personal finance

Climate change poses tart questions for fine wine investors

You might not associate Donald Trump with climate change and wine. Yet the teetotal former US president who once described global warming as a hoax appears to have benefited from both.

His timely investment in a Virginia winery a decade ago has coincided with the blossoming of that state’s wine industry. Indeed, Trump Winery has won awards for its central Virginian wines. 

New opportunities have appeared for winemakers and consumers, as warmer temperatures and longer ripening seasons have boosted cooler wine regions from southern England to British Columbia in Canada. Established viticultural regions in Europe, Australia and elsewhere have to contend with not just higher temperatures but more variable weather patterns than ever. 

Those who collect and invest in fine wine could rightly ask what this means for supply and, crucially, prices in the longer term. Some regions could fare better than others as well as certain grape varieties. What will happen to the price of, say, 2016 Petrus or Cheval Blanc, both dependent on merlot, a grape affected by climate change? Mother Nature makes no distinctions about where she applies searing heat or tumultuous floods.

This might cause some collectors to review their stock of wines. Will some of the great wines in France and elsewhere from even five years ago attain more scarcity value? Perhaps future vintages will no longer resemble their famed past efforts.

Today, disaggregating rising fine wine prices from climate change is not easy. It’s fair to say that few investors have fully thought through the impact of climate change on wine portfolios.

Critics unfazed

Harsh weather has always caused winemakers headaches. This year’s spring frosts in Bordeaux were bad enough. Wildfires as seen in Northern California last year can cause smoke taint, which affects the flavour of red grapes. Catastrophic deluges throughout the Rhine Valley in July could mean the wholesale loss of mature grape vines from flooding. No wonder the wine industry has been on alert about climate change risks for years. 

For now, though, investors appear unworried. Fine wine prices have followed other asset markets upwards. Liv-ex’s Fine Wine 100 index has risen 15 per cent over the past year. Critics reviewing the main sources of the finest bottles, Bordeaux and Burgundy, have given high scores to quite a few of the last 15 vintages in Bordeaux, over a period when climate change effects have come to the fore.

Line chart of Liv-ex Fine Wine 100 index showing Fine wine prices have been on an upward trend over the past year

Jancis Robinson, the Financial Times’ wine guru, thinks that France’s grape vines seem to be adapting to new hotter summers. To her the wines taste very good, establishing a more consistent trend of high quality. She thinks recent infernal summers have produced better vintages than in 2003, when vines collapsed.

A big test will come when California’s Napa region presents its 2020 vintage given the threat of smoke taint, a variety of odd flavours caused by atmospheric residues. As they are picked earlier, white grapes tend to receive less exposure to smoke, so the reds will reveal the greatest effect in fire regions. Indeed, Chris Carpenter, winemaker at Jackson Family Wines, told Jancis that he would not make any of the wines he was responsible for at the group. These include pricey Lokoya, La Jota and Caladan.

Critics’ views matter to wine investors. Yet if the benchmark wine flavour has begun to change, most fine wine experts have not shown much concern. Consider that leading Bordeaux critic Neal Martin’s scores for merlot-heavy Petrus have not changed much over the past 15 years, averaging 95 out of 100, using Liv-ex data aggregated from the Wine Advocate and Vinous Media. Cheval Blanc, too, did not vary much.

Chart showing the rising alcohol levels in fine red wine

Another talking point is alcohol content. A study by Liv-ex published this year revealed that in the decade to 2019 alcohol by volume (ABV) had increased markedly among some red wines from Bordeaux, California and Italy compared with the 1990s.

Fuller tasting, plummy merlot, represents perhaps 60 per cent of the grapes grown in Bordeaux. It reacts to hotter and longer ripening seasons by producing more sugars, which in turn become alcohol. Managing alcohol while allowing the grape to achieve proper ripeness is a challenge. 

As a solvent, higher amounts of alcohol can also mean more oak coming off the barrel in which it is aged. Some critics prefer that flavour, others less so. 

Winemakers are used to managing alcohol levels. Watering back, or diluting the juice during the winemaking process, has long been employed to temper the increasingly robust ABV scores found in Napa Valley wines, points out Sam Baron at Kivelstadt Cellars. He worries more about California’s diminishing water supply. 

This aspect, and the concern about smoke taint from wildfires, looms large for Oregonian Scott Shull at Raptor Ridge, outside Portland. He too has noticed what climate change has done to his wines over the past couple of decades. Raptor’s wines depend upon the pinot noir grape, which creates richer, more unctuous wines with riper tannins.

High cost of staying organic 

Adapting to new conditions is not just about coping with hotter and drier conditions during the summer. Wet spring weather has brought a greater variety of insect attacks as well as mould and mildew. That can present a challenge to those winemakers and growers who have chosen to use organic or biodynamic methods. 

Production of organic crops is more costly, says Gavin Quinney at Château Bauduc, who has not gone down this route. “In general, to make the switch to organic you should allow for 25 per cent higher costs and 25 per cent lower production.” He reckons that about one-tenth of Bordeaux has either gone organic or has begun to shift.

Thus the shift in the weather can make it harder to stay organic. For some, like Marianna Bruscoli, the added expense does not matter. Her family’s estate, Tenuta Santi Giacomo e Filippo, based in Italy’s Marche region, remains devoted to the organic cause. Very hot and increasingly dry summers make it a challenge just to retain moisture in the silty soils of her area.

A quarter of normal July rainfall this year has tested her team to come up with innovative ways of irrigating naturally, partly by planting moisture-retaining weeds such as mustard in the vine rows. But Bruscoli at least has diversified sources of income. She can also rely on her family’s larger farm crops along with the hotel on site. 

A looming identity crisis?

That added financial support is not available to every winemaker. Thus we get to the crux of the problem. The top marques in France, Italy and California have more cash flow and better financial backing, which they can put to work in maintaining the identity of their wines. Moreover, in Bordeaux they have long-established reputations and serendipitous terroir, often blessed with excellent soil.

One of the world’s priciest wines, Petrus, a Pomerol made almost entirely from merlot, has suffered no obvious slackening of demand. As needed, other châteaux, such as Cheval Blanc in St-Emilion, have tried to use less merlot in any blends. Some are looking at their grapes and rootstocks, rethinking their wines entirely. Others play with pruning to reduce unnecessary grape yields. All this to keep alcohol down and maintain a consistent flavour. 

At Château Figeac in St-Emilion, Frédéric Faye employs merlot to add colour and texture. But his staff have to work harder on both pruning the bunches and allowing more canopy cover from the sun. Although he does adjust the merlot content, they have also cloned merlot grapes, which adapt better to current conditions and produce less alcohol.

Maintaining the mix of cabernet sauvignon, cabernet franc and merlot is very important to the identity of Figeac wines. He adds he does not want to plant other varieties of grapes, since terroir is vital, as is Figeac identity. “I want to travel through my glass” when trying wines from different regions, he says. 

Whatever Faye is doing, it’s working, says Matthew O’Connell, head of investment at Bordeaux Index. Critics’ scores are sky high and its classification may be upgraded next year. “There is a lot of excitement around Figeac at the moment,” he adds.

In Burgundy, where domaines measure output in bottles rather than cases of wine, O’Connell has doubts about whether all producers can keep up with the top marques such as Domaine Comte Georges de Vogue or Leflaive. Yet even in a relatively poor vintage, such as 2019, prices throughout the region rose. Buyers have become increasingly wary of that kind of inflation, he notes. 

The cost of keeping up standards, organic or otherwise, will rise every year if weather variability continues. Some up and coming makers could struggle over the next decade without more financial support. 

Wine critic Jane Anson says Cheval Blanc, one of the top wine houses, normally relies heavily on the increasingly alcoholic merlot grape. But having always used a higher proportion of cabernet franc, notes Anson, Cheval Blanc could maintain the benchmark flavour and texture its well-heeled buyers demand. Other makers in St-Emilion may struggle to do the same without changing the essential character of their wines.

Consider the recent popularity of champagne with collectors. Over the past five years, the Liv-ex price index of the top 50 vintage champagnes has surged 59 per cent, topped only by the best of Burgundy.

Yet Bollinger, Taittinger and Pommery have all bought acreage in the south of England, home to the country’s top sparkling wines, in anticipation of climate change’s effects upon their domestic region. Tim Clew, investor and distributor at The Wine Trust, also has high hopes. But, he asks, “can these wines age well?”

If fine wine investors have any concerns about climate change it is not yet evident. Quality does not appear to have suffered, at least according to critics. Other areas, whether New World producers of pinot noir or champagne producers near Reims, have generally prospered as long as they have the finances — and terroir — to keep standards up.

For now the top brand names in fine wine appear to have held their own, but are likely to have their work cut out for them in the years ahead.


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