The economics of the 2009 harvest and its implications (3)

There’s a lot to write about here, but first I have to close the chapter on the 2009 harvest.

As I mentioned in my posts of November 16 and January 20, the Grupo Rioja, the largest winery association in the region, proposed that the maximum yield for grapes be reduced by 10% in the 2010 harvest to bring supply in line with demand. This would ‘eliminate’ about 42 million bottles from future inventories.

The problem in an appellation of origin is that the collective brand (Rioja) is half owned by wineries and half by farmers, with a majority of 75% needed in a vote.  In this case, the winery associations and the largest farmers’ union were in favor of the proposal, but not the cooperatives and the smaller farmers’ unions, who control more than 25% of the votes.  The pound of flesh that they demanded from the wineries in exchange for approving the reduction in yields and voting in favor of the 10 million euro advertising and promotion plan for Rioja in 2010 was to allow an extra 10% of grapes to be vinified in the 2009 harvest.  5% would be a reserve to allow wineries and coops to choose the ‘best’ wines made to be classified as Rioja, rejecting the worst 5%, which would be sent to a distillery to be made into alcohol. The remaining 5% could be sold as table wine (not Rioja).  This amounts to about 15 million liters, equivalent to 22,5 million bottles of wine.

This represents an unfortunate step backwards for Rioja, because before the crisis hit, wineries and growers had reached an agreement to progressively eliminate the excess production which was historically sold as table wine, which in recent years competed directly with young Rioja in the Spanish market.

It was, however, the best decision under the circumstances, because it was necessary to roll out 2010 advertising and promotional activities as soon as possible.

The doubt I have is where the 15 million liters of table wine will be sold.  There are plenty of emerging markets such as Russia and Eastern Europe where there’s demand for inexpensive table wines that won’t compete directly with Rioja.  What I’m afraid of however, is that most of it will find its way to supermarkets in Spain, as in the past.

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

  1. It seems to be the same old problem, ie far too many grapes being produced that no-one wants, and far to much table wine being produced for the demand for it. I don’t mean to sound like a rabid neo-con free-marketer here, but it’s not a sustainable position in the long run to keep on subsidizing grape-growers (via distillation) to produce a product that no-one wants! On the other hand, what’s the alternative? There are thousands of people, families, small co-ops that depend on selling grapes for their living. Any thoughts?

  2. I agree with you.

    I think the Rioja Regulatory Council has the right idea in trying to encourage farmers to produce only what can be sold (ie, link supply to demand). When the drop in sales was as precipitous as in 2009, everyone was caught on the wrong foot. The farmers in Rioja (and all over Europe) complain when grape prices go down, but there is some measure of protection for them because they partners in an appellation of origin. If they lived in, say, Australia or California, where growing grapes is a business, pure and simple, they would have no choice but to go out of business in the event of a glut of grapes. Here, farmers might make little money over their cost of production in a surplus situation, but they are protected. And…when grape prices are high (0,80 EUR per kilo) as they have been for several years, they say nothing. It all evens out in the end. If viticulture wasn’t a viable, long term business in Rioja, people would leave. As things stand, people are waiting in line to plant, and will do so as soon as the economy rebounds.

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