The long, hot summer

September is just around the corner. In Rioja, that means the grape harvest, wine festivals and the beginning of the annual joust between wineries and grape farmers over prices.

The Rioja Regulatory Council is predicting a smaller harvest than in 2011, when 387 million kilos of grapes were vinified. The theoretical production ceiling in Rioja is 413,77 million kilos (58.442 hectares of red grapes x 6.500 kg/ha. + 3.767 kgs of white grapes x 9.000 kg/ha). The smaller than normal harvest is a consequence of a severe drought that has lasted two years and several hailstorms in June and July that hammered Rioja Alavesa. In Álava agriculture experts have predicted a 35% reduction in yields, suggesting a harvest of 77 million kgs, 41 million less than normal.

The Council is strangely upbeat about the situation. The technical services director, Domingo Rodrigo recently went on record to praise the excellent state of the vineyards while minimizing the effects of the drought and the hailstorms. I’m surprised that the Council isn’t concerned about a 41 million kilo drop in production in the smallest sub-region of Rioja. I’m certainly worried about it.

Sales (from January through June, the latest figures available) are flat – 0,51% lower than in the same period in 2011. While export sales are up 5,3%, this doesn’t compensate for the 3,1% drop in sales in Spain. Hopefully sales in the Spanish market will pick up as soon as cooler weather invites Spaniards to drink red Rioja after a long, hot summer of cold beer.

What does this mean for grape and wine prices? In a supply and demand economy, the current situation in Rioja, with lower supply and flat demand usually means higher prices, but Rioja beats to a different drum. Prices will ultimately depend on how much wine is needed by wineries (a smaller harvest could be interpreted as a good thing) and on whether profits will be impacted by higher grape prices, which they probably will because wineries won’t dare raise prices. In addition, VAT (value added tax) will increase from 18% to 21% from September 1 and I seriously doubt that wineries will pass it on to their customers. Financial constraints will probably prevent bigger wineries from buying up more grapes than they require, as has been done in the past.

All the above suggests to me that red grape prices will remain low in 2012 and early 2013. Growers will complain and probably boycott the approval of the 2013 advertising and marketing budget, but that’s nothing new.

In short, we’ve had a long, hot summer and all things point to a wild, crazy ride for the rest of the year.

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