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

By: Viva Vino! | Italian Wine Geek

Viva Vino! | Italian Wine Geek — Fri, 09 Dec 2011 21:21:51 +0000

[...] 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. [...]

By: Il latte in barrique è una cavolata che poteva venire in mente solo ai francesi | Che Tipo Di Vino...

Tue, 06 Dec 2011 16:30:47 +0000

[...] 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. [...]

By: john haskell

john haskell — Sun, 04 Dec 2011 10:38:42 +0000

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.

By: Dr. Vino

Dr. Vino — Sat, 03 Dec 2011 13:47:19 +0000

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.

By: Spencer Cutter

Spencer Cutter — Fri, 02 Dec 2011 20:00:28 +0000

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.

By: Andrea Englisis

Andrea Englisis — Fri, 02 Dec 2011 18:59:26 +0000

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.