Monday, February 20, 2012

"The Geography of Investment Grade Wines"

From New Geography:
The world produces more than eight billion gallons of wine each year (including those Algerian reds that taste like lighter fluid). All fifty American states, including Alaska, have thriving local wine industries. The eastern end of Long Island now looks like the Médoc, and one reason that the European Union is suffering its debt hangover is because of the huge subsidies that are paid each year to growers who produce wines that no one wants to drink. But perhaps the biggest success of the industry has been to ferment demand for an oversupply of these barrels.

Wines have evolved into that most delectable of American tastes: an asset class. The châteaux of Bordeaux are best understood as option houses, existing to serve up financial swaps and derivatives as much as their enchanting blends of Cabernet Sauvignon and Merlot. The street value of a year 2000 case (six bottles!) of Lafite-Rothschild is about $20,000. In fine wines, you can have your subprime and drink it, too.

I live amongst vineyards in western Switzerland, hard against the French border, but I didn’t understand the evolution of fine wine into a futures contract until I spent time in Shanghai and then went to Hong Kong. (Even though the drink of choice on the train from Shanghai was warm Budweiser served in plastic cups.)
Once in Hong Kong, I learned that almost a third of the world’s fine wines are stored there in local warehouses, waiting for Chinese billionaires to order up another $12,000 case of Château Ausone, perhaps to wash down a bucket of KFC chicken. ('Infanticide' is the term used to describe the practice, prevalent in China, of pulling the cork way too early on wines that need to mature for eight to ten years.)

The presence of so much Bordeaux wine washing around Chinese treaty ports pushed my curiosity about the direction of the elusive “wine market.” Through bike rides across the Loire Valley, and meetings in places like London and Burgundy, I encountered an industry that has more the bouquet of the petroleum standard, West Texas Intermediate, than of those charming Napa haciendas that get written up in Food & Wine....MORE