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Château Rouquette
August 2008: 2008 - A Small Harvest but Higher Prices?
Every year in July we do a survey of the number of bunches of grapes, in order to estimate the size of the coming harvest. It is then possible to decide whether or not to drop some bunches to ensure concentration and to protect against rot.
This year, the decision was easy as we have probably the lowest crop since we bought the property eleven years ago. For the vineyard as a whole, we are estimating a yield of 35-40 hectolitres/hectare – a 35% fall from last year. This is the result of late frosts, a small amount of hail and and some early mildew which is now under control. We also pruned more tightly on some plots. In May we had almost three times more rain than the average for that month, causing concerns about mildew. Fortunately, since May we have had generally very dry weather.
It seems that we are not alone with low yields and it would not be surprising if there were a 10-20% fall in the overall crop for Bordeaux this year. There is a particular shortage of dry white wine. The price of wine in bulk has recovered sharply from the low levels touched in July 2006: the lowest price for basic red Bordeaux is up by almost 50% and the average price for Bordeaux Superieur by 24% - see chart.
Many countries experienced low harvests last year, especially in Australia, which saw a fall of about 30%. Bordeaux experienced a 3% fall in the production of red wine in 2007. An encouraging feature in Bordeaux is that the total acreage of red Bordeaux has declined by almost 3% in the last two years, reversing for the first time an enormous increase over the previous three decades. New grants to pull up vines, a tightening in the requirements to be classified as AOC and the new Vin d’Atlantique appellation will all contribute to the continuation of this trend. Vineyard prices have begun to rise again.
What is disappointing is that the high stock levels with vineyard owners, which we estimated at 2m hectolitres in our August 2004 newsletter (see: News - August 2004), have not really budged. The good news is that they have stopped rising but it will require a particularly poor harvest or a pick up in demand to return them to the 1978-98 level.
The Chinese
Potential – the Coming Price Bubble for Bordeaux?
With many commodities having experienced enormous price increases over the last couple of years, it is an intriguing question whether the same could happen to basic wine prices (the price for Bordeaux’s 300 iconic châteaux are a law unto themselves – I’m referring to the other 10,000 odd producers, who struggle to survive). The main catalyst for these commodity price blowouts has been Chinese demand.
Last year China bought just 2.5% of Bordeaux’s red wine exports, making it the 10th largest export market. However, this was 82% up on the previous year. In addition, a lot of China’s wine is shipped through Hong Kong or Singapore – another 2.6% of Bordeaux’s exports. Demand in these two countries was up by 53% and 94% respectively last year.
In 2005 China became a member of the World Trade Organisation and has significantly reduced its’ tariffs on imported wine over the last few years. This has turned a previously static market into one of the fastest growth areas for Bordeaux exports.
Per capita wine consumption in China is about 0.9 litters compared with about 9 litters in the US, 19 in the UK and 56 in France. 95% of China’s wine consumption is provided from domestic vineyards but the poor reputation of some of these, combined with the reduction in tariffs, is contributing to the growth of imports. The impact on the demand for Bordeaux of an increase in Chinese per capita consumption combined with an increase in the export ratio could be explosive. It is not difficult to see the potential if the current trends in Chinese wine drinking continue. Politics aside, within three years China could pass the USA as the 4th largest export market for Bordeaux.
At the margin, the emergence of China may have partly contributed to the firmness in wine prices over the last two years. However, as China moves from being a marginal market for Bordeaux to a significant importer, so its impact on the total demand rises exponentially. At the moment, China’s purchase of Bordeaux red wine is probably only 1% of total production. This compares with China’s purchase of oil, which represents 8% of world demand so it will be a while before China has the same impact on the price of Bordeaux as it has had on the price of oil or of grain. Unlike the grain market, where new land can begin producing within a year, it takes three years before a vineyard becomes productive. Rising demand with an inflexible short term supply is the stuff that price bubbles are made out of!
Michael Banton
3rd September 2008