January 4, 2007
Wine prices and globalisation
Sitting in my inbox is an e-mail from Farr Vintners– who claim to be the biggest fine wine dealers in the world – inviting me to buy some 2005 Bordeaux. Apparently it is a vintage of “compelling greatness”.
And what a bargain too! For just £22,000 you can buy a 12-bottle case of Chateau Pétrus. If you are too much of a cheapskate to stump up for the Pétrus, you might consider something a bit more downmarket – like a case of Chateau Margaux for £5,000.
As it happens, I can remember a halcyon age when I used to drink wines like Margaux and Pétrus reasonably regularly – the 1970s. It is true that Britain was in dire trouble back then: strikes were endemic and electricity was intermittent. But there were also some good things about the British economy of the 1970s. One of them was that even a London University academic (my father) could afford occasionally to buy wines like Lafite, Margaux or Pétrus and serve them to his deserving children. It was all pleasantly redolent of the immortal cry from “Withnail and I”: “I want the finest wines known to humanity. I want them here. And I want them now.”
As recently as a decade ago, Pétrus was still vaguely affordable. In 1996 I bought a magnum (two bottles) of the 1987 vintage for £130. I remember both the year and the price – because it seemed wildly extravagant at the time, and because I drank the wine to remove the bitter taste left in my mouth, after watching England lose to Germany in the semi-final of Euro 96.
Not even Farr Vintners would call 1987 a vintage of “compelling greatness”. In fact, most wine vintage charts reckon that it is now well past its best. But the price has soared nonetheless. Checking on winesearcher.com, I see that the cheapest magnum of 1987 Pétrus is now available at £833, before tax, or roughly £1,000 a bottle. Even allowing for inflation, that is quite a mark-up.
So what has happened? I blame globalisation. One of the much-touted benefits of this much-discussed economic process is that it brings down prices for western consumers. Thanks to globalisation, you can buy endless numbers of T-shirts and fluffy bath-robes for next-to-nothing. But globalisation also means the rise of a new class of global plutocrats, with plenty of money to buy “positional goods”. As John Kay pointed out in this week’s FT, these are goods that are “available only in limited supply” and are “bought only by the affluent and serves as a symbol of their affluence. The price of positional goods has risen sharply, reflecting rising incomes and greater inequality.”
I saw this process getting under way in 2000, when undertaking one of the pleasanter journalistic assignments to come my way – The Economist’s survey of the world wine industry. I remember a giggling British wine merchant telling me that he had seen some of his rougher Chinese clients mixing Chateau Pétrus with Sprite, to make it taste nicer. At Chateau Margaux, the chief winemaker claimed to be embarrassed by the prices that his wines were now fetching – and the fact that his close friends could no longer afford to buy them.
But that was just the beginning. A further six years of the Asian economic miracle, added to the rise of the Russian oligarchs and the dot.com boom in California, have pushed wine prices ever higher. However, the really crazy prices seem to be restricted to maybe 15-30 globally famous “trophy wines”. The prices of Bordeaux wines that are not yet regarded as “iconic” have gone up much less steeply than wines like Margaux or Cheval Blanc.
Some people reckon that it is all a bubble, and that the prices of the top wines will come crashing down. I don’t believe it. The supply of the fanciest Bordeaux wines is limited by the fact that they come from a specific vineyard. But the demand for them will only swell, as globalisation ensures that the number of new billionaires in search of “positional goods” keeps rising. In a few year’s time, a case of Pétrus 2005 for £22,000 may seem like a bargain.
Yes this article makes sense to me. But is globalization, better comunnications, completely to blame? Doesn’t each vintage have its own supply-demand curve, where shrinking supply meets growing demand? Or is global liquidity is the problem?
Posted by: Alex Limion | January 4th, 2007 at 11:41 pm | Report this commentDear Gideon: I believe you have hit it spot on, as does your commentator Mr Limion. Certainly there is a bit of liquidity bubble out there boosting the prices of all asset classes globally. But with the wines you refer to, there is a limited amount of acreage, a limited number of good years with ideal growing climate, and with the French varieties a limited number of classified growths, all being purchased by a larger and larger volume of affluent buyers around the globe. The prices may get hit temporarily but any liquidity tightening that hits all asset prices, but the trend is a virtual fixed supply from the top chateaux and a rising number of affluent consumers globally over time. (One could argue that global climate change is raising the frequency of the “ideal growing climate” in France - 1996, 2000, then 2003 was pretty good, and now 2005…, but will leave that for now.) Incidentally, personally I find the 2nd wines of the better Bordeaux vintages (e.g. Carrudes Lafite, to name one) are where the real value lies, especially in the better years (like 2005) when the price increase for the 2nd wines is typically much smaller in magnitude than the price increases we see for the cuvees.
Anyway very much enjoyed the article and have been enjoying reading your stuff at the FT these past few months!
Happy New Year and kind regards, from an old friend in Bangkok.
Posted by: Scott Christensen | January 5th, 2007 at 9:32 am | Report this commentI had exactly the same experience with my parents, though in the early ’80s. As I remember it, the conventional wisdom at the time put the rising prices of the Latours et al to the increasing consumption of in particular the Japanese. Who knows. Sad though that the middle class children of today cannot enjoy the wines that we did…
Posted by: Mathias | January 10th, 2007 at 7:55 am | Report this commentThat ‘the best’ commands a premium far greater than any intrinsic value reflects what the ambitious man is willing to pay to obtain ‘the best’. It seems to me what globalisation has done is make the ambitious man much richer, and to open the market up to more ambitious men.
With your article, I agree. Globalisation may have exagerated the price premium. But to assign blame, surely we must first look to why a price premium exists - the vanity of man?
Posted by: Roger | January 15th, 2007 at 12:16 am | Report this commentThe much sought-after Semper Augustus also was highly-prized in early 17th Holland, out of all proportion to prior (or subsequent) value or worth. But only for while….
Posted by: Cassandra | January 29th, 2007 at 3:06 am | Report this commentPersonally I’d rather have a good, or rather excellent, Argentine or Chilean wine for half the price of an overpriced half-as-good French one. I am sure many fine wine drinkers would deep down agree with me. Of course if you want to show off thats another matter….a “positional” matter.
Posted by: Robbie | January 30th, 2007 at 12:21 am | Report this commentExcess liquidity in the financial markets has driven up the price of these premium wines to giddy heights, yet ironically the excess liquidity in the wine trade itself (as evidenced by our French friends using wine to fuel their cars) seems not to have tempered these price increases…despite the fact that technology has tempered the difference in quality between lower end and high end wines. A speculative bubble me thinks, and certainly nothing sustainable.
Posted by: Stuart | May 9th, 2007 at 10:31 pm | Report this commentThe inexorable law of supply and demand must continue to drive up the prices of the trophy clarets.
And global warming may even increase their rarity, if the ideal vine-growing climate moves north from Bordeaux to the hills of Sussex…
Posted by: Rupert | May 15th, 2007 at 7:57 pm | Report this commentfrench wines are always too good. but which you written they are very expensive for me and out of my range. i just think about this wines.
Posted by: jackee | August 5th, 2007 at 3:49 am | Report this comment