. And that’s just the finished product. If we examine the whole product chain, to include bottles, corks, and so forth, wine’s globalization index would be even higher.

So it is significant that wine today faces headwinds, obstacles, and distortions that make global wine a risky business. Taken together, these forces impact every part of the wine trade.

Headwinds

The covid pandemic has created new headwinds and magnified some existing ones that make global wine trade more difficult and uncertain. On-premise sales are critically important to some segments of the wine industry, for example, and the recovery from lockdowns is slow, uneven, and uncertain. Bars and restaurants have struggled to refill to capacity in many cases, even where rules permit this, because of both uneven response by wary consumers and difficulty attracting and retaining service sector workers.

Many wineries invested time and effort into establishing alternative paths to market during the pandemic and now they must wonder whether direct-to-consumer and other strategies will continue to be as critical to success and what aspects of these efforts should be expanded in the future. There are a lot of puzzle pieces to put together as we move into the new normal and the picture that they create won’t be the same as it was pre-covid.

Obstacles

Wine globalization has been powered by favorable trade policies and efficient transportation logistics over the last 50 years, so it is significant that obstacles have appeared in both areas. US tariffs, Chinese tariffs, Brexit uncertainty — the list of trade policy factors that create barriers to particular wine flows is much longer than in the past and some counties (Australia, I’m looking at you) have been hit particularly hard.

But an even bigger obstacle for wineries not directly affected by trade policy has been the breakdown of ocean shipping logistics, which moves bulk wine, packaged wine, and intermediate goods such as bottles and corks. A world-wide shortage of shipping containers is to blame and big increases in the costs of shipping a container is one result. Port congestion, which adds extra days or even weeks and much uncertainty to shipping schedules, is an unwelcome side effect.

Distortions

Finally, foreign exchange rates have introduced or magnified distortions in the relative prices of wine on international markets. The graph above shows how the US dollar (USD) has fallen relative to the Euro in the pandemic period. The dollar has recovered a bit of its value recently, but it is hard to know if this rise can be sustained. In general, a falling currency encourages exports and discourages imports. The impact on US wine exports has been muted, however, by the several factors noted above including especially demand-squelching pandemic lockdowns in target markets.

The dollar’s fall came as a bit of a surprise, as I noted in a column about a year ago. Now there is another surprise. The Economist newspaper reports that the dollar is still over-valued by over 10 percent against the Euro!

The Economist released its most recent Big Mac Index report last week, which uses international fast food hamburger price differences to estimate the relative purchasing power of various currencies. This might sound like a foolish exercise, but the Big Mac Index has a pretty good track record as a general indicator of over- or under-valued currencies.

The June 2021 Big Mac Index finds only four currencies over-valued relative to the USD, so the currency distortion would favor US wine export sales. Significantly, Sweden (+9.6%) and Norway (+11.5%) are in this group and they are both importanr potential export markets for US wine.

The list of currencies that are under-valued compared to the USD is long and includes a number of significant wine producing countries that gain an advantage from the exchange rate mis-alignment.

Euro area -11.1%
Australia -15.2%
New Zealand -15.7%
Argentina -30.2%
Chile -30.3%
China -38.3%
Moldova -48.8%
Romania -55.5%
South Africa -59.6%

Several of these countries are important wine exporters and so their under-valued currencies give them a cost advantage in competition for US sales. Global wine has always been a tough business. The current combination of these headwinds, obstacles, and distortions make the global wine trade particularly challenging as we head into the fall.

Kiwi Malbec? Signature Wines & the Dutch Disease Effect

February 16, 2021 By Mike Veseth in Argentina, emerging wine regions, globalization, New Zealand, wine, wine markets 3 Comments

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.

Wine Future 2021, Idaho Wine, The Unified: Wine Economist World Tour

January 5, 2021 By Mike Veseth in climate change, coronavirus, economic crisis, globalization, recession, Shameless Self-Promotion, Unified Wine & Grape Symposium, wine, wine markets Leave a comment

The Wine Economist World Tour is back on the virtual road in 2021. We hope for the return of in-person events before too long, but until that’s possible virtual events will do very well. Here are the first three stops for the new year.

The Unified: State of the Industry

The Unified Wine & Grape Symposium (January 26-29, 2021) is going virtual this year, including both the seminars and the amazing trade show. It will be quite an experience.

The program addresses a host of important issues, with special attention to wildfire threats and diversity and inclusion initiatives. Several sessions analyze changing wine market conditions including the State of the Industry session on Wednesday, January 27. Danny Brager, Glenn Proctor, Jeff Bitter, and Jon Moramarco join me on the virtual panel.

Idaho Wine Commission: State of the Industry

The Idaho Wine Commission’s annual meeting goes virtual this year, too, with half-day sessions on February 22-23, 2021. This is the third time I’ve spoken at this event and I am sad that I won’t be able to visit Boise in person to refresh friendships, exchange insights, sample great Idaho wine, and enjoy Boise’s amazing Basque food scene.

I will anchor the first day’s program with a special take on the State of the Industry. Greg Jones, the world’s foremost viticultural climatologist, will speak the following day. Economic change, climate change. Food for thought for Idaho’s dynamic wine industry.

Wine Future 2021: Challenges & Solutions

WineFuture 2021, an incredibly ambitious international event, will happen on February 23-26, 2021. This big international conference boasts an all-star cast. I will lead a panel on the economics of the crisis on February 23.

The folks behind Wine Future 2021 think big. The theme of the first day is the four crisis challenges facing wine (and the world): climate, economy, pandemic, and inequality. Day 2 focuses on solutions and sources of inspiration. The final two days look to the future from many different points of view.

Wine Future 2021 has been hosting a pre-conference webinar series since November to get ideas in the air and discussion flowing. You can view previous webinars (including one I did with Rabobank’s Stephen Rannekleiv) and register for upcoming broadcasts on the Wine Future 2021 Webinar home page.

Wine, Tariffs, & Globalization

November 17, 2020 By Mike Veseth in coronavirus, economic crisis, globalization, recession, trade policy, trade wars, wine, wine exports, wine markets Leave a comment

The wine trade has always been as global as transportation technology and political economy have allowed. So it is no surprise that the economist David Ricardo sought to make his theory of international trade based on comparative advantage clear and obvious by choosing an example that all his readers would appreciate — Portuguese wine exchanged for British wool.

A World of Wine

If you want to get a sense of wine’s global reach today I suggest you visit your local upscale supermarket or wine shop and survey the landscape there. I had my university students do this back in 2011 and reported the results in a Wine Economist column. The local Safeway store carried about 750 wines from a dozen different countries back them, which caught the students by surprise. The store has expanded its wine wall since then, with even more offerings, and the supermarket across the street has an even larger set of wine choices. Globalization delivers a world of wine to your doorstep!

Global trade in wine, both bottled and shipped in bulk, is incredibly important to wine producing countries. The largest producers — France, Italy, Spain, Portugal, Argentina, Australia, New Zealand, Chile, South Africa — could not possibly sell all the wine they produce in their domestic markets. The collapse of global wine trade would be a global wine catastrophe.

And the trade in wine isn’t the whole story. Global markets exist for corks, capsules, winemaking services (think “flying winemakers”), and bottles, too. We’ve visited wineries in South Africa, for example, that import glass bottles from Europe and then export the finished wine to the UK, China, and the US. That’s globalization! Chinese glass has an even broader global reach.

Peak Wine Globalization?

By some measures globalization generally — taking into account goods, services, and people — reached a peak about the time of the global financial crisis and has since shrunk as a percentage of global GDP. Global wine resisted the de-globalization trend, however, but perhaps now is catching up.

Some of the macroeconomic drivers of wine imports and exports such as rising disposable incomes and stable exchange rates have been impacted by the Covid recession. And of course Covid restrictions and behavioral changes have negatively affected both on-premise wine sales and travel and tourism vectors, too.

There are attractive pockets and niche markets for wine sales all around the world and smart producers have sought them out. But the three big wine targets in recent years have been the UK, US, and China and each of these has become more challenging.

The UK issue is Brexit and it is shocking that there is so much uncertainty about the nature of future trade arrangements with just a few weeks to go before the exit from the EU is final. Britain’s unsuccessful attempt to navigate the twists and turns of Covid have pushed the country into a recession that is likely to grow worse before it gets better — a bad thing for income- and price-sensitive wine demand. Add to this the possibility of a botched Brexit and you might see Britain’s status in world wine trade diminish substantially.

Tit for Tat

The US market is suffering from Covid and recession problems as well and its own set of trade issues. The Trump trade wars have increased tariffs on wine imports from the EU, for example, but also generated retaliatory tariffs on US exports to China.

Wine has been caught in the crossfire in the Boeing-Airbus trade dispute, as The Wine Curmudgeon recently reported. The WTO has ruled that the US can impose tariffs on EU products in response to Airbus subsidies and that the EU can put tariffs on US products because of subsidies to Boeing. Wine figured prominently on the US tariff list, but the EU plans to focus on US spirits instead of wine, with new duties on vodka, rum, etc. on top of previous tariffs on U.S. bourbon.

How did the US wine industry dodge the tariff bullet in this case? Trade policy is sometimes very personal when you think about it. EU tariffs on US wine would fall heaviest on California producers — think for a moment important politicians from California. (Does the name Nancy come to mind?) Not necessarily someone the EU wants to upset.

Tariffs on US spirits fall heavily on Kentucky bourbon producers. Can you think of an important political leader from Kentucky that EU officials might enjoy roughing up a bit? Maybe some guy named Mitch? Just thinking out loud …

China vs Oz

And then there’s China. Down in Australia there is more than a bit of concern about wine trade with China. China has grown to be Australia’s largest wine export market, so rumors that the Chinese government might impose tariffs on or even ban imports of Aussie wine entirely are serious concerns. It is not clear that the US and UK, the other big export markets, could easily absorb the resulting flood of unsold wine.

Since tariffs are as political as they are economic, there is hope that, with a changing US administration, the troops in the wine trade wars might stand down and a truce be agreed. This could start with both sides backing down over the Boeing-Airbus duties. That would certainly be a good outcome and I don’t think it is impossible.

No Easy Fixes

But tariffs aren’t the only factor preventing a return to the previous era of wine globalization as noted above, so don’t expect a quick fix. International producers seeking to penetrate the US market in particular need to be aware of how much the on-trade to off-trade shift has changed which wines American consumers buy, where they buy them, and how much they are willing to pay.

The process of restoring wine’s global reach seems likely to be a process and probably a slow one, with some firms and regions more successful than others. The faster the global economy returns to health, the faster the clouds will clear for global wine.

Wine, Covid-19, and the Zero-Sum Dilemma

November 3, 2020 By Mike Veseth in coronavirus, economic crisis, globalization, trade wars, wine, wine markets 1 Comment

Last week’s Wine Economist column presented a “Guide for the Overwhelmed” that analyzed the current crisis in terms of its perfect storm of component parts. This week begins a short series of articles that try to put the pieces back together in order to better see the outlines of the future of global wine in the post-Covid era.

Zero Sum Economics

MIT economist Lester Thurow’s 1980 book on The Zero-Sum Society argued that America and the world had reached a turning point. An era of growth, where an expanding social and economic pie made it possible for many to gain without corresponding losses for others, was coming to an end, Thurow argued. This change in the economic environment would have broad and lasting consequences.

Example? Under the right circumstances (which can be tricky), open trade is a recipe for positive-sum growth while protectionist trade wars are zero-sum at best and negative-sum at worst. The 1980s proved to be a fertile decade for trade barriers, competitive currency devaluations, and other protectionist policies.

What caused the sudden shift from positive-sum growth with rising overall living standards to zero-sum stagnation? It was complicated, of course. But the 1980 answer in a single word was oil or rather the oil crises of the 1970s and the higher costs and restricted supplies that resulted.

The world, it seems, had organized itself around the assumption of cheap, plentiful petroleum. Scarcity and higher costs shocked the system in ways that few even imagined and helped set the stage for a generation of stalled living standards and frustrated expectations.

The focus of the zero-sum society, Thurow argued, would shift from equity and growth to distribution and conflict. Everyone would struggle for an increased share of the stagnant or shrinking pie and some would succeed better than others, increasing inequality. I recall that Thurow grew up in Montana and he must have imagined his Big Sky world of open opportunity closing down around him.

Covid Crisis / Oil Crisis

It is easy to see in retrospect that the 21st century B.C. (Before Covid) world was organized around the assumption that people could safely gather together and cheaply move about. Spending on travel and tourism, for example, increased dramatically as a proportion of total expenditure in the past two decades. Wine tourism and cellar door sales were important sources of growth in our industry. The post-Covid world will be different indeed, although just how different and for how long remains to be determined.

Is it reasonable to compare the Covid-19’s world economic shock with the oil crisis of the 1970s and its aftermath? Everyone knows the oil crisis was a game changer. The Covid crisis is different in many ways, so it is not a simple apples-to-apples comparison. From a macroeconomic standpoint, the oil shock was a supply-side event that produced stagflation. The Covid shock is more of a demand side disruption that risks a deflationary cycle. It is obviously too soon to know what the final picture will look like, but I would argue that Covid could prove in the end to be the bigger crisis in the long term.

The New Zero-Sum

Even if you accept that the Covid crisis shock is as serious now as the oil crisis shock was in its today, you might still disagree with the idea that the new world that it is creating will be more zero-sum than in the past, with a greater focus on how the pie is divided than in its growth. Why is the future likely to be a zero-sum environment?

One argument is that many parts of the economy are already zero-sum and that Covid simply magnifies and accelerates existing trends. The recovery from the initial Covid recession in the U.S., for example, wasn’t the V-shape that many hoped for but more of a K-shape. Some parts of the economy (especially the financial sector) recovered very quickly. Other sectors continue to struggle, a situation made worse by the lack sustained economic stimulus. The rising tide did not lift all boats and the financial pages are full of multi-billion dollar M&A deals as businesses bulk up to grab market share.

If you saw the strong Q3 U.S. GDP figures that were released last week, you might think that the economy has rebounded and will resume previous growth quickly. But those numbers are the result of literally trillions of dollars of stimulus (and debt), which are unlikely to be sustained. And they don’t take into account the Covid second wave tsunami, which seems to be sweeping across the globe.

The second argument for stagnant economic growth can be found in the financial news, where the yield curve hugs the zero axis for at least a five year time-frame and monetary policymakers have pledged their support for the foreseeable future even if fiscal actors hesitate to renew stimulus measures. The overall economy is on life support and monetary authorities who lack the power to shock it back into life are determined to at least prevent flat-lining.

The likely result, according to the most recent Q4 2020 global forecast by the Economic Intelligence Unit, is the “zombification” of the global economy characterized by slow growth, low inflation, and high levels of debt. Does this sound like a zero-sum environment?

Wine and the Zero-Sum Economy

It goes without saying that the economic environment I’ve just described is not favorable to the growth of the global wine industry. This is especially true because of the importance of on-premise wine sales, which are most directly affected by the Covid pandemic.

Is the global wine market now zero-sum? And what are the implications if it is? Come back next week for thoughts and speculations.