Seven Questions: The New World of Wine

As European winemakers enter the harvest year, they face a growing set of challenges: the surging popularity of “New World” wines, less protection from the EU, and even global warming. FP asked Michael Veseth, a political economist who studies the global wine market, where the world of wine is headed.

SEBASTIAN D'SOUZA/AFP/Getty ImagesBacchus has a brand new bag: Globalization is changing the face of capitalism, and the market for fine wines is no exception.

SEBASTIAN D’SOUZA/AFP/Getty ImagesBacchus has a brand new bag: Globalization is changing the face of capitalism, and the market for fine wines is no exception.

FOREIGN POLICY: Its no secret that some of the New World wines have cut into sales for more traditional wines. With the harvest looking dire this year, what will be the long-term impact on the markets in France, Italy, and some of these other Old World wine-growing countries?

Michael Veseth: Well, it seems things are pretty grim, and there will be a shakeout before things get better. In Italy, for example, they have huge existing surpluses of wine from previous vintages that they havent been able to sell, so they have suffered from the boom and bust of wine as an agricultural product. In fact, lower harvests for them may help them sell off some of the old wine. But they have to work through the gluts. At the same time, the European Union (EU) has just announced a new wine regime [to destroy excess grape vines, for example]. Some growersthe ones who can take advantage of the changes, adhere to the new labeling requirements, and are willing to update those old, bad marginal vineyardswill in the long run compete very well. But in the short term, some of these people will have serious income losses.

FP: So in that way, it is very much a microcosm of globalization writ large?

MV: Thats right. I like to think of wine as having three characteristics. We think of it as wine in a glass: We smell it and taste it and so forth. But wine is simultaneously an agricultural product, and so it booms and busts, with good harvests and bad. In Australia, they are having a drought problem now, and there are ecological limits to production. It is also a political product because it is subject to protection and regulation. And then finally, it is a business product. Most industries organize themselves around the biggest bottlenecks. The bottleneck in wine isnt making it; it is in distributing it and then knowing how to market it. It seems to me that in Europe, they are kind of on the bad end of all three of these at the moment because they are going from a more protected to a more liberal regime, and this will cause stressful change. They are also going to have a power shift from the growers to the marketers and distributors. And then of course they are going through global market overproduction. So in France and in Italy, they dont just have a problem when they produce too much wine; when the Argentines, Chileans, and Australians produce too much wine, its a problem for France, too.

FP: How do you think that France and Italy should best preserve their wine-growing heritage, while at the same time remaining competitive in the global market?

MV: I used to live in Bologna, and one of the great wines you would have in a restaurant in Bologna is called a Pignoletto. Its a white wine; sometimes its a little sparkling; it has a little bitterness to it; it really goes well with the food. Its really hard to find in the United States, and its even hard to find in other parts of Italy. But it strikes such a note with that local market that not only is it preserved, it would be pretty much impossible to get rid of it. The way to preserve these distinctive, local wines is to find a market for them, rather than try to regulate them or prevent competition. Some of the wines faced with global competition are wines that people arent going to want to drink. But I hear so much about how globalization is causing the local traditions and the local wine to disappearand then I go to a wine shop. And in fact, you find dozens and dozens of [international] wines. Globalization has created an international market for some of these esoteric sorts of wines. So it works both ways: Competition from abroad can in fact undermine the local market for these distinctive products, but it can also create a global market for it.

FP: So which countries do you think are most redefining the market for new wines and will shape it in coming years? China? India? Or some unexpected countries?

MV: Everyone I talk to wonders what is going to happen with China, because China is so far an unsophisticated market. I think it is the sixth-largest wine producer in the world, but most of it is cheap, bulk wine that they blend with cheaper imported bulk wines. And then they import high-end wines more as status items. But it seems to me that as fast as China is changing, that the high-end market and the bulk market will probably both become more sophisticated. And it will be interesting to see to what extent that affects both their imports and their domestic production, and whether they end up following the U.S. model, the British model, or the German model.

FP: What about the export markets? Are there any unexpected countries you expect to reshape the way some of the more traditional countries are distributing their wine?

MV: The country that Ive been watching is New Zealand, because its a teeny, tiny countryI think it is the 24th-largest wine producer in the worldbut in fact they get the highest average export price of any country in the world. Theyve been able to position themselves as a modest supplier, but of a wine that people will pay a premium for. Everyone is waiting for Eastern Europe to come back into the global wine market. The producers and government officials in these countries can look at the Chilean model, where they went in at the bulk-wine level and are now trying to move upscale into fine wines and trying to distinguish themselves with organic wines and biodynamic wines. They see that this is kind of difficult to do, and so maybe they are looking at New Zealand as a country that was more successful at establishing a position in the high-end market.

FP: Its not just the Old World winemakers that are getting nervous about the industry. What are some of the major challenges that some of these newer countries are going to face as they attempt to gain market share around the world?

MV: In Eastern Europecountries like Bulgaria and other relatively new entrants into the European Unionthe need to modernize and establish their distribution systems is going to be difficult. And everyone is going to be dealing with the agricultural cycles. For the most part, there has been a glut of wine on the markets. Either producers have cut prices, like two-buck chuck, or theyve held their prices and built up stock like the Italian producers. Here in Oregon, it is kind of interesting. When I came down here a few years ago, everyone was planting pinot and it looked like there was going to be a huge oversupply, and then that movie Sideways came out. Now, they can sell every bit of what they produce and are planting more.

FP: One other thing that seems to be gaining a lot of attention is how climate change is going to affect harvests in the coming years, and especially in Europe. Are winemakers becoming really upset about this? How big a concern do you think it is?

MV: When I talk to my friends who are wine consumers, it still hasnt trickled down to them that global warming is a serious issue that is affecting their wine. So I talk to them about the alcohol levels in their wines and ask them, Havent they been going up? And they say, Well yeah. Maybe 20 percent of the wine from California is now dealcoholizednot all of it, not every year, but the dirty little secret is that global warming is pushing up the sugar levels, pushing up the alcohol levels. Its now a problem that needs to be treated in the cellar instead of just letting nature take its course. Its something that the wine consumers need to know more about. Maybe it will help push them to take global warming more seriously. But clearly it is going to have an effect on the industry; it is going to change which wines can be produced where.

In the Pacific Northwest, it is having a good effect in British Columbia because there is a pretty good wine industry located around some of the lakes. They used to have to make cold-climate products, hardy Rieslings and hybrids, but now they can make anything that Napa Valley can make. You dont think of Canada as having the ability to produce Shiraz, but there they are. Maybe wine can be that canary in the coal mine. People can say, You love the wine; now look at what climate change is doing to it.

Michael Veseth is author of Globaloney: Unraveling the Myths of Globalization (Lanham: Rowman Littlefield, 2005), director and professor of international political economy at the University of Puget Sound, and author of the blog Grape Expectations, where he tracks the evolving global wine market.

For other timely interviews with leading world figures and expert analysts, visit FP’s complete Seven Questions Archive.

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