The Short and Long Term Implications of the 2017 Vintage

THE SHORT AND LONG TERM IMPLICATIONS OF THE 2017 VINTAGE

[1]

Introduction

In the past decade the supply and demand for wine has been influenced by the global financial crises, rising global temperatures, extreme weather events, laws regulating planting of new vineyards and high consumption in new regions of the world where economic laws were liberalised.

The global financial crisis saw demand for wine reduced to a situation whereby there was an oversupply of wine in the market.

 Production levels were low in 2012 as indicated by data provided by the OIV. In 2011/2012 harvest, the European Union programme which regulated the viticultural production potential in the EU ended.[2]  The implementation of this regulation saw a limitation of annual growth of planted vineyards per member state by 1% and the management of old rights held in portfolio.

In 2012, areas in France like Alsace, Bordeaux and Burgundy produced low yields due to frost and high rainfall, violent storms and hail in spring. The Bordeaux season started wet and cool leading to uneven flowering and an uneven crop. Long dry stretches led to vine stress which resulted in uneven ripening.

According to the International Organisation of Vine and Wine (OIV), global output had fallen from 264.2ml in 2011 to 248.4ml in 2012.

FIGURE 1 – Wine production[3]

The world’s top 3 producers of wine, France, Italy and Spain were ravaged by frost, hail, drought and high temperatures in 2017, the lowest crop in 50 years. This followed poor harvests for both Chile and

OIV estimates that there has been a 8.2 % drop in production in Western Europe in 2017.

FIGURE 2 -  World wine consumption[4]

OIV [5] reports that world wine consumption in 2017 is estimated at 243mhl, an increase of 1.8mhl compared with 2016.

There was a rise in consumption in the past decade. Growth in the middleclass and professional segment of the Chinese, Turkish, Mexican and Indonesian market contributed to the spike in consumption. Chinese consumption rose was due the growth of its domestic consumption from 246.9 ml to 964 ml in the past decade. This spike is attributed to the result of a government campaign promoting wine as a healthy alternative to the local spirit of Baiju and other spirits whilst taxes on imported wine being reduced. National holidays and the tradition of gift giving along with a spike in consumer purchasing power saw an increased demand for imported wine.[6]

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 Liberalisation of many economic policies in many non-traditional wine drinking countries also contributed to higher consumption levels. However, these high consumption levels have seen a slight decline in the past few years because of higher prices in the bulk wine market, competition with growth in the spirit, craft beer and cider sectors.

The 2017 vintage should not be looked at as a “one off”. The sharp drop in production will affect the global wine market in the short and long term and wine production in certain regions of the world are to survive in the long run, changes will have to be implemented by the lawmakers and winegrowers immediately.

The 2017 Vintage

“2017 must be one of the most disaster strewn years since phylloxera.”[7]

          Frost affected vines [8]                                                                Heater lit early morning in Chablis. [9]

FIGURE 3 – Wine production (excluding juice and musts) – OIV

2017 was an extremely challenging year for all those involved in wine production in the Northern Hemisphere and certain areas of the Southern Hemisphere.

Global production was down 8.6% from 2016 or approximately 2.9 billion bottles.[10] The European Union saw historically low 2017 yields due to climatic conditions (OIV). Extreme weather conditions like frost, hail, high temperatures, drought and fires devasted many areas in Western Europe and parts of the Southern hemisphere but the main effect was the steady increase in temperature.

2016 saw France experience awful weather in parts of Burgundy, Chablis, Loire with those regions losing over 50% of their crop to frosts and flooding). France had its lowest harvest on record with volumes being significantly down, in 2017 OIV data shows that France had a 19 % drop in production on 2016   because of April frost, August heatwave and limited rainfall which prevented grapes from reaching its optimum size.[11].

Europe experienced a heat wave in June and then in August an anti-cyclone “Lucifer” brought unparalleled heat with some areas in France seeing successive days of 40◦C plus temperatures. The heat not only harmed the vines but heightened pre-existing drought conditions.[12]

The regions that were severely affected were Bordeaux, Loire Valley, Chablis, Beaujolais, Cote Chalonnaise, South Rhone, Languedoc and Roussillon. In Bordeaux almost 40% of the potential crop was lost due to frost and low temperatures.

Hail damage in Côtes de Bourg.[13]

Production levels in Italy levels dropped by 17%.[14]

Frosts in April, high temperatures (43◦C) and a long heatwave and drought in the summer saw an early harvest with volumes being down.

Frost hit areas of Veneto, Piemonte, Franciacorta in Italy, many regions in Italy have not had any rain since May.  Areas like Tuscany, Sardinia, Emilia-Romagna, Toscana and Veneto were most affected by drought and the high temperatures. Due to extreme dry conditions, fires were reported threatening vineyards in Sicily, Sardinia and Campania[15].

Volumes in Spain dropped by 20% [16] because of spring frosts and high temperatures. Frosts in Rioja saw low yield with almost 25-40% down in that region.[17] Certain areas suffered from 6 months of water shortage and high temperatures.[18]

Frosts were devastating in Germany which saw a 15% drop in production volumes. Austria saw volumes increase on 2016 by 23%.[19]

Volumes were low in Greece, down 5% from 2016 because of inclement weather[20] especially in Santorini. Volumes were down in Hungary by 11% due to frosts in April, affecting red wines.[21] Slovenia saw a massive crop (35%) destroyed due to frost and volumes were down by 33%.[22] In Turkey Volumes were down by 5% in comparison to 2016 because of frost and hail.[23]

Vines destroyed by fire in Napa Valley.[24]

In the United States, devastating forest fires ravaged the wineries in California. Although 90% of the crop was harvested, fires and smoke taint were an issue for the later ripening varieties such as Shiraz and Cabernet.

Production was low because of the influence of El Nino. [25]. Wine production in Argentina(11.8mhl) grew by 2.4% in relation to 2016. Following on from a devasting 2016 harvest, Brazil recovered to post a slight rise in volume (3.4mhl).  Chile’s production of (9.5mhl) was small, having not recovered form a poor harvest in 2016.

Heat affected vines in Australia [26]

South Africa’s production reached 10.8mhl, registering an increase of 2.6% despite an ongoing drought.

Australia’s volumes grew 13.5mhl whilst New Zealand remained unchanged with production reaching 2.9mhl. Volumes for 2017 have seen a dramatic 24% drop registering lowest levels in the past 5 years.

 Whilst these countries have suffered the effect of unstable weather in the past (2012), what has set the alarm bells ringing is that these countries account for 50% of the world wine production and a drop in volumes of this nature has a “disproportionate impact on global supply”[27] and the implication of such an acute drop will affect the wine industry in the short term and in the long term.

The Supply Crunch

The acute drop in production of 8.6% in 2017 has revealed issues that will confront producers and production yields in the short term and long term.

Short Term Implications:

In the short-term bulk wine prices and fine market prices have risen because of low levels of production due to extreme weather events in France, Italy, Spain, Chile and Argentina and lower yields available.

The impact has been felt at the lower end of the market with rising bulk wine prices due to low supplies leaving margins for growers squeezed because of currency fluctuations in the Euro and US dollar and fear of taxation laws changing because of Brexit.

 Emerging markets have started taking a share from the EU because of low yields thus tilting a shift to sourcing wine from the Southern hemisphere and non-traditional wine countries.

The price of en primeur wines or the fine wine market also rose as yields were down. Although production was down by 40 % in Bordeaux, the top 150 chateaux in Bordeaux were not affected by extreme weather events mainly because of their location and position of vineyards whilst the rest of Bordeaux’s wine growing area was devastated.

The effect of these price increase means that the consumer ultimately will have to pay more. There is a common fear amongst the top wine producers that they would lose their hard-earned customers because of these price increases. The price of bulk wine and fine wines will always be influenced by yield levels in any given year. The fine wine market sector will always be able to command prices but it is the lower tiered wine market that will see consumption levels drop if there is a continual rise in prices. As demand exceeds supply the availability of certain brands will lead to higher prices and the customer will seek other wines as substitutes.

Long Term Implications:

The rise in Global temperatures has and will affect the wine industry with major consequences.

Future vintages are affected by the preceding years low yields and the long-term vine balance will therefore be affected.

For example, if the temperature drops severely (-20◦) – the vines become dormant and they cannot store carbohydrates or prepare for the next year. Frost and hail in April in the Northern hemisphere or October in the Southern hemisphere will affect bud burst and fruit set for the next year.  Wine growers will have to make changes in their vine training methods, canopy management if yields are on the decline.

There will be a shortening of the wine season because of the rise in temperature and harvest will occur in September rather than the traditionally in October.

Drought is a long-term implication. Water sources will have to be found as wine growers cannot rely on timely rainfall and will have to introduce irrigation. Global temperature levels will rise from between 1.0 -3.7◦[28] rainfall or precipitation patterns will change, extreme weather events will a regular feature which will then pose a threat of fires.

Low levels of consumption will be noticed in lower priced wines.[29] “Europe will lose its dominance in the bulk wine market which currently accounts for over 70 % of the total overall imports in comparison to its 90% share it had at the turn of the century.

Supplies will increase from the Southern hemisphere and move to new regions. Global wine supply has been dominated by European vineyards which represented 60% of production.  As noted earlier, the biggest issue for these producers is dealing with the impact rising temperatures, extreme weather events and reduced volumes on the one hand and on the other buyers needing to fill the gap from elsewhere.

An important impacted area will be that wine style and quality. The characteristics of a cool climate variety are different from the characteristics of the same variety grown in a hot climate

A majority of the cool climate grape varieties have exhibited changes in their phenological stages. Because of the warmer conditions, the grape is changing in its composition. They contain more sugar, more alcohol land less acidity.  Most importantly the profile of the grape is altering because of the rise in temperatures.

The wine variety of wine currently grown in a certain area will not “taste” the same with rising temperatures. Thus, what is regarded as a cool climate variety will in years begin to taste like a hot climate variety.  Consequently, a Burgundian grape variety will probably resemble a variety from Bordeaux[30]

Personal Commentary

A rise in global temperature and extreme weather conditions has affected global wine production and supply of wine. The impact felt today will certainly be colossal in years to come.

Sustainable changes will have to be implemented immediately in light of the current climatic conditions in the following areas:

Viticulture and Risk management:

With vine training, trellising practices have to be changed. Changes made to different training systems and row orientation adopted[31]

Pruning done so that the head of the vine will be as high as possible.  Changes to canopy management with the introduction of shorter canopies with less leaf removed to protect grapes from sunburn implemented.[32]  Rootstocks will have to be changed introducing a longer cycle and clonal variety selection to be orientated towards late ripening clones with heat tolerant grape varieties selected.

Wine owners will have to invest in wind turbines and have access to helicopters, make candles, lanterns and fires a priority against frost so that freezing air is pushed away from vineyards[33].

New Wine regions:

The current wine growing regions are located between the 35th and 50th parallels in the Northern hemisphere and between the 30^th and 45^th parallels in the Southern hemisphere.

As the global temperatures have risen and will continue to rise, new frontiers have opened up with production moving North in the Northern hemisphere where wineries have been established in Sweden and England (where temperatures have increased by almost 3 Deg). In England, cool climate varieties like Dornfleder and Huxelrebe were grown however winemakers are now planting grape varieties like Merlot, Chardonnay with the rise in temperatures. Wineries are moving South in the Southern hemisphere like Tasmania and Hawkes Bay.

New wineries will be located in areas of high altitude, where access to water will be a priority and where irrigation will be permitted. The current import and export market will change. Newer wine producing regions will be exporting more and Traditional or “old wine world” countries will be importing more newer varieties and also lesser known varietals with different specificity.

Replacement varieties and Appellation laws.

The Appellation system are a set of laws governing specific regions tying specific wines or grape varieties to their geographical location and boundaries based on the concept of terroir. Terroir, a French term that indicates a wines uniqueness to the soil, landscape, climate and viticultural practices.

Because of a rise in temperature, certain regions will become inhospitable to growing certain varietals. Hence wine growers will have to grow climate specific varieties to replace the varieties traditionally planted that are beginning to show signs of change.

With continued climate change, certain varieties in certain regions will start to fail” says Elizabeth Wolkovich, Professor of Organismic and Evolutionary Biology at Harvard university.[34] Pinot Noir grown in Burgundy and Champagne produces a lighter and elegant wine. If temperatures rise then the varietal specificity will change turning the Pinot Noir grown to a fuller bodied, fruit driven wine thus changing the “taste” of a Burgundian Pinot Noir. If a new grape variety is to be introduced and planted to make the vineyard sustainable, challenges arise in marketing this new variety. This creates a new regional identity. Making such changes will have a profound effect on the production governed by the Appellation system in certain regions of the world.

The shift in global warmth patterns may move premium grape growing regions out of areas currently devoted to that activity and simultaneously cause a shift in current grape variety.[35].

Appellation laws currently restrict wine makers in certain areas with the use of irrigation.

Although irrigation was allowed in certain AC vineyards in 2007 in France[36] where individual permits have to be applied for (from 15th June -15th August), a more permanent efficient system like drip irrigation is still not permitted to be used currently but will have certainly have to change with the shift in climatic conditions.

Flexibility in light of the current changes in climate will have to be introduced to the Appellation restrictions for the survival of Terroir.

Appellation laws will have to be modified if the traditional wine making countries are to keep up with production and not lose out to the expansion of wineries in the Southern hemisphere.

The emergence of new varietals and new wine regions with climate adapted wineries, and with traditional wine producers in Europe introducing viticultural changes and irrigation, it is hoped that extreme weather events will be managed and not influence production levels as it did in 2017.

Bibliography.

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• Eu regulations No 1308/201 https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32013R1308. Source OIV
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• Cornelis Van Leewin and Philippe Darriet-“The impact of climate change on Viticulture and wine quality”. Journal of wine economics, Volume 11,Number 1,2016, Pages 150-167 ©American Association of Wine Economists, 2016
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• Catinca Gavrilescu; Yves Richard; Daniel Joly; Benjamin Bois- Climate zoning of the burgundy wine region ©January 2018. (https://www.researchgate.net/publication/327157240_climate_zoning_of_the_Burgundy_winegrowing_region).
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• International organisation of Vine and Wine -OIV 2017 World Vitiviniculture situation
• State of vitiviniculture world market-April 2018
• Global Economic vitiviniculture data -24 October 2017
• Ciatti Global Market Report /January 2018
• Vinex -The Northern hemisphere 2017 harvest -An overview
• Rabo Bank -Wine Quarterly Q4 2017

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 https://www.winespectator.com/webfeature/show/id/Frost-Hail-Inflict-Heavy-Vineyard-Damage-Across-France-Italy.- Photo by: Philippe Desmazes/AFP/Getty Images

2 EU regulations No 1308/2013 Source OIV

3 OIV -State of the vitiviniculture market. April 2018

4  International organisation of Vine and Wine .State of the vitiviniculture market .April 2018

5 International organisation of Vine and Wine – State of the vitiviniculture world market. April 2018

6 “Chinese wine Industry: Current and future trends”

   Tatiana Bouzdine-Chameeva; Jaques -Olivier Pesme; Wenxio Zhang.

7 Andrew Jefford. https://www.decanter.com/tag/march-2018

8 https://www.decanter.com/wine-news/fatal-frost-hits-champagne-vineyards-367272/

 9 https://www.theguardian.com/lifeandstyle/gallery/2017/apr/28/winemakers-light-fires-to-fight-frost-in-pictures#img-2 Photograph: Christian Hartmann/Reuters

10 https://www.bibendum-wine.co.uk/news-stories/articles/wine/forces-of-nature-winemaking-in-the-face-of-climate-change/

11 Bibendum(http.bibendum-wine.co.uk).

12 Ciatti Global Market Report/ January 2018

13 https://www.decanter.com/wine-news/bordeaux-assesses-bordeaux-hail-damage-394566/ Côtes de Bourg / France Info

[1] https://www.winespectator.com/webfeature/show/id/Frost-Hail-Inflict-Heavy-Vineyard-Damage-Across-France-Italy.- Photo by: Philippe Desmazes/AFP/Getty Images

[2] EU regulations No 1308/2013 Source OIV

[3] OIV -State of the vitiviniculture market. April 2018

[4]  International organisation of Vine and Wine .State of the vitiviniculture market .April 2018

[5] International organisation of Vine and Wine – State of the vitiviniculture world market. April 2018

[6] “Chinese wine Industry: Current and future trends”

   Tatiana Bouzdine-Chameeva; Jaques -Olivier Pesme; Wenxio Zhang.

[7] Andrew Jefford. https://www.decanter.com/tag/march-2018

[8] https://www.decanter.com/wine-news/fatal-frost-hits-champagne-vineyards-367272/

 [9] https://www.theguardian.com/lifeandstyle/gallery/2017/apr/28/winemakers-light-fires-to-fight-frost-in-pictures#img-2 Photograph: Christian Hartmann/Reuters

[10] https://www.bibendum-wine.co.uk/news-stories/articles/wine/forces-of-nature-winemaking-in-the-face-of-climate-change/

[11] Bibendum(http.bibendum-wine.co.uk).

[12] Ciatti Global Market Report/ January 2018

[13] https://www.decanter.com/wine-news/bordeaux-assesses-bordeaux-hail-damage-394566/ Côtes de Bourg / France Info

[14] OIV -State of vitiviniculture world market

[15] www.JancisRobinson.com/How is Italy’s 2017 vintage shaping up?.

[16] OIV- State of vitiviniculture world market.

[17] https://app.vinex.marketing/miq/2596

[18] Vinex.The Northern Hemisphere 2017 harvest- an overview.

[19] OIV-State of vitiviniculture world market.

[20] https://www.bibendum-wine.co.uk/news-stories/articles/harvest-reports-2017-rest-of-europe/

[21] https://www.bibendum-wine.co.uk/news-stories/articles/harvest-reports-2017-rest-of-europe/

[22] https://www.bibendum-wine.co.uk/news-stories/articles/harvest-reports-2017-rest-of-europe

[23] https://www.bibendum-wine.co.uk/news-stories/articles/harvest-reports-2017-rest-of-europe

[24] https://www.independent.co.uk/travel/americas/napa-valley-fires-california-wine-country-sonoma-santa-rosa-open-for-business-destroyed-a8032611.html- Laura Chubb.

[25] https://www.thedrinksbusiness.com/2018/04/global-wine-production-drops-to-historic-low/

[26] www.abc.net.au/site-archive/rural/content/2013/s3666487.htm- Lisa Kingsberry.

[27] https://www.thedrinksbusiness.com/2017/10/rabobank-small-2017-harvest-drives-up-bulk-wine-prices.

[28] https://earthobservatory.nasa.gov/Features/GlobalWarming/page2.php

[29] Rabobank-Wine Quarterly Q4 2017

[30]  https://www.sciencedirect.com/science/article/pii/S2212977414000222-

[31] https://www.sciencedirect.com/science/article/pii/S2212977414000222- page 11/19

[32] https://www.sciencedirect.com/science/article/pii/S2212977414000222- page 11/19

[33]  https://app.vinex.market/miq/2269

[34] E.M Wolkovich – Harvard university” Nature climate change” January 02/2018

[35] https://www.sciencedirect.com/science/article/pii/S2212977414000222- page 5/19

[36] Jancis Robinson April 2007