Wineries vs. Farmers, 2011 edition

 

The swords are once again drawn in the boardroom at the Rioja Regulatory Council.  And it’s for the same reason as in 2010:  grape prices.  Last year, the farmers, who represent 50% of the votes at the Council, threatened to block approval of the promotion budget but were placated by the president of the Council, who promised to lobby for higher prices.

The problem is that grape prices during the latest harvest have remained low.  Farmers once again complain that the price paid, as low as 38 euro cents per kilo in some cases, doesn’t cover production costs. This year, they have threatened to not only block the promotion budget (8,6 million euros) but the operating budget (5,6 million euros) too. Their original demands were:

• Minimum prices
• An obligatory contract, with a copy sent to the Agriculture Ministry to assure market transparency
• Maximum yields tied to the inventory-to-sales ratio (when there are more than three years of sales in wineries, maximum yields would automatically decrease.  When the ratio is less than 3 years, maximum yoields would automatically increase

The ministry has told the farmers that minimum prices and an obligatory contract are illegal, but in spite of this, they insist that the ministry discriminate ‘positively’ by tying subidies to wineries that sign a contract. Besides, farmers feel that their only bargaining chip is the power of their votes.

Unblocking this impasse will involve a change in attitude on both sides.  The big wineries in Rioja are used to setting grape prices after coops begin to sell young wine the spring after the harvest, and often delay payment for nine months or more.  It would be good if this policy changed, with prices  set as a function of the quality of each farmer’s crop and payment terms set more reasonably.

The problem is that the wineries’ markups are already razor-thin, with a steady decrease in the average price since 2000.  More and more business is done with supermarkets in Spain and abroad and a price difference of a few cents a case usually determines who wins the contract.  Therefore, for large wineries, paying more for grapes than their closest competitors is a disadvantage. They’re interested under these circumstances in low prices for grapes.

Farmers have to understand that some years prices are high and others, low.  For example in Rioja, in the 18 years between 1992 and 2010, grape prices have only been less than 55 euro cents, the average production cost, in 1992, 1993, 1994, 2001, and 2010. Most of those years, the average price was between 75 euro cents and 1 euro.  This is not exactly a good reason to paralyze the Regulatory Council.

This week will be a tough one for the president of the Council.  He needs 25 votes from the farmers to approve the 2011 budget.  Let’s hope that clear heads will prevail.