The 2010 harvest in Rioja is set to begin. The latest buzz in the region is about the excellent condition of the grapes in the vineyards on the one hand and anticipation about the results of the Regulatory Council’s decision to reduce yields of red grapes by 10%, which, together with an increase in sales of 16% in the first six months of 2010 and an increase of 6,5% in the last 12 months could bring supply in line with demand.
As I’ve explained in the past, the best indicator of the general ‘health’ of Rioja wine is the inventory to sales ratio. The ideal ratio is a level of inventory equivalent to between 2,8 and 3,2 years of sales. If it’s lower than 2,8, there aren’t enough grapes and wine to go around and prices rise, while if it’s higher than 3,2 prices fall.
The ratio in 2009 was 3,54 and grape prices plummeted from an average of 80 euro cents to 55 euro cents (according to the Grupo Rioja) to 40-45 according to representatives of farmers’ unions. One big winery in Haro paid 38 cents a kilo which was undoubtedly good for its balance sheet but extremely bad for customer (that is, grape farmer) relations.
In 2010, an increase of 8% in sales and a decrease in production to 260 million liters could bring the ratio back to 2,76 which in theory would mean higher grape and wine prices. I’m sure this is the argument that prevailed in the Regulatory Council (the measure passed with 175 votes out of 200). Will grape and wine prices return to their previous level? The farmers doubt it – they’re planning a demonstration on September 11 – and so do I.
The plain and simple fact is that the average ex-cellars prices of Rioja have decreased steadily since 2000 and the wineries can’t afford to pay an average of 80 euro cents for a kilogram of grapes when their margins are being squeezed by customers in Spain and abroad. The reason sales are beginning to increase is lower winery prices with more comfortable margins along with the weak euro with respect to the dollar (1,27 now compared with over 1,40 throughout 2009) that is helping sales to the USA.
A lot could happen before the end of the year. First of all, September is traditionally the ‘make or break’ month for a Rioja harvest. Warm, sunny days and cool nights are important. Early rain could make for a major quality problem. Secondly, the timid economic recovery in most of Europe and the USA could sour.
I remain optimistic, however. We always learn from our mistakes and a major one last year was squeezing the farmers too hard on price. Since wineries have no choice but to buy grapes and wine from farmers and coops in Rioja, long-term relationships take precedence over short-term economic considerations. Grumbling is a highly developed political art form in Rioja but wineries and farmers have no other alternative than to get along. Wait and see.