Saturday, November 22, 2008

Economics and Wine, a Sober Post

What the financial market crisis and its implications for the broader economy as a whole is a very hot topic right now. Unfortunately, there are few people who understand either what happened during the explosion of the subprime market or how to mitigate its broader impact on the economy as a whole. What I'm immediately concerned about, of course, is what the impact on the wine industry will be. My thoughts aren't always clear, but hopefully starting a discussion will bring some clarity to the table.

For the consumer or wine merchant, the news is mixed. First the good: global equity markets have lost over 45% of their value as trillions of dollars have been lost in transactions backed by subprime loans that were repackaged in ways that few people understand. This means a couple of things. First, a lot of money that went into using commodities such as oil or tin that are important to wine production and shipping has vanished, meaning that the these assets are now far cheaper. That's why gas is now $1.79 at the local gas station (hooray). Additionally, the dollar has gained in strength tremendously; investors are panicking and becoming far more risk averse. It's also true that as investors trying to meet margin calls denominated in US dollars are liquidating assets denominated in foreign currency, adding to demand. For us, this is a good thing: the combination of high fuel prices and investors fleeing the dollar meant that price increases in wine from Europe were happening almost weekly. The trend downward for wine prices might have a little bit of lag as producers, negociants, and shippers seek to recoup profits foregone earlier in the year, but it's inevitable that prices are headed downwards.

Robert Parker is probably pleased at the notion that wine prices are heading south. Though it's probably true that he bears a great deal of responsibility for igniting the stellar price increases that high-end wines have seen over the past 3 decades, particularly first growth Bordeaux, I hesitate to pass judgment on the linkage between his rating system and high wine prices. I would say that it's probably true that it was inevitable that high-end wines would trend upward during conditions of explosive economic growth worldwide and that some focal point for driving those prices up would have emerged, with or without Parker.

What does this mean? It means that good buys in wine are going to remain the same: Argentina, Chile, Spain, the Languedoc region of France. The obscure wine regions where unnoticed producers are making excellent wine from lesser-known varietals that remain regionally distinctive and universally tasty.

Any thoughts?

1 comment:

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