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“standfirst”>With worldwide financial turbulence shaking confidence in consumer spending and much speculation about grape shortages, Michael Edwards asks what’s at stake in Champagne

When America sneezes, the rest of the world catches a cold. Certainly the dog days of August came alive with the spectacle of extraordinary turbulence in stockmarkets across Europe and Asia, triggered by a crisis of liquidity in the US sub-prime mortgage market. The Federal Reserve’s decisive action in cutting US interest rates has bought international markets a little time; but what started as a technical banking crisis remote from most people’s everyday preoccupations has developed into a general concern about the dodgy character of much modern financing: the days of easy, unsecured credit are coming to an end.

This realisation could well affect consumers’ confidence and rein back their spending on luxuries like Champagne, even as far as the emerging markets of Russia, India and China or Japan, by which the Champenois set such store. And yet the recent cold douche of market forces may turn out to be a blessing in disguise for Champagne – perhaps dampening sales expectations slightly in the short term and bringing a new mood of sober reflection to a bull market that risks losing control of prices. As so often in business, there is a gulf between opportunity and reality.

The grape shortage: penury or panic?

Reading through the current batch of press clippings, you’d be forgiven for thinking that the flow of champagne is about to slow to a trickle. Feverish speculation about a shortage of grapes all started when Frédéric Cumenal, the president of Moët & Chandon, told the press that “yields are at a maximum and we will soon face a wall”. That the market leader in Champagne chose rightly to use dramatic language in interviews with the French Les Echoes and Britain’s The Times suggests that his real purpose was to send Champagne’s growers an internal message, which goes something like this: take a long-term view and release enough of your grapes to maintain controlled growth in Champagne sales and avoid stockpiling wines at home that might horribly aggravate the situation when the next downturn in the economy comes.In truth, any shortage of grapes will actually be felt most after 2010/2011 when the current AOC territories (34,000 hectares) will have been fully planted, with little prospect of any newly authorised vineyards producing extra volumes of champagne for a further eight to 10 years. Meanwhile, still increasing world demand, production near its extreme limit, and today’s high level of growers’ stocks at rising prices are a dangerous bend on the road to continuing prosperity – a hairpin that will need skillful negotiation if nobody is to be left lying on the carriageway. A thoughtful analysis of the grape supply difficulty comes from Olivier Cossy, a Remois récoltant-coopérateur and administrator of the Young Winegrowers of Champagne, a go-ahead group whose past-presidents include growers who have gone on to become some of Champagne’s finest producers – men such as Alain Robert, Jean-Marie Tarlant and Pierre Larmandier.

Cossy writes: “The breaking point between theoretical maximum production of grapes and probable sales will happen around 2013. Put another way, if growth maintains its rhythm at about 2.5% per annum – the average yearly increase of the last 20 years –  Champagne will sell 384 million bottles in 2013.” This projection is based on simple arithmetic: with a total surface area of 34,000ha fully planted by 2011, the maximum potential of production, at available yields of 13,000 kilos of grapes per hectare, will be 383m bottles. From 2013, on the supposition that sales continue to grow, there will be a deficit of production. This projection has one weakness: it forgets the consumer. Will the “feel good factor”, essential to increasing sales, survive the likely rise in champagne prices and the tougher economic climate of tighter credit and lending? A lot can happen in the next six years.

Expansion of the appellation

In early 2009, following exhaustive research and reports by its experts the Institut National des Appellations d’Origine (INAO) is due to issue a decree divided in two parts, redefining  i) where Champagne can be made and ii) where  the grapes can be grown. The first part will freshly demarcate the total geographic area (some 903 hectares across 634 communes) where Champagne wine is vinified and transformed into the sparkling product: it includes, for instance, the Marne’s departmental capital of Chalons-en-Champagne, which has no vineyards but is the headquarters of the famous house of Joseph Perrier. The second part of the decree will redefine the zone of grape production, those 313 communes mainly across the Marne, Aube and Aisne, whose wines can be used in any Champagne blend.

Then comes the tricky bit: a revision of those parcels of vineyards which are marginally situated, often quite far from the classic heartland of Champagne, and which may be included or rejected in an enlarged appellation. This revision parcellaire won’t start properly before 2010 and could take five years to complete (to say nothing of the appeals that will follow it!). If the chosen parcels are eventually planted in 2015, it would not be until their third harvest that the grapes could be used and a further 15 months after bottling before being sold as Champagne. The first bottles coming from these new sites would arrive on the market towards 2020. Without wishing to second-guess INAO’s final decisions, it would be surprising if Champagne’s new vineyards amounted to more than 10% of today’s total surface area, and it could be much less. Champagne is likely to remain what it always has been – a finite product.

Meeting demands

The Comité Interprofessionel du Vin de Champagne (CIVC), the region’s governing body, is naturally keen to scotch talk of an immediate Champagne shortage and it is confident that the right moves are being made to manage consumer demand. “In 2007, the global market for Champagne is projected to increase by up to 8% and we need to bring it closer to 2%,” says Daniel Lorson, the CIVC’s communications director. “We have to accept that we have to limit our growth.” Yet Lorson also emphasises that several tools are being used to increase production to meet demand (which, of course, can ebb and flow under pressure of market forces.) This year, 350 hectares/865 acres of vines have been planted, leaving another few hundred more for new plantings to reach the 34,000 hectare authorised limit of the current Champagne appellation.

Also with the formal agreement of INAO, the CIVC has introduced an individual reserve of extra permitted wine, above the authorised permitted yield – which growers can set aside and call on individually in controlled amounts in future years when there is a production deficit. The aim is to encourage growers to use eco-friendly methods of sustainable viticulture, safe in the knowledge that they have a safe reservoir of wine to fall back on.

Savings account

Recent media speculation has centred on the very large reserves of Champagne that growers are holding onto, banking on their value growing dramatically in line with the expected rise in prices. Lorson says that such hoarding of stocks (estimated globally to be as much as one billion bottles) is nothing new. He remembers that, “My grandfather, a Champagne grower in Chigny-les-Roses, used to allocate his wines for release according to how much he needed to earn for his pension.” Today, though one rarely sees a poor Champagne grower, the practice continues as agricultural pensions are a lot less than for employed personnel in industry and commerce.Nonetheless, Lorson is insistent that hoarding stocks to increase prices has never worked. If anyone over the age of 40 doubts this, they should remember the acute Champagne crisis of the early 1990s – the worst since the great depression of the 1930s – which was triggered by prices in the vineyards rising way above the demands of the market. The result was massive consumer rejection. “We shouldn’t be too greedy with our prices,” says Lorson, stressing that reserves of Champagne don’t live forever and need to be sold, probably within two or three years of being made.Looking at major importing countries, there is little sign of any scarcity of Champagne. Sharon Castillo, director of the Champagne Bureau in the USA, doesn’t see an impending drought. She cites an interesting parallel: when compared with the 41.2m bottles of Champagne despatched within France during a four-month period in 2007, Americans still only consumed one eighth as much – Uncle Sam may still be at heart a consumer of milk and beer. In the United Kingdom, the premier export market is effectively stable, though it is worth noting that imports of Champagne from the grandes maisons is down by about 8% for the half year to June 2007. Are the price rises trickling into the system having a braking effect?

Steady as she goes should be the watchword for the trade on both sides of the Channel. Watch this space.

© db October 2007

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