Sunday, 6 March 2016

English Wine

Yes I know this is more my thing, but there is a land thing in here, so read on:-

"Champagne sales are going to decline here, and English sparkling wine will eventually take half of champagne’s share.” So predicts Ian Kellett, once managing director at the investment bank Dresdner Kleinwort Benson and now owner of Hambledon Vineyard in Hampshire. He’s convinced that England’s advantage is its lower land costs (Champagne’s are €0.9m to €2.1m a hectare). And he maintains there is no shortage of suitable land in England — “if the farmers will sell it”. He also expects champagne prices to continue to rise along with the debt burden of maturing their stock.

The thing is that the only reason Champagne's land prices are so high is because of demand for the land. You'd think a former banker would get this.

A little background to those not in the know:

To call your wine Champagne, it has to follow the rules of the Appelation d'origine contrôlée of Champagne. That includes a list of rules, like what grape varieties you can use, but more importantly for this, it also defines the geographic area. And that is a rather artificial area. Some land inside of it really isn't much good, some land outside would be better. You can grow a damn' good sparkling wine just outside using the same processes and grapes but you can't call it Champagne.

So as Champagne attracts a premium just on its name (a combination of ignorance and it being a Veblen good), what do we think the effect of that is on land prices inside the Champagne area? Yeah. Also worth noting: there's a similar battle to developers and Homeys with this: people with land just outside want the region expanded, people who own land in the region don't.

See, this guy has it wrong. England's advantage isn't having cheaper lands, it's having lower demand for the product. The land is only more expensive because of higher demand. If more people switch to English wine, the price of Champagne will fall, and with it, the value of the land it's grown on. It's still probably more suitable land for growing sparkling wine on.

The rest of the article is quite interesting if you're into general wine stuff. It seems quite a lot of producers are hobby businesses - people who've made money doing something else and are now pumping money into them. And it's still precarious from a climate perspective. Personally, I've not found one I like yet, but some people do like them.

9 comments:

Bayard said...

"The thing is that the only reason Champagne's land prices are so high is because of demand for the land."

The reason Champagne's land prices are so high is the money that can be made out of the land. Almost, but not quite the same thing.

"See, this guy has it wrong. England's advantage isn't having cheaper lands, it's having lower demand for the product. The land is only more expensive because of higher demand."

Not at all. England's advantage is not having less demand, it's not having a ring fenced area in which that demand can be met and it's not having a protected name within that area that can bump the price up. People buy Champagne, by and large, because it's Champagne. People buy English sparking wine, by and large, because it's good sparkling wine and it's English.

"If more people switch to English wine, the price of Champagne will fall, and with it, the value of the land it's grown on."

I very much doubt it. I don't expect the UK market for Champagne is large enough for that to have any effect whatsoever. An awful lot of Champagne is sold to people who are in the market for a wine called "Champagne", not a sparkling wine. Anyone who just wants a good sparkling wine will already be buying Cava, or English wine.

Mark Wadsworth said...

"He’s convinced that England’s advantage is its lower land costs (Champagne’s are €0.9m to €2.1m a hectare)"

That is off the scale. Best UK arable land is maybe £10,000+ an acre, so you have to pay 50 - 100 times as much just to be able to use the label "Champagne"?

And I prefer Cava.

The Stigler said...

Bayard,

"England's advantage is not having less demand, it's not having a ring fenced area in which that demand can be met and it's not having a protected name within that area that can bump the price up."

You misunderstand me - I'm saying that he doesn't grasp the effects of market demands on land prices.

If people stop buying Champagne and sparkling wine of equivalent quality, the price of the wine will collapse, and with it, the value of the land. There's a strip across France where you can make sparkling wine (you want a good enough climate to get maturity, but also want some acidity).

The Stigler said...

Mark,

"That is off the scale. Best UK arable land is maybe £10,000+ an acre, so you have to pay 50 - 100 times as much just to be able to use the label "Champagne"?"

It's worth noting that only some land is suitable for wine growing anywhere. You need the right sort of soil and aspect. But yes - the land is expensive because you can make a lot more money from it, because you sell bottles of it for more.

Cava is less acidic. Personal preference and all. Personally, it's what I drink as a fizz generally. If I want something nice, I go for Lindauer Special Reserve, which is lovely.

Bayard said...

TS, I was disagreeing with your point that the price of the land was related to the demand for the land, not your point that the price of the land was related to the demand for the product.
"Champagne" isn't really any different from any other trademark, like "Vuitton" or "Gucci", it's just that it's not luggage or handbags, it's wine. Owning land in Champagne is like getting a license to make Vuitton luggage (if such things exist) and the chance to make super-profits, so of course it's expensive.
What Mt Ex-banker has got wrong is that English sparkling wine will never be able to compete with Champagne, because it's not allowed to call itself Champagne, even if their product is ten times as good, for half the cost.

H said...

And yet. English sparkling wine is not cheap. Indeed, it's often startlingly expensive, more so than bottom of the range Champagne. Go for Cava, everytime.

Bayard said...

"Indeed, it's often startlingly expensive, more so than bottom of the range Champagne."

That's because bottom of the range Champagne is crap, which it wouldn't be worth making if you were an English wine producer, because you could only charge £3.99 a bottle for it. English wine doesn't compete on price, it competes on quality.

H said...

I didn't say anything about its quality - although I've never tasted one I thought was good value. Bottom of the range Champagne is indeed nasty stuff. As said, I would avoid both and drink Cava!

Bayard said...

Very few of the high-end wines are good value. Some of them are really cracking, but, boy, do you have to pay for them. If you're not a wine buff or really rich, why bother when there's plenty of delicious stuff around at reasonable prices? I'd agree with you, if you want good value fizz, go for Cava or Prosecco or one of the other sparkling French wines, just not Champagne.