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The HC Commodities Podcast
Wine with Nick Brewer
00:58:57
Today, in time for the US Thanksgiving, we discuss wine. From rare Burgundies to commodity wine that is shipped in containers and blended. What is wine? How is it made? What is the market structure and how has that changed with internationalization, changing tastes and climate change. And why is English wine ascendant? Our guest is Nick Brewer, former COO of Noble Group and ECTP and now founder and owner of Oastbrook Winery (where you can stock up for Christmas here https://oastbrook.com/online-shop/).
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Foreign.
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B
Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're talking wine, just in time for Thanksgiving here in the U.S. what is wine? How is it made? What is the supply chain and what are the broad trends that are affecting demand, supply and taste? Our guest is Nick Brewer. Nick is now a winemaker and owns Osbrook Winery, an award winning winery based in the uk. Nick has had a storied career in commodities and was formerly COO of ECTP and Noble Group. As always, you can really support the show by leaving a positive review on the platform you're listening on and I hope you enjoy this episode. Nick, welcome to the show.
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Thank you very much for inviting me.
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B
We are talking another commodity and you can argue that bits of it aren't but wine. And obviously you are now a winemaker from Oastbrook, which is your winery. And you are indeed recording this from an Oast house, which might make some of our listeners laugh a bit and color the conversation. But yeah, okay, so I'm excited to have this discussion. I'm going to admit up front that I'm not, you know, I'm not very good with wines. My wife is. I'm not very good with them. And so that gives us an opportunity to sort of do a real 101 dive and then go through, you know, how that market has developed over the last 25, 40 years, what that means for different segments and then finish up on exactly what you're doing and English wine itself and where that's headed in a world of climate change and investment and so forth. But let's, let's start at the very basics. What is wine?
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A
Okay, well, I think we're have to go a little bit back in history to basically 6000 BC, which is really the first time that sort of wine appears on the scene actually in the state of Georgia. Not in Georgia in the US but obviously Georgia in middle Europe. And that's the first example where wine was found. And obviously it then spread right the way across Europe through all the kind of ancient empires and Romans and the Greeks and the Babylonians, etc. But what it really establishes that vines grow best between the 30th and 50th parallels. That's typically where we see vines growing and you know, that's sort of kind of. We'll come on to this later. But England, where we are right now, sitting in Our host house, we're on the 51st parallel, so we're outside of what would be the, the best place for growing vines. But obviously due to climate change, things are changing quite rapidly at the moment. But the. What the, the industry spread. We have roughly now around about 7.5 million hectares of vines planted around the world, producing around about 75 million metric tons of fruit. About half of that, or 55%, is wine grapes, and the remainder is table grapes, dried grapes. Grapes will go into kind of all kinds of juices. The majority of that is in Europe, so about 41% of that is in Europe and the rest in Asia and the Americas.
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B
In, in this definition of wine, this is fermented grapes that make alcohol. Get onto that. But this, it, this only pertains to alcohol that comes from grapes. So. And I asked this in the sense that there was a bit of a craze in the, in the 80s and 90s in the UK, where, you know, my dad certainly, and a few other dads went wild trying to make sort of crab apple wine. And, you know, all this stuff that was clearly thrown out five years later by my mum. Yeah, but wine is made from grapes. Is that sort of the definition?
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A
Yeah, yeah. So wine has to be made from grapes itself. Now you can have things like fruit wines, which your dad was making and indeed my father made as well. I remember watching this thing bubbling away in a cupboard for many years. There were some pretty awful things that came out of that. You probably remember, you know, things used to be exchanged at Christmas and then double exchanged again the next Christmas because no one actually was quite, quite brave enough to drink this stuff. But, yeah, you're quite right, grapes coming from vines are really the definition of wine. And wine has been, as we've said, like an elixir now for almost 8,000 years, and it's spread right across the world. And, you know, we had what were traditionally wine growing regions. Typically these were in Europe. So the big wine growing countries were France, Italy, in Spain. But that's, you know, no longer exclusively a kind of a European focus. And we've had, you know, dramatic changes in the way that the vines are grown and where they're growing around the world. We've also had changes in, you know, in the composition of which grape varieties are growing. So the moment the most popular grape varietals are Cavneo, Sauvignon, Merlot, Tempranillo, Chardonnay and Syrah Shiraz. And Roughly, of the 35 main varieties, about two, they make up around about two thirds of the global production at the moment. And we've seen also, really a convergence. So those key grape varietals are becoming ever more common as wine styles are converging. So, you know, stars of wine, the type of grapes that go into them, are becoming more common in various different production areas around the world.
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B
Yeah, let's get on to those trends. But again, for me, for my edification, starting at the very basics. Can you just tell us about exactly how you take a vine and make wine, and then we can get into the little bit more into the varietals and things so basic as what makes a red wine and a white wine? And do you just mix the two together to make a rose?
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A
Yeah, yeah. We're gonna have to have a little chat about roses, because roses are really quite special. But anyway, so let's go back to the basics. The basics are that at. At the heart of all of this is an agricultural industry. You know, often when I'm sitting there as a winemaker talking to people about wines, they're very interested in that process that takes place in the winery. But, you know, at har, we start off as farmers, and we're farming really a perennial crop. And that crop will last for anything up to, you know, the vines themselves will last for anything up past 25 years. Takes about 5 years for them to kind of fully yield. So, you know, you're not going to get full crops in the first. First couple of years. And then we follow what is an annual cycle. So we have bud burst, which takes place in. Usually in Northern hemisphere, at least in right about April. Then we have flower and fruit set, which takes place in June. So similar to, for example, we might see with other agricultural crops like coffee. And then we have what is called Verizon, which takes place between July and September, where we get basically, once the fruit is actually formed, we see then kind of a swelling of the fruit, and then we have harvest anywhere from July to October, depending on where we are, really, in terms of how far north we are. So here in the uk, for example, we typically harvest in so late September, early October. But in other parts of Southern Europe, they might be doing it as early as July.
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Just a pin there. So because it will be, I guess it'll be important later on when we come back to full circle to temperature. But that Verizon period, can you just associate the length and the temperature of that with sugar content?
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Yeah. So what we're looking for as winemakers is we're looking for the sugar content which ultimately is going to lead to the conversion to alcohol. And then we're also looking for acidity levels because we want to have a balance of acidity and of alcohol in finer wine. So we're monitoring for that right the way through that Verizon period to work out when the optimal period for picking is going to be really in terms of the style of the wine that we want to produce. But just to say that once we've actually done that, what vines will then go into dormancy after harvest? And that's when we do things like kind of winter pruning, which is basically making sure that we're, you know, we're going to have the crop and the right kind of yields for the, for the next year. Yields are very variable. I mean, you know, you can see anything from say 2 tons to 10 tons per hectare, depending on where you are and what crop varieties and how the vines are looked after and husbanded and also pruned. But once we've actually got vines, we've picked the grapes, we'll bring the grapes in. And depending what we're trying to make, if we're trying to make a white or a rose, then what we're going to do is we're going to press the grapes, basically press all the juice out of the grapes. And once that juice is pressed out, we'll put them into either a barrel or a tank, usually settle them for a little period of time, and then we'll start a ferment. When we make red wine slightly different, we, we crush the red grapes because we want to maximize contact between the grape skins and the juice itself. So a lot of people not familiar with the kind of grapes don't actually realize that the juice itself in most grapes is entirely clear. So the only way we get color into it is by contact with the skins. So for roses, it's like a maceration for a shorter period of time. For red wine, we actually ferment on the skins, obviously to get full color. And once we've actually fermented the red wine, that it's only then that we then press it sparkling slightly different. We have traditional method fermentations, which are where we have a two step process. So we start off fermenting wine often in tank, and then the second fermentation will take place in a bottle where we add extra sugar, add a little bit more yeast, and then the bubbles are created as a byproduct of fermentation. And then we end up with basically carbonated wine that's been created in a natural process through the fermentation process. Or alternatively, it can be the Shamat method. And the Shamat method is where we do the second fermentation attack. That would be something like, for example, Prosecco would be a. Would be a shaman method.
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The risk of sounding really dumb. So therefore you can take the same grape and make either a white Aussie or red with it?
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Well, yes and no. I mean, what tends to happen is that there are certain grape varietals which will be used for certain styles of wine. So, for example, we'll, you know, we'll see things like Shiraz or Cabernet Sauvignon typically will go into a red wine, whereas something like Sauvignon Blanc or Chardonnay can be made into a white wine. And in the middle, we have roses where we're going to have some maceration of a red grape, but not too much in order to get color. But there are lots of what are called Blanc de Noirs produced, so white wines produced from red grapes, and we do quite a few here. Of those here at Osbrook, they're less common, but you can, for example, make an entirely white wine from Pinot Noir if you want to, or indeed from a Cabernet Sauvignon or indeed from a Merlot. They're not as common, but. But you can, you can certainly do that.
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B
And then what are the qualities of the varietals that, as a farmer, you look for and then, and what do those qualities then pertain to the, to the wine itself?
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Well, I mean, first of all, you've got to look at the, you know, the terroir that you have. The terroir is a kind of generic term which is going to describe both the geography and can also cover things like culture, et cetera, of the whole area. But if you focus just on the geography, you're limited into what you can produce by. By the geography and most importantly, the climate. So here, for example, in England, we can produce some red wines made from either hybrid grapes or from cool climate grapes, like, for example, Pinot Noir. But we're unable to really make things like Shiraz because just simply don't have enough daylight hours and don't have enough heat, whereas Shiraz will thrive very well in slightly warmer climates. So your. What you're going to plant is very much going to be determined by the terroir and the temperature and the climate, climatic conditions that you've got. Once you've actually decided what you can grow, then you're going to focus then on the kind of the style that you might grow. I mean, let's take a typical example. Let's go to sort of New Zealand. And New Zealand, they planted, obviously, a huge amount of Sauvignon Blanc. They're actually. The world knows less about their Chardonnays, but they're actually really, really very good. But they've made their name on the back of Sauvignon Blanc. So there's been mass planting. And that's because a particular style of wine has developed in New Zealand, which has become extremely globally popular. And as a result, you know, more demand, more is planted in other areas. For example, in Bordeaux, specialized particularly in a Cabernet Sauvignon and Merlot, the two main grapes grown there, Burgundy. Typically, we're looking here at Pinot Noir and Chardonnay. So, again, the climatic conditions and the history and the culture will determine the predominant grapes that will emerge there.
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B
Just tie that sort of that sugar content to the alcohol a little bit as well for us, just in the ranges of alcohol and what's going on there. Because, again, these all sort of play into the trends or things that you are challenged by in a heating world.
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A
Yeah, I mean, I think what we're definitely seeing is continued increases in alcohol levels, and that's due to climatic conditions. If you're old enough, you'll remember that perhaps, you know, Burgundy. We were looking at wines there because Burgundy until recently was very much a cool climate. Now, as it's sort of getting warmer, it's moving more towards a warm climate. But the alcohol content, the wines have changed quite dramatically. So they've gone from around about 12, 12 and a half now to somewhere around about 14%. There's a really very interesting chart recently produced, looking at Napa Valley and general California as a whole on the level of alcohol that has been produced there since the 1970s. And in 1975, the average was somewhere around about 12 and a half percent of alcohol potential coming from the sugar that was available in the grapes this year and the previous year. The last couple of years, it's been about 15 to 15 and a half percent. And that's actually forcing people to pick grapes slightly earlier to keep the sugar levels down because the trend is towards less heavy wines, obviously, come onto. But, you know, we've seen quite significant changes in the level of alcohol, and that's one of the things we're watching out for when we're picking the grapes. But there are limits to what we can do in these climatic conditions, because if you pick the grapes too early, in order to keep the alcohol levels low. You're actually going to look at a situation with the grape where it isn't actually truly. Right. So we're gonna. That's gonna have a significant effect on the final taste of the wine as well.
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B
Okay. A couple of pieces to get into place. So one would be the supply chain. And then just talking about, kind of, before we get into trends, the main sort of, I guess, how the market is structured, you know, in general, just on that supply chain, are most vineyards attached to wineries. Is there a. Is there a split there between certain types or prestige wines, etc. You know, how. And then all the wineries separated from the bottlers. How does that sort of. Can you just give us some sense of that actual supply chain? How does. How's your typical bottle of wine end up in the supermarket on your table?
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A
Yeah, I mean, it. I mean, it does. It varies enormously. So you can have what are called contract growers. And contract growers are people who just make, you know, basically produce grapes, and they'll then be sold on to wineries who will then process the grapes as we described before, or you can have what are called estate producers, and they will basically be using their own grapes to produce the wine. And you can find really quite a significant difference in different kind of economies. So, for example, in Australia, you know, you've got a very, very kind of efficient organization where they've been focused very much on exporting for now several decades. And as a result, you've seen this consolidation of the industry to create very high levels of efficiency, very large wineries producing very large quantities of wine for export in.
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In boxes.
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Well, also in bulk. We talked a little bit about, you know, is wine a commodity? Well, the nearest thing that we can say, obviously a commodity has to be fungible, and that's the base definition of a commodity. And in many cases, wines are not fungible. They're not fungible because you're going to have a different grape variety from a different origin, going to be sort of different grades, etc. And it's very difficult at that point to quantify it. Commodity. The nearest thing we have to that, I think, is bulk production. So what we'll see, for example, in places like Australia, we'll maybe have a contract grower who sells on to a winery. A winery then will be producing both bottled wine, but also bagged wine and also bulk wine. And a very significant amount of the international movements of wine is actually in the form of bulk wine. And, you know, in the old nine.
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B
Buck Pinot Grigio type of thing, right?
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Yeah. I mean, this wine will probably be trading somewhere for around about a kind of a euro a litre. Right. So it's, it's quite cheap stuff. And it also means that, you know, at the point of destination you can blend multiple origins and you can produce really what is then very much commoditized style of wine at the sort of kind of bottom end of the market. But these are actually now transported using containers. So basically there's a big bag in the box inside a container and then those are kind of, kind of shipped.
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Oh, wow.
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Yeah, yeah. I mean, it's become quite.
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Is there sort of, is there like what we would associate with the commodity market there in terms of. Are there any kind of hedging mechanisms for the farmers, you know, offered by the, the wineries? Is there, you know, who's doing the blending? I mean, that sounds quite fascinating.
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Yeah. So maybe you do, for example, as a grower, you're going to either go into contract with a, like a fixed term contract and it may have some variable components to it with a, with a winery and they'll be buying from you on a regular basis and that can be done on an acreage basis or it can be done on yield basis, you know, really depending on what that contract is. Or you can sell Spot. Spot's obviously quite dangerous because you can have huge levels of volatility of prices. Sometimes it works out for you, but in recent years probably not. And when you're, you, you know, you might be selling at contract for a few thousand dollars and then at spot might be a few hundred. So it could, it's quite a dangerous way to sort of, kind of manage your, your inventory. But then when you get to the winery itself. Yeah, I mean there are hedging mechanisms in the sense that they're bilateral and there are means by which you can hedge your crop risk, et cetera. There are insurance markets, but in terms of a very deep liquid market in which you can kind of forward hedge your exposures, that really is quite limited. So the risk is very much back on the producer and indeed the farmer in order to work out bilateral hedges with other counterparties. But to do that in a liquid trading market is almost impossible.
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C
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B
Essentially, commoditized Australian wine that ends up on the shelf in every supermarket in, you know, Texas, where I sat right. That actually, that could have been bottled this, you know, this side of the. The Pacific. That could. That will have come absolutely, from a whole slew of different vineyards within a region within Australia. You know, this is. This is sort of a true commoditized operation in that sense.
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A
Yeah, absolutely. And I think what you'll find, I mean, what tends to happen these days is it probably says Australia right now, and it probably tells you what the grape varietal is. So in that sense, you may not have a true blend if you go to some of the really emerging markets now. I mean, if you sort of back off to where, let's say the UK market was in the 1980s, and maybe the kind of same in the US as well, where people really didn't differentiate as much at the bottom end of the market, you could have a completely blended product where the components, the grape components could change every year. But I think now, typically, what we're seeing in the more developed markets is, you know, at least you're going to distinguish it by country of origin and also by grape varietal. You know, true blends where it just says it's red are not as common as they used to be.
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B
By extension, therefore, if you. If you had an exquisite palette, you'd be able to tell slight variations and differences within a typical branded Pinot Grigio. And then certainly by each year, that that taste would change as well, which I guess that would naturally, but.
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A
It would. But it's a bit like, you know, for example, coffee blending, where, you know, you're looking at your blend, your typical blend will go in and you'll have your. Your certain amount of Arabica, certain amount of robusta that would go into it. But over time, given the price of Robusta and. And Arabica, then there will be a change in the blend that may take place. And, you know, you'll move the consumer gradually from one to the other. You won't necessarily do it all in one go, but in those cheaper blends, you'll also find a lot of added sugar, and that tends to mask any kind of differential anyway, because a lot of consumers do like a little bit of sugar in that, in their wines. Yeah.
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B
Okay. Final, final piece. Well, two final questions on this section. One, One would be if you had to pick one of those slices, which is sort of typically been historically the most lucrative between the farmer, the winery and kind of the distributor.
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A
Yeah, I mean, it's okay. I mean, what a lot of the big producers have started to do, certainly from Australia, is they want to own the whole chain so that they're owning every point in the value chain. The interesting thing about the wine industry as a whole is it's quite old fashioned in the sense that there's lots of human intervention taking place. People buy from people and we haven't really found a way around that. So they're quite a large part of the slice of the value chains taken by the retailers and the distributors. But I think probably the place that you really want to be, if you can, is to be if you were the iconic wine producer, then probably that's the place where your margins are going to be highest. But if you're a bulk producer, then any point in that value chain at the moment is going to be under pressure.
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B
And then just one final piece, this relates to headaches and all the rest of it, but in terms of additives, preservatives, that piece is that regional dependent on compliance standards, is that. Can you just give us some quick sense of that? Are there plenty of wines that have nothing added to them? They're just, you know, old fashioned, so to speak? Or does everyone now have to have some of this stuff in?
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A
Right, okay. So if you have a wine that has nothing in it, it's generally known as a natural one. And you know, there's been increase in demand for natural wines, but they tend to. The issue with natural wines is because there's no form of any form of preservative in there. Then, you know, as a good friend of mine said, a natural wine is great at some point before, from the point at which it's made to the point it arrives on your table, but you don't quite know when. And so it's got limited time in bottles. So for example, you're exporting, let's say from Australia and it's got to go, you know, a lot of ocean traffic and you're exporting, you know, natural wine. You're. In order to guarantee a good product to your customer at the end of the line, it's going to be quite difficult. So things like natural wines are generally going to be much more kind of localized because they have shorter, by definition, a shorter shelf life. But generally in terms of everything that's involved in sort of fining a wine or filtering a wine or additives to the wine are going to be controlled. And they're pretty strict rules on post bottle analysis, but each region will be different. So for example, in Europe, SO2, which is sulfite, which is kind of added to wine as a natural preservative, the thresholds are much lower in Europe than in the US for example, or in some other countries, such as Chile, Argentina or Australia, they can put more SO two in the wine. You know, a small proportion of people are very sensitive to sulfites, but it's actually much smaller than you might imagine. And the amount of sulfite that's put into wine is significantly smaller than for example, the amount that's going to be sprayed onto things like almonds or nuts. So often the bad effects that you might be getting from wine might just be because of high level of alcohol.
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B
I'm just claiming it's the sulfide. Yeah, right. Okay, fantastic. So I feel well equipped now to have the interesting part, which is, you know, what has been going on in this market over the last 20 years? What are the key themes that have put people under pressure, have opened up opportunity. Can we. And I guess, you know, let's start with sort of, you know, you started off talking about how we've gone from sort of a few vines in Georgia, the country, to now being globally at that, those parallels around the world. Yeah, let's talk about international trade.
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A
Yeah, I mean, international trade has been the real, you know, big driving force in the industry starting really in the 1980s, beginning in the 1960s. And I think what's interesting is to look at what's been happening with wine, but also what's been happening with alcohol consumption. So generally alcohol consumption starts to peak at around about, let's say GDP level, around about US$20,000. So up until that level it continues to rise as people become more affluent. And then above $20,000 overall alcohol consumption tends to fall. And that's obviously people probably can become more kind of healthy and more health aware. But looking at where wine is actually drunk, you have to again go back in time a little bit and look at traditionally what was being drunk in different regions of the world. So we Talked about the 30 30th to the 50th parallel being the, the place where vines grow best. And so that domestic production led to a lot of domestic consumption. So the wine producing nations of the world are also the wine drinking nations of the world. And you know, the most prolific producers are France, Italy, Spain, and latterly, it's Australia, it's Argentina, it's Chile, it's, it's the US and in those, historically those wine producing areas, people just drank wine. But conversely, in places where you could make malted barley, for example, UK beer became the predominant and preferred drink because it was cheapest to produce. And therefore the Brits became beer drinkers.
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B
In places to say this was, this was always just about actually, you know, having something you could drink that didn't kill you.
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A
Right?
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B
I mean the, the.
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A
Exactly.
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B
Early wine was all watered down, Right. Beer was, you know, people would drink like kids would have like five pints a day, right?
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A
Yeah, yeah, well it was, it was cool. It was called kind of small beer. And the Chinese obviously worked out many, many years ago that if you boiled water then you could drink. Took us several centuries to wear that out and indeed there might have been some reluctance. Yeah, there's a lot of beer. There was a lot of beer to you know, finally realize that boiling, having a.
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B
But even small beer was like 4%. I mean it wasn't.
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A
Yeah, it was, I think it was about 2%. I don't think it was, I don't know, 4%, I think, you know, but it, yeah, so, so anyway, so we had the, we had the, the beer producing nations and where malted barley couldn't be grown and it was too far north to grow grapes, you were relying then upon spirits. So the colder nations in the world, like Russia, Russia, Scandinavian countries were big spirit producers like Scotland as well, because malted barley was much harder to be, was almost impossible to produce in northern areas and therefore less beer, more spirits. And that's kind of where we sat until last century, the 20th century. And then what started to happen was in the 1960s, trade starts to occur. The first thing that happens is that the level of alcohol being drunk in the wine producing nations falls dramatically. So somewhere in the 1920s, the French were drinking around about 22 liters of pure alcohol in the form of wine every year. It's now around about 10. And that started to fall as obviously income started, has started to rise. So by the time we get to the post war era, you've got this significant reduction in the number of hectorates in Europe. And as the EU subsidies start to kick in, that mitigates some of that reduction in supply and we end up with these huge wine lakes that the, the Europeans then have to find a home for. And this goes into alcohol products, it goes into all kinds of spirits, etc. Desperately trying to get rid of this. And around about 1980s, when these wine lakes were kind of reaching their peak, the international trade market starts to open up and it's led by the Australians. So the Australians then start to export primarily to Europe, primarily in fact to the, to the uk. And you end up with these very large wine importing nations. As we get this process of convergence taking place where the beer producing nations start drinking a lot more wine, spirits producing nations start drinking a lot more wine and beer, and the wine producing nations start drinking spirits and beer. So you end up with this kind of global convergence taking place. At the same time we have a huge build in international trade. So around about in the middle of the 1980s, about 10 to 15% of the market of the wine market was traded. It's now 47%. And that was led very much by first the Australians, then the from Southern cone, so Argentina, Chile, certain extent the US as well, South Africa and latterly also the Europeans. So the Europeans now control around about 55% of the export market globally. And the importing nations are the principal. I think it's about 40% of total imports go to the UK, the US.
- [33:25]
B
And Germany just in that period. So whilst per capita alcohol consumption has leveled off, what's happened to wine consumption itself over that period in terms of total bottles consumed?
- [33:36]
A
Yeah, so the total amount consumed has remained about the same. So what you've actually seen is this kind of substitution effect taking place. So wine consumption now is about the same as it was in the 1960s. It did increase during the 80s and 90s up until around about 2000. Traded volumes continue to increase, but the total consumption levels started to fall off and have now begun to fall more dramatically as we get into the, into the 2000s. Now that's been offset by a quite significant increase in the value of the consumption. So there's been a mitigating effect where although volumes of one wine produced have started to fall, the value of that wine has increased. So the actual value of the market has not declined until recently, which has actually now been started to happen in the last kind of two to three years. So that process of convergence has kind of led to, you know, kind of mass substitution across the world. And you know, you've had markets like the UK increasing the amount of wine that they've been drinking. And therefore that's been absorbing some of the reductions in places like France and Italy. But that's now come to a halt. You know, there have been obviously what were regarded as false dawns where there were, there was quite a lot of import of wine into China at one point, but now that's sort of it. It seems to kind of take it off, which has obviously had a major impact on the export of Australian wines, which is obviously reinforced by, you know, the temporary ban that was in place. So there are great opportunities in the sense that there are some, you know, developing countries in the world, like, for example, Nigeria, India and also China, where the consumption of wine is below the global average and may well over time, increase. But that's. That is taking time to take place. And in the meantime, what we've got at the moment in the market is, is an oversupply.
- [35:45]
B
Yeah.
- [35:46]
A
And the market needs to find a means by which it's mitigating that oversupply.
- [35:51]
B
And Gen Z or whichever, you know, aren't doing any favors in terms of alcohol consumption, but good for them. Where. Just, just in terms of that. So you. What, what's a mitigating factor has obviously been the increase in value, the brand value.
- [36:05]
A
That's been the premiumization.
- [36:06]
B
Yeah, yeah. How is that premiumization been achieved? Has that been sort of a concerted education? Basically a big, you know, Don Draper's turned up and sorted it out kind of thing for them. Like, how have they actually achieved that? I mean.
- [36:21]
A
Well, I mean, I think what it is, it's part of it is due to what I would describe as scarcity. I mean, there's true scarcity and imagined scarcity, or talked about scarcity. If you look at real scarcity, look at the Begumian market for high quality wine. I mean, you know, you'll find a row of fines being passed down to the next generation that will be big enough to produce two or three barrels of wine. And obviously that is true scarcity. In which case, obviously price of that is whatever the price people are prepared to pay for it. And as that market for Begunian wines has globalized, the top end of the market is very scarce.
- [37:06]
B
Indulge us. What would, what would a top Burgundian go for these days?
- [37:10]
A
Well, I mean, you could be seeing for a bottle, $10,000 for the really top end of the market.
- [37:18]
B
Well, and this will be sort of. The vineyard dates back to sort of when English, the Count of Burgundy and, you know, the Hundred Years War and all that kind of stuff.
- [37:27]
A
Yeah. But a lot of it is. Is down to the fact that obviously you have succession laws in France. The vineyards will be split up amongst the generations, so you might just inherit just a small strip of a small part of a vineyard. And as a result, you know, the Quality of the wine, you know, has been established over hundreds of years and the volumes are very low and it.
- [37:51]
B
Is but in place a brand thing and.
- [37:53]
A
Yeah, yeah, and it's, it's a, it's a brand new thing, I think. But in Burgundy, I think it's quite unique and it is very much linked to there just there isn't enough of the stuff in places like Bordeaux where there was a huge amount of hype. And also the same thing is occurring in certain parts of the kind of Napa Valley as well, where there was a lot of hype around iconic wines, but perhaps not quite as much scarcity. The prices have gone up, but they've become quite volatile. And so the values of non super premium wines are under a little bit of, let's say stretch because prices have risen very high and maybe the underlying supply and demand scarcity is not quite there. So whether it's true scarcity, I think the premiumization has real reasons to have evolved. But in other areas there's a lot of marketing that's taking place to kind of lift prices and it's, it's a lifestyle thing. You know, people, you know, aspire to have, you know, kind of scarce and you know, iconic wine.
- [39:01]
B
Is that China story? Because that's fascinating.
- [39:03]
A
Right.
- [39:03]
B
But you know, approaching or at that, you know, a significant chunk of the population is certainly at that 20 grand GDP level. What's going on there? Is that actually a sign of Chinese weakness or China weakness? And actually sort of, you know, again, that seems to be a very live conversation this year about just actually behind the veil. You know, how strong is that economy? What direction is it headed? Is this. You mentioned there was a ban on Australian exports. Can you just dig into that a little bit? I kind of find it fascinating. And perhaps a proxy for economic health.
- [39:33]
A
Yeah, I mean, so there was a huge increase in demand in port of wine into China. And these were generally premium wines. So these were, you know, kind of Bordeaux's and Burgundy's, you know, first growth.
- [39:49]
B
This is CCP members sort of having great parties that got shut down is.
- [39:53]
A
Yeah, I mean it was a lot of. It was sort of, you know, parties, officials, etc. But with the clampdown that's taking place on so called lower level corruption, as a result, the demand for those, you know, that rather overt partying has been undermined and as a result, demand is not as strong as it has been. And then there was the issue obviously with Australia where imports of wine to China were banned for a period of time. As a result of the Australian government apparently upsetting the, the Chinese government. And as a result there was a, there was a temporary brown that was lifted. But obviously, meanwhile, interestingly in China, Chinese are actually producing quite a lot of wine domestically. So as always it's quite difficult to get to the bottom of the statistics. But Chinese production has increased and the volume of imports has reduced. And in part that's because I think as we said, it's to do with there's been obviously a clampdown on demonstrative consumption, but it could also be due to the fact that people's available incomes are not as high for products such as imports of Australian or premium French wine. So we don't know for sure. But as with anything else, China is a kind of a sleeping giant. It's a very large economy, it's got a very large population, very large number of middle class consumers. And one of the ways that the imbalance in the wine market may actually evolve over time is places like China, like India, like some of the African countries like Nigeria, which are becoming more affluent, are going to regain a taste for wine. And obviously hopefully that leads to increased sales which will be very positive, particularly for initially for lower cost producers in places like in Australia and Southern Cayne.
- [41:57]
D
Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers. It has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Cleantech podcast, available on all platforms.
- [42:30]
B
I guess we sort of bearing the lead a little bit in this sense. I've got a nice segue here into what climate change is doing. But how painful is it out there at the moment? How significant is that imbalance?
- [42:41]
A
Well, I mean it depends where you are and what you're doing. So we talked a little bit about premiumization. Now you've obviously seen a paganian prices have. You know, if you look at the various different brokerages, you'll see that they have been quite resilient. Prices in Bordeaux, slightly less so. But the top end of the market, really right at the top is kind of okay. It's in the kind of mid market and lower end of the market where there's quite significant pressure. The thing behind this, the thing that's really Driving this is actually demographics, and that's demographics in the traditional importing and producing countries. So the boomers have been amazing wine drinkers. They moved from, in places like the US and uk, they moved from drinking beer to drinking wine, and they've never really stopped. And, and their consumption of wine is significantly higher than the generations that followed. So Gen X, again, big wine drinkers. But as we start moving into sort of millennials and Gen Z, the amount of wine that's being drunk is falling and the amount of alcohol, in fact, that's being drunk. So that demographic shift is probably the biggest challenge that the industry's facing, and it's actually got to find a way around that, of actually somehow kind of harnessing the desires and wishes of Gen Z drinkers in the way that they managed to do that with boomers. What we've also seen is a big shift from red to white. So red was by far the predominant wine type, but now there is more white wine being produced than there is red wine. And the level of alcohol preferred is now going down. People are preferring lighter alcohol, and that's in part because of this sort of, you know, there's a focus more on kind of health. So people want wines that are of good quality, that lower alcohol, lighter wines, less able to give you that terrible hangover that you were talking about earlier.
- [44:50]
B
No, no, the sulfite. And I'm actually thinking as this goes out, you know, for Thanksgiving next week, and we might see that sort of play out around the, the table with the family over where. Boom. And Anna chugging back a couple of bottles myself, probably tackling a couple. And none of the, none of the millennials and Gen Z touching the stuff. But anyway, okay, so the, the other way, obviously we, you know, the market.
- [45:14]
A
Right.
- [45:15]
B
Sizes would be very painful. Is associated with obviously declining production and supply, which is a, a story of climate change, which is in two parts. One is, of course, generally rising temperatures and the other being rising variability and, you know, frosts and floods and droughts and all these periods coming more with more intensity and more frequency to established regions. Can you just give us some sense of what's going on, how you, as a, as a winemaker are seeing this play out and how it's playing out in the global markets?
- [45:48]
A
Yeah, I mean, climate change is having a dramatic effect. I mean, although consumption has been falling, it's been falling at a relatively slowish rate, but what we're seeing is quite a lot of kind of supply changes. Now, obviously it's an agricultural crop, therefore you're always going to see a certain amount of potential supply disruption and volatility. And typically, price changes in the past have been supply driven rather than consumption driven. Now, the reduction in consumption is what's causing the issues, which has led to a reduction in acreage of around about 13% over the last sort of 10 years or so. And that's probably going to continue. You only have to read the latest news about what's happening in places like California, where they're basically grubbing up around about 40,000 hectares over the last couple of years or so, and that's to really right that imbalance. But also we've had significant changes in climate and that, again, if we talk about what's happening in the uk, the only reason we're producing wine at the quality level that we're able to do now is because of climate change. You've actually seen temperature increases of around about a degree and a half in certain parts of the southeast of England in the last 25 years. And that has meant that we've gone from cold climate to cool climate. But in other places of the world, we've seen, you know, significant temperature increases, which has meant, at the very least, a change in the style of wine. So, you know, higher, heavier, you know, higher alcohol, heavier wines that were probably not what was being produced sort of 25, 30 years ago. And then, of course, in places like California and elsewhere, we've seen wildfires which are causing devastation to the industry. We've got smoke taint in the wine. And it has meant that every year, as a viticulturalist, you're having to face what are quite significant supply shocks, which can be due to drought, as you mentioned, can be due to wildfires, can be due to late frosts, which are becoming more and more common. And as a result, the fact that because we've got global warming, the buds are coming out earlier and therefore, when the frost comes, they can be that much more devastating. So lots of climatic change causing very significant differences in the styles of wine and also where those wines can be produced. So, you know, I went off to a conference in Copenhagen and was taken around, you know, Danish vineyards, but they're also producing wine now in Sweden, in Norway and in Finland, gives you an indication now of really what's changing. And that that level at which you can grow, which traditionally was the 50th parallel, has now moved significantly further north. And in England, you know, the first vineyards are. Well, we've been producing wine now in Yorkshire for a while, while. And there Are even a couple of vineyards now in Scotland. So gives you an indication of where wine can be produced. Sometimes those are hybridized grapes which tend to be a little bit hardier. Don't need such long growing periods. But we've seen here in the UK levels of alcohol going up, levels of sugars going up and levels of acids coming down, which.
- [49:25]
B
And in some ways your gain is. Is others lost.
- [49:28]
A
Right.
- [49:28]
B
We see in France sort of the Champagne region, if effectively moving further north. I mean, and at the same time you're throwing in. We had one podcast guest on, I went out him, but has a vineyard in Oregon and was saying like, you know, there's vineyards out there going for a song because they've just been so beaten up. Right. As well. So, you know, is there. Well, kind of the, the, the growing region is expanding with that temperature growth. It's also presumably shrinking at the southern end of that trough, you know, that, that horizon. But actually in general, you know, you've got that five year period to get a vine to maturity and then you've got every harvest. The actual danger of getting production is more at risk everywhere in some sense. Is that correct?
- [50:11]
A
Yeah, definitely, definitely. We've got an industry which is suffering as a result of climate change and a greater part of it is suffering than that which is gaining from it. And at the same time we have this sort of climatic change which is leading to strong high levels of alcohol. You've got a consumer preference which is going towards lower alcohol styles, light and wines. So there's a kind of a mismatch there between the traditional production levels and, and that which is desired. Which is part of the reason why a lot of, you know, a lot of the vineyards in places like, you know, in Canada, around Niagara, et cetera, doing very well.
- [50:56]
B
They sit in that sort of sweet spot of.
- [50:58]
A
They've got that sweet spot where they've got lighter wines. They're focused on white wine, not red wine. You've also obviously then got sparkling wines for example, in the uk which is sort of getting a niche in the market where we're able now to produce, produce those sort of higher level of acidity style wines which the Champagne was. Are struggling to produce. And it's part of the reason why the Champagne was now buying up a lot of land in the southeast of England, because they've been in the business for 200 years and they know that climate change is going to mean that their business model is going to be challenged. One of the ways to do that is just to move where you produce your wines. Yeah.
- [51:39]
B
And for listeners who know your background, obviously a prodigious individual in terms of building and growing commodity platforms is that. And now you've gone into English wine. Is, is English wine sort of the, the next big opportunity and market out there?
- [51:54]
A
Well, yeah, I think it is. I think there's a, there's a tremendous opportunity in, in sort of English wine. And I think as with anything else, it's about developing a reputation. And English wine developed its reputation on the basis of sparkling wine. And back in the sort of 1990s, I think it was Nightimber, because prior to that, England was producing, was using a lot of hybrid grapes that had been brought in places like Germany. The quality of the wine was really not that great. But in the 1990s, night timber, the guy who's running it, brought over someone from a team from Champagne, started planting Champagne varietals, And by the mid-90s was actually beginning to win awards. And that really led to this, you know, massive change in the English wine industry. I mean, the total acreage now is only around about 5,000 hectares, of which around about 4,000 are producing. So it's tiny in sort of from a global perspective, about 70% of it is sparkling. But the sparkling wines are now winning global awards. And I think at the last decanter awards, it was an English sparkling wine that actually won the overall award. And that's because climate, climate change, the skills of the winemakers are improving. You know, the husbandry of the land is improving. So I think we've now got very much kind of world beating sparkling wine industry, but only about 8% of that is exported. So there's huge scope for expansion there. And I think the bit that really excites me above all is basically still wines. So England is not known how much for its still wines. And so when we decided to start our production here and plant our vines, we decided to do the opposite of everybody else, which was rather than produce 70% sparkling wines, we decided to produce 70% still. So although we do produce some really great sparkling wines, which have won several awards, we also produce a range of still wines all the way from kind of Pinot Noir barrels, Pinot Noirs, Chardonnays. And I think it's that part of the industry which kind of really, really excites me. And we're really seeing with other producers here also in the uk, kind of a fantastic improvement in, you know, the, the level of quality of the still wines. And they're beginning to win a lot of international competitions. So that I think is really where this is headed. And again, in part it's due to climate change. You know, in the last sort of 15 years since the English sparkling wine revolution really hit the shore, we've seen an increase in temperature, which means that, you know, in areas such as where we are and in, in Sussex, places like Essex as well, we've, we've seen, you know, we've got higher temperatures, we've got more sunlight hours, and we're really able then to produce fully ripe still wine grapes which are going into some really quite amazing still wines.
- [55:07]
B
And happily our gain is France's loss. But what. So two final questions. What would be, as we come up towards Christmas, what Osbrook wine should people be looking at? And, and how do they get it?
- [55:20]
A
Okay, fine. Right, well, so at the moment, o wines are only available in the uk, but they will soon be available in Scandinavia and we are looking at trying to get some wines over to the US in the not too distant future. In fact, I was recently approached by someone who wanted to import some wines into town, Texas. So perhaps next Christmas we can get some to you as well.
- [55:43]
B
Fabulous.
- [55:44]
A
We produce two amazing sparkling wines which are amongst the most highly rated wines by Jancis Robinson, who's an English wine critic. So we've got a cuvee 2018 and a sparkling rose 2018, which are great, great wines for Christmas. And then the other two that I would probably suggest, we've got a Chardonnay reserve. It's been a barrel for about a year and a half, been through full malolactic fermentation, lovely creamy texture to it. This is from 2022. And then we have a Pinot Noir also from 2022. 2022 was a great vintage here, very similar to the year that we had this year. And that's got a really kind of lovely rich texture to it. I mean, when people look at it and they try it, they can't believe it's actually an English wine. It's got really quite a, quite a lot of kind of depth to it.
- [56:36]
B
Lovely. And available in odd bins or Balls Brothers.
- [56:40]
A
No, no, no bins. So you can buy either directly from the vineyard. We do sell some wines through Lathways. We sell mostly to the entree, so mostly to sort of high end restaurants, Michelin star restaurants up in London and in the, in the local area. So if you wanted to buy from us, the best thing to do is actually approach the vineyard direct and you can get in touch with me or you can buy online and we can ship all through the uk. If you wanted to look at exporting, then we can certainly talk about that. But the best thing to do is to get in touch with us and we can get something shipped out to you.
- [57:22]
B
Great. I'll put links in the show notes. And then finally, final question, which is purely self serving. If one wanted to be smarter on wines and given that you're recording this in the Oast House Library, is a book recommendation for someone.
- [57:41]
A
I mean, there are so many different books. I think the book that I like best, which is about just recommending different wines around the world, is probably Hugh Johnson's Pocketbook. And Hugh Johnson's Pocketbook basically covers all the global world wines around the world. It's a great sort of gift for Christmas to kind of fit in a stocking. But there is also another book which is the Times, a world encyclopedia. That's a huge book, bit more of an investment, but that's a great Christmas present as well.
- [58:13]
B
Fantastic. Well, Nick, I've really enjoyed it. It's been great to have you on. It's been great to catch up and yeah, look forward to having you back on in a couple of years and getting an update on where the wine market is. But it's been really fascinating and it's great to cover it.
- [58:29]
A
Well, that was great and thank you again for inviting me. It's been a real pleasure and you've certainly sort of asked some really interesting questions. Hopefully I've been able to answer most of them.
- [58:41]
B
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.global.