The economics of the 2009 harvest and its implications

wine barrelsThe Rioja Regulatory Council recently announced that the harvest subject to protection in 2009 was 397,42 million kilograms of grapes and 5,15 million kilos for the quality reserve.  This is less than the 410 million kilos that I mentioned in my post of October 27.

What do these numbers mean? I think it’s interesting to see how the Council calculates them as grapes become wine and are aged in barrel and bottle before release from Rioja wineries.

Every fall, just before the harvest begins, vineyard owners receive a card with a microchip.  The chip contains data about each owner’s  holdings of red and white grapes. It works like a credit card.  During the harvest, each time the grower delivers a load of grapes to a winery, an inspector subtracts the amount of red and white grapes from the total in the chip.  Once the balance  reaches zero, the grower is not allowed to deliver any more grapes.  A little wheeling and dealing takes place, however, as some growers, due to drought, hail or other reasons produce a little less than their cards indicate, so a grower with a little more than allowed often ‘borrows’  a card with a balance to be able to deliver more grapes.

At wineries, a sample of each load of grapes is analyzed and the potential alcohol, color, tannins, amount of botrytized grapes, age of the vineyard and other parameters determine the price the winery is willing to pay.

Once the harvest ends, each winery sends a harvest report to the Council, and the Council in turn informs the winery how much wine can be vinified and subject to protection as Rioja wine.  Ususlly the conversion factor is 72 liters of wine for every 100 kilos of grapes, but it can be as low as 70 or as high as 74 depending on the harvest and the state of the Rioja business.

After alcoholic and malolactic fermentation take place, the wineries prepare samples for blind tasting by the Council’s tasting committees, made up of winemakers from Rioja wineries.  It’s like a peer review. At the same time, each batch of wine is chemically analyzed. Wines that pass the tasting and chemical analysis are then certified as Rioja.

At this stage, some wines are bottled and sold as ‘sin crianza’ or young Rioja.  The Council issues back labels and subtracts the corresponding amount of wine in their books from that winery’s total for that year.  In the same way, when wine is put into barrels for ageing, the Council records the amount of wine being aged.  At the ‘crianza’, ‘reserva’ and ‘gran reserva’ stages, the same procedure is followed, with the Council issuing only as many back labels as the balance of wine from that vintage in the winery, according to the Council’s accounting.  Note that the correct figure is the Council’s, not the winery’s.

Once the winery has asked for all the back labels it’s entitled to from a given vintage, it can’t sell any more wine from that year.  This system has been in place for all vintages since 1980.

Another interesting feature is the quality reserve as mentioned above.  Wineries are allowed to petition the Council to vinify up to 5% more than the maximum allowed to compensate for potential shortfalls in small harvests.  There’s a catch, though.  If there’s no shortfall, the winery has to send the wine to the distillery.

For the last week or so, the Council has been debating what should be done in 2010 if sales remain stagnant.  Traditionally, a reliable measurement of the ‘health’ of the Rioja business is the inventory to sales ratio.  If the ratio is about 3 (years of sales as inventory of wine), both wineries and growers are comfortable with the state of affairs.  If, however, the ratio dips below 3, it indicates a shortage of wine and the quality reserve program kicks in to alleviate it.  If, on the other hand, the ratio is over 3,5 either sales are stagnant, too much wine has been made, or in this year’s case, both).  Under debate at present is the possibility of only allowing 90% of the maximum allowable yield (5.850 kgs/hectare for red grapes and 8.100 Kgs/ha. for white) in the 2010 harvest.  This will bring the ratio back to about 3.  This seems to satisfy the wineries but the counteroffer made by representatives of the growers remains to be seen!

This may sound complicated, but it shows how committed the wineries and growers are to stability.  As you can see, there’s a lot more to a Rioja harvest than meets the eye!



3 thoughts on “The economics of the 2009 harvest and its implications

  1. Great post Tom, I always wondered how the regulatory council determined how much wine to bottle each year. It sounds like a good system of checks and balances. Is this system followed out in other Spanish DO’s or is Rioja the exception in regards to their council upholding higher standards and over sight?

  2. The Rioja Regulatory Council doesn’t directly decide how much wine to bottle each year, but rather the amount of wine classified in each vintage. It also keeps track of the wine in different stages of evolution (in tank, in barrel and in bottle) in every winery. It issues a rating for each vintage based on the results of blind tasting and analysis of samples from each winery.

    Other regulatory councils are supposed to follow the same process and do so with varying degrees of success.

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