Stormy Skies: Wineries Facing Financial Turmoil Amid Unpredictable Weather and Declining Demand

Jordi Ustrell, the temporary CEO of Celler Devinssi, a small winery located in the town of Gratallops in Spain, anticipates a significant decline in wine production this year. The dry condition of his vineyards is expected to result in only around half of their typical output of 15,000 bottles.

Ustrell, along with many other European winemakers, is facing challenges in grape cultivation due to increasingly common extreme and abnormal weather conditions. In addition, small, independent wineries are burdened by high input costs and a decrease in consumption.

The International Organisation for Vine and Wine (OIV), an industry group, predicts that global wine production will reach its lowest level since 1961 this year. This decline is attributed to rising temperatures and unusual flooding. Italy and Spain, the largest and third-largest wine producers in the world respectively, are set to experience significant drops of 12% and 14% in output in 2022.

According to Giogio Delgrosso, the head of statistics at the OIV, climate change is significantly affecting wine production. Previously, extreme weather would occasionally disrupt the regular, flourishing harvests. However, now there is a constant occurrence of extreme climate events, with something happening every year.

This year, heavy rainfall has facilitated the proliferation of mold in vineyards across central and southern Italy, whereas severe drought and high temperatures have adversely affected vineyards in Spain.

Data from OIV indicates that other prominent wine-producing countries such as Australia, South Africa, and Chile are predicted to experience a decline in production ranging from 10% to 24% this year. This can be attributed to various factors such as floods, wildfires, droughts, and fungal diseases that have severely impacted vineyards.

The unpredictable weather has forced Ustrell in Spain to adapt.

Gratallops, located about 90 miles west of Barcelona, has experienced a severe lack of rainfall for nearly two years. This has greatly affected the vines of Ustrells, causing them significant distress. Furthermore, there has been no occurrence of snow during this period, which usually provides much-needed moisture for the vines throughout the dry summer months.

Unsurprisingly, Ustrells' harvest of Cabernet Sauvignon, a red wine grape variety commonly cultivated in the humid conditions of France's Bordeaux region, was the first to suffer a catastrophic decline this year, according to the owner.

In Gratallops, the vineyards are extremely dry. In fact, 26 out of the 28 wineries in the area, including Celler Devinssi, have joined forces to form an association. Their aim is to persuade local authorities to provide funding for better irrigation, even if it means transporting large quantities of water to the town by truck.

While Celler Devinssi is not facing immediate closure, Ustrell predicts that the company's bank account will likely be in deficit this year.

Falling prices, rising costs

Across the border, French winemakers are grappling with the opposite problem: Too much wine.

According to OIV data, France is set to surpass Italy as the leading global producer this year, having risen from second place in 2022. The country's production remained consistent with the previous year, attributed to more favorable weather conditions. However, the increasing abundance of wine has outpaced the declining demand both domestically and internationally, consequently causing a decrease in prices.

French and European Union authorities responded to the mismatch by announcing a joint €200 million ($217 million) buyback scheme in the summer. This scheme allows French winemakers to sell their surplus stock to distilleries for recycling into alternative alcoholic products such as hand sanitizer. Additionally, falling prices have corresponded with increasing input costs.

Over the last two years, the combination of skyrocketing inflation and exceptionally high energy prices has escalated the expenses associated with inputs such as fertilizer, bottles, and transportation fuel. Moreover, the impact of elevated interest rates, which have considerably increased the cost of borrowing for investment, has further eroded the already slim profit margins of numerous winemakers.

People shopping for wine in the French city of Toulouse in September. Many French winemakers have suffered as retail prices have fallen this year.

Charly Triballeau/AFP/Getty Images

Last month, French winemakers, facing difficulties in selling their own products, expressed their frustration by targeting imports from Spain. In a large-scale protest, hundreds of winemakers gathered on a significant cross-border highway and aggressively targeted trucks transporting Spanish wine into France. The protestors forcefully destroyed crates and poured gallons of imported wine onto the road. Frédéric Rouanet, the organizer of the demonstration, conveyed to CNN that Spain produces a significant number of lower-priced wines, and the intention behind the protest was clear: "If you wish to procure inexpensive wine from Spain, you must first support and purchase our wine."

Otherwise, said Rouanet, who runs an association of winemakers in Aude in France, the regions wineries simply "cant get by."

Lost forever

In recent years, global wine consumption has declined by approximately 6% according to data from OIV. Instead, people are choosing to drink more beer or spirits, or even giving up alcohol altogether. This shift in consumer behavior, coupled with inflation affecting disposable income, has resulted in nearly 1.9 billion fewer wine bottles being consumed last year compared to 2017.

Estimates from the European Commission in June indicate that this year, European countries are experiencing even deeper declines, potentially signaling an acceleration of the trend. Consequently, some vineyards have been compelled to shut down.

Michael Baynes, co-founder of Vineyards-Bordeaux Christies International Real Estate, a specialized investment advisory for vineyards, stated that the number of winemakers choosing to sell their properties has significantly risen this year, albeit remaining a small percentage of all Bordeaux producers. He described the current situation as a "bloodbath" and expressed sadness over the plight of numerous multigenerational families who are losing the vineyards they have lovingly cultivated for many years.

Their troubles began two decades ago, according to Baynes. Bordeaux's more affordable wines found themselves pitted against the up-and-coming "New World" wines from Chile, Argentina, and Australia, which were gaining widespread acclaim.

A worker harvesting grapes in a vineyard in Burgundy, France, in September. The supply of French wine has exceeded waning demand in France and abroad this year.

Arnaud Finistre/AFP/Getty Images

According to Baynes, family-run wineries and larger wineries that cater to the lower end of the market are facing a fragile situation. The closure of a long-standing winery can be triggered by factors such as a poor harvest, the implementation of new export tariffs, or an increase in interest rates. Additionally, lenders who are apprehensive and anxious are unwilling to assist wineries that they believe may struggle to repay high-cost loans. In fact, they are ceasing to provide financial support.

A path forward

Due to the impact of climate change, John Mitra made the decision to sell the Bordeaux vineyard he co-owned with his wife, Penelope, last year. The unpredictable nature of each year's harvest became too challenging to anticipate.

The couple has relocated 340 miles to the east to establish The Burgundy Wine Company, a merchant that focuses on wines made by small, independent vineyards. They opted for the Burgundy region due to its limited size, resulting in a scarcity of wine and high demand, leading to higher prices compared to wines from other regions.

John and Penelope Mitra in their former vineyard, Chateau du Faure Haut Normand, in Bordeaux, France, in 2020

John Mitra

An increasing number of suppliers and industry friends of Mitra are choosing to sell their vineyards or utilize a French government subsidy to remove their vines and replace them with new crops or convert them into woodland.

Mitra expressed that a few individuals have opted to substitute their vines with olive trees and kiwi plants as they are known to be more resilient in the face of drought. Mitra himself longs for his previous line of work. He fondly remembers the tireless dedication he and his wife exhibited for an entire year, braving all weather conditions, whether it be rain or freezing cold, to care for their vines. According to him, the gratification stemming from the two or three days devoted to grape harvest each year made all their efforts worthwhile.

However, Mitra is delighted to have embarked on a fresh journey in an industry he loves and considers himself fortunate to continue residing amidst France's renowned vineyards.