If the Euro melts down, would euro wine go up?

Although markets have rallied this week, the collapse of the euro is the topic du jour. Mike Steinberger talked with some players in European wine and found that none had a particular plan for handling a collapse. Fair enough: such a cataclysmic event would hold lots of uncertainty and dislocation. And we all know what happens to the best laid plans of mice and men…

But that doesn’t stop us from armchair speculation! If Greece, Portugal, Spain or even Italy were to withdraw from or be bounced from the euro and revert to their national currencies, the theory goes that they would suffer a devaluation but that the cheaper goods would be more attractive on the world market. Assyrtiko, feta cheese and beach vacations would all be on sale and this would help kick start the economy.

Although on a much smaller scale, the wine world does have a recent example of devaluation: Argentina. For those who don’t remember (see a piece of mine from the time for more details), the peso was pegged to the dollar to slay the beast of inflation, but the peg became untenable and when it was cut loose in early 2002, the peso fell by 75 percent against the dollar.

What happened to the Argentine wine sector since devaluation? One thing is that the wines already in the marketplace did not fall commensurate with the peso; A $10 wine did not become a $2.50 wine with the next vintage. In part, that’s because of cost factors since many of the barrels and bottles used in Argentina came from overseas. Also, importers and producers may have an idea of how much their wines should cost and may be reluctant to move to a lower price point as consumers might perceive a drop in quality. But Argentine wines, which previously had largely stayed within the country, went on a tear in the export markets lead by malbec. Foreign investment poured in and the wine sector internationalized.

Would Greek vintners pop corks if the drachma returned, hoping for Xinomavro to be the next malbec? Probably not. Greece doesn’t nearly have the spare capacity that Argentina did ten years ago. Spain or Italy might. But, still, there would be so much uncertainty, it’s hard to imagine a lot of euphoria.

What would be an interesting outcome of a devaluation would be if Mediterranean wines took a turn toward natural, less-interventionist winemaking. Maybe replanting would be too costly, so indigenous varieties would prevail. Oak barrels too expensive, thus no oak or the reuse of old barrels. Ditto yeasts, pesticides and fertilizers, with perhaps a return to horse plowing and organic cultivation and indigenous yeast fermentations? But, then again, maybe an influx of foreign capital would plant everything to Chardonnay.

Anyway, the discussion may be moot if there’s no breakup of the euro; James Surowiecki has a piece on the crisis, saying all it might take to call it off would be dropping Europe’s “catastrophic stubbornness.”

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6 Responses to “If the Euro melts down, would euro wine go up?”


  1. Your piece poses interesting thoughts for discussion. In terms of wines from Greece, the problem that my portfolio encounters almost on a daily basis is that with the high Euro, many of the wines end up priced too high and miss key price points.

    Since Greece is still under the radar of many wine drinkers and buyers, asking them to commit $20+ on the shelf is still hard. When we are able to get our wines out there in the $15 and under range, we do extremely well.

    Greece also never has had mechanization of the vineyards. All of them are hand harvested as it is. Additionally, many areas of Greece benefit from a dry climate and do not need to spray or use agressive vineyard techniques to keep fungus & pests at bay. In that instance, Greeks can’t really get that much more “natural”. In terms of oak, there are many Greeks that are heavy handed with it but in my case, we do not import those styles as it is not what our customer wants.

    IF the Euro melts down or Greece gets kicked out (for example), the main issue first and foremost is what would be done with the wine that already is in the country and was paid for in EU. Until all of that gets worked through the system, you would definitely not see a price drop instantly.

    All we can do is wait and see what happens. For my producers, we are trying to do the best we can to sell as much of their wine as possible in the US.


  2. Interesting comparison, but not sure it works. Argentina was fertile new ground and when the Malbec craze took off and, as such, it was a region ripe for investment. While the cheap Peso may have helped make the investment decision more appealing, it was not the primary driver. Malbec wine was. Given that it was a relatively new wine producing region, it required a significant capital investment of wine making equipment (barrels, tanks, processing equipment, harvesters, etc…) most of which had to be imported and had to be purchased in relatively expensive Dollars. So despite the weak Peso, much of the related input and capital required to make the first several vintages of Malbec were denominated in the strong Dollar.
    In Europe, however, the wine making infrastructure is already incredibly well developed and in place. One could argue that any investment that was going to take place to help improve or expand the wine making process in Italy/Spain/Greece took place over the last 10 – 20 years. As such, a producer of Barolo or Rioja does not need much in the way of relatively expensive foreign capital to produce the next several vintages so the vast majority of their production costs will be denominated in the devalued local currency.
    That said, retail prices are sticky and I agree that importer/retailer will try to sell the wine based not the cost but on its value relative to other wines in the market. However, should the Euro fall apart and/or Italy/Spain “default” on its debt, the recession that we have experienced over the last 3 years will only get worse. Demand for high the $30 – $100/bottle of wine will continue to evaporate and the discounting activity that the consumer has enjoyed from the various flash sites will only get more aggressive.


  3. Hi Andrea – Thanks for your first-hand perspective. That’s interesting about price points and I’m sure as the price goes up on wines from grape varieties that are not well known in the US, consumers are less likely to spend. I guess consumer tastings mus be particularly important for you?

    Spencer- Thanks for stopping by and your thoughtful comment–I’m glad you have as much fun noodling these issues as I do. I do think there are some interesting parallels with the Argentine case but agree that international capital is not as likely to flow in to the Mediterranean countries wine sectors in the event of default, in part because, as you point out the apparatus is already well-developed. Another factor could be more stringent regulations on plantings, which were largely absent in Argentina.

    But yes, as I alluded to the differences of scale, if the eurozone cracks, the problems are of a whole different magnitude for the world economy.


  4. When Russia devalued the ruble by 75% in 1998, they didn’t start selling oil in the global market at a 75% discount.

    Maybe wine requires foreign inputs (although in Spain and Italy I suspect they are more than capable of manufacturing everything they need locally). Production of oil in Russia very definitely requires foreign inputs. With the extremely improved profitability of selling oil abroad (salaries stayed the same, ruble revenues quadrupled) Russian oil companies had the money they needed to buy what they needed.

    If a wine producer needs constant access to foreign borrowings to stay in business he probably should get into another business.


  5. […] DR VINO. Quale mondo vinicolo avremmo in Europa se i paesi produttori, oggi in difficoltà finanziaria, fossero costretti a tornare alla loro moneta pre-euro? Prevarrebbe la viticultura biologica per tagliare i costi di fertilizzanti chimici e di pesticidi. L’uso del legno nell’invecchiamento sarebbe più oculato e verrebbero rivalutate certe varietà indigene perchè più facile da coltivare. […]


  6. […] There’s been a lot of nervous chatter about the Euro and what the Eurpoean economy meltdown is going to mean for wine and wine producers.  This piece by Dr. Vino is especially interesting. […]


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