07 February, 2001

Bubbles balance on the edge

The price for a kilo of grapes is reaching the limit.

As the price of a kilo of grapes is reaching five euros, the risk of economical crisis is also on the rise. Wellknown knowledge if you know how the business works.

"The Champagne region is ill without even being aware of it," according to Cedric Louboutin, an analyst at stock brokerage Fideuram Wargny, to the British newsagency Reuters in December last year.

He has written a major report about the development of the champagneindustry since the beginning of the nineties and the deep crisis that the business has only just recovered from. With the rising prices of grapes - at the moment average four percent per year according to Louboutin - the risk of new economical shocks rises similarly.

In the region you still find people with a memory that stretches 15 years back to the hard times caused excactly by rising prices of grapes. And you find others that have never seen anything but prosperous times. For some thus the quota of grapes at the harvest 2005 was rather low and conservative, which was further proved to them by the recent decision to release further still wines for the production of champagne. Others think that a cautious increase is more wise in a market where the balance between profit and crisis is very fine. This is also the understanding of Patrick Le Brun, chairman of the Syndicat Générale des Vignerons, who has said so many times in different professional publications.

Psychological prices
As long as you grow your own grapes, you can continue rather indifferent of the current situation. The problems - and a more tight economy - start for the houses, that must buy a major part of the grapes they need on the market. Most of them only grow about one tenth of their need.

Some of the most wellknown brands can forward at least some of the rising grapeprice to their customers, but for the less known more firm limits are valid. There are some psychological startprices - French supermarketprices that is - of ten euros for special offers, 15 euros for the cheepest of known brands and 20-30 euros for special cuvées.

A house with no land
Lanson International is a good example of the economical mess that high prices of grapes can cause. Lanson owns - contrary to most other houses - hardly any vineyards. Therefore they are 100 per cent dependant on growers. And also 100 percent dependant on the marketprice of grapes.

One and a half year ago - in 2004 - this gave Lanson so serious problems, that the house did not have available funds to pay its suppliers. In this case fifty million bottles of champagne in the caves does not get you far.

For a start Lanson was saved by the bank Caisse d'Épargne, who brought the necessary capital. But as the bank last year wanted to leave, Lanson ended up on sale anyway. The old house was bought by Boizel Chanoine Champagne. The giant eaten by the dwarf.

For the rest of us, who make a living from selling our grapes, the higher the prices the better for us, of course. But since the balance is so delicate, prices that are too high will destroy the market for everybody. And for us as well. So greediness does not pay that well after all.

Do not get yourself fooled by the local folklore (here Givry les Loisy in the Côte des Blancs). Champagne today is a thoroughly regulated and professionnal business.

Thoroughly regulated economy
As a Dane it is surprising to realize excactly how thoroughly regulated the French winebusiness is. In Champagne as well there are rules for everything. For example:

  • The distance between the plants.
  • The degree of mechanisation - when can you use your tractor?
  • Who must buy grapes? At what price? How many?

    Some of the rules are constant, and a part of the entire AOC-system (Appellation d'Origine Controlée). With other words: If you want to write champagne on your bottles, you must carefully observe the rules of the wine. Other rules are made each year in cooperation between the CIVC (Comité Interprofessionnel de la Champagne) and the INAO (the office under the French Ministry of Agriculture that deals with the AOC-rules: Institut National des Appellations d’Origine). This regards for instance the quotas of grapes and the wages you pay wineworkers.

    This system makes words such as monopoly, lack of competition and state control Sovjet style flash in red through must Danish minds, with whom I have discussed these matters. Mind you, my own too, at least in the beginning. After reading more local history, I can see the idea of a system, that leaves both grower and producer rather calm. The system secures that there are grapes to buy for those who need it and buyers for the grapes of those who need to sell.

    The grapes from Champagne are currently the most expensive worldwide, amongst other things because the degree of mechanization is rather low. When you buy a bottle of champagne, you pay for a lot of manual work, and that is one of the secrets - not really a secret though - behind the generally rather high quality of any champagne. It also means that the vignerons can only get their work paid, if they sell their grapes for champagne. Nothing else pays that well.

    You cannot enter from the street to sell your pallet of grapes.

    Eating grapes for sale
    The lofty price of grapes may inspire inventive persons. A couple of years ago one of these types got a bright idea. So he went to the big en gros market in Paris where he bought a load of grapes and then he drove out to our cooperative to make his bargain of the year.

    What he apparently did not know was, that eating grapes and champagne grapes have nothing in common. It is not the same varieties and of course not the same price either. On top of that you cannot really enter from the street to sell a ton of grapes just like that. There are massive amounts of paperwork to do before, under and after the harvest. After all, French bureaucracy must be fed.

    Whether the smart guy ate his way though his coup or not, I have no idea.

    På dansk

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