In May I presented at the Vineyard Economics Seminar. One topic I focused on was the paradox of the continuing concentration on Cabernet Sauvignon in Napa. The graph below shows the total percentage of Napa acreage that is Cabernet Sauvignon in purple. Over the past twenty years, Cabernet Sauvignon went from making up 30% or so of all Napa plantings to 42%. That concentration continues to grow slowly, although it is accelerating.
In the graph below, we can see that total wine acreage in Napa is slowing to almost nothing. At the presentation, however, I argued that we might see this tick up a by a couple tenths of a percent in the next couple years. I will spare you the details of why, as it's not that important.
I then went on to explain that, taking these numbers together, we can expect growth in Napa Cabernet acreage of 1.2% to 1.4%. Meanwhile, I expect demand to grow by at least 2%, probably more. So, we have a quandary. On the one hand, there seems to be every incentive for individual growers to keep concentrating in Cabernet Sauvignon, as demand continues to outpace supply. But further concentration is risky for growers as a whole. For one, we are going from a monoculture that focuses on one species, to a monoculture that focuses on one variety, which increases our vulnerability to the forces of nature and biology.
Furthermore, let's not forget that we saw these same dynamics with Merlot and then two seconds in one movie smashed everything to bits. It wasn't just the movie, though. We were over-planted and we were planting in places that were not great for quality. Which seems to be the dynamic we are moving toward with Cabernet Sauvignon. In any case, this this is akin to someone investing all of their 401(k) in one stock. No matter how great you think that stock will do, you are taking a huge risk. We need diversification. I use Monte Carlo simulations to help build "portfolios of varieties" for planting that balance risk and reward. But I'm not going to bore you about that today.
I just wanted to show how other red Bordelaise varieties stack up in terms of price per ton and revenue per acre. I want people to consider these alternatives. By looking at Bordelaise varieties, we are focusing on those alternatives that are likely to be relatively easy to establish, farm and sell for someone used to Cabernet Sauvignon. On the other hand, it doesn't diversify away from Cabernet Sauvignon as much as other varieties would, nor does it have the advantage of spreading out your harvest the way whites generally would.
As you can see, Malbec produces greater per acre returns than Cabernet Sauvignon, though the costs of farming higher tonnage will partially offset this. Additionally, large plantings could shift the market. Cabernet Franc and Petit Verdot also look like they could work to increase diversification. Merlot still looks like a sucker's bet. Hopefully, this will get people thinking about how to keep from putting their eggs all in one basket. If you want a serious analysis of how to produce an optimal planting strategy, reach out to me or, if you feel that you can just wing it, at least check out my planting calculator to look at a few strategies on your own.
Listened to While Writing this Post:
A bunch of Neko Case