How France’s winemakers are setting prices after the pandemic

The pandemic has affected prices of many items, but wines like those from France's Bordeaux region are sold through a complex system known as 'wine futures'. Hospitality experts Jean-Philippe Weisskopf and Philippe Masset explain how this will impact the cost of a bottle of wine.

The 'wine futures' system means that many French wines are sold while still in the barrel
The 'wine futures' system means that many French wines are sold while still in the barrel. Photo: Georges Gobet/AFP

After a nightmare year for French vineyards, in which the pandemic saw revenues plunge and winemakers forced to send their unsold wine to distilleries, sometimes to be turned into hand sanitiser, the sector is trying to bounce back.

In Bordeaux, the epicentre of the global fine wine market, the wine harvested during that difficult time has been through its en primeur campaign, often known as “wine futures” in English.

The en-primeur system dates back to the 18th century, and was modernised in the 1970s to resemble what we know today. Similarly to futures on financial markets, it allows producers to sell their wine while it is still in the barrel. The wine is then finished, bottled and delivered to customers around two years later.

This campaign is run as a finely organised system. Every year, over a week in spring, wine experts will come to Bordeaux to taste the wines and publish their notes and scores. This is followed by a two-month period during which each chateau sells its wine to consumers via an intricate system of brokers, traders and merchants.

This well-oiled machine is nevertheless subject to much uncertainty, which goes beyond the current pandemic. That’s because en-primeur sale involves an unfinished vintage of uncertain quality released into an unknown future economy.

How do wine sellers put a value on this unfinished wine? And what is a fair price for a vintage like 2020? We built an economic model to simulate reasonable release prices for the current campaign.

Workers at French vineyards harvest the grapes

Workers collect grapes in a vineyard near Rauzan in the Entre-Deux-Mers region near Bordeaux, southwestern France. Photo by GEORGES GOBET / AFP

Previous campaigns

In Bordeaux, demand and, therefore, prices depend mainly on quality and less on quantity. Following a price decline between 2011 and 2016, the Bordeaux market rebounded in 2016 due to a great 2015 vintage. This was followed by an even better 2016, for which prices increased substantially but not excessively.

In 2017, vineyards were hit by a severe frost which caused a 40% drop in the wine harvest. Lower quantities encouraged châteaux to maintain prices close to 2016 despite the quality. Poor sales thus unsurprisingly characterised the 2017 en-primeur campaign.

The 2018 vintage, sold as exceptional, saw significant increases, even though price levels were already very high. While the quality should have generated solid demand, this was not the case – the fault of the châteaux for being too greedy.

Last year, the pandemic and associated lockdowns almost led to the cancellation of the en-primeur campaign for the 2019 vintage. In the end, a postponed, shortened version took place. Perhaps surprisingly, and thanks to exceptional quality and reasonable prices, it was a success.

The pandemic forced the châteaux to make an effort on prices. Here lies the difficulty of this market: sellers had to lower prices to ensure a successful campaign while also being careful not to send too strong a signal to the market at the risk of making the many wines of 2017 and 2018 that were still available unsellable.

Back to normal?

The 2020 vintage benefits from more favourable external conditions than 2019, but it is hard to speak of normality yet. This year, tastings took place remotely with samples sent to experts around the world. Tasters and producers met on video calls.

Meanwhile, restaurants in France were completely closed between October 2020 and June 2021, and are only just getting back into business. Uncertainty about the economic recovery remains high.

Still, the situation has improved since last year, fine wine prices have remained solid, and the quality of the 2020 vintage looks excellent.

There will be a few great wines that will be the market’s main focus when they are released. But we do not know how the market will react to this unique succession of three excellent vintages in a row. This is unprecedented and raises the question of the market’s capacity to absorb such a considerable volume of high-quality wine so quickly.

How to determine a fair price

In a forthcoming study, we proposed a model to estimate the fair price of 69 prestigious Bordeaux wines at the time of their release. The approach considered is based on the principle that prices on the primary markets (en-primeur) and secondary markets (bottles from past vintages) cannot be substantially different.

The model includes variables measuring the economic situation, the quality of the vintage and of the wine concerned, and its volatility (some wines have stable prices whereas others fluctuate strongly).

Below we use this model to estimate the fair prices of these wines for the 2020 vintage and compare them to those already released in the en-primeur market before June 7. The model allows us to explain around 80% of the price variations of these wines.

The model suggests that a price stabilisation relative to the 2019 vintage would be reasonable. And considering the exceptional circumstances surrounding the release of the 2019 vintage, a slight increase (in the order of 5% to 10%) in prices over 2020 compared to 2019 would seem logical.

This table shows the fair release prices – according to our model – and contrasts them with the actual prices for wines, both in euros. All but one of the wines were released at prices above what the model predicts. But the differences are often reasonable.

Table showing Bordeaux wine prices predicted by economic models, and those set by châteaux
Jean-Philippe Weisskopf, Philippe Masset, supplied by the authors

Yet some wines seem very expensive compared to our model’s prediction, including Château La Mondotte from the famous Saint-Emilion region and Léoville-Barton and Lagrange from Saint-Julien. Some wines that had drastically lowered their prices last year have not increased much this year. This is the case of Malartic-Lagravière in Pessac-Léognan, which, after a drop of more than 20 percent last year, is content with a 9 percent increase this year.

At this stage, most of the price increases for the 2020 vintage remain moderate, which is consistent with the model. It suggests that the most significant price increases relative to the 2019 vintage should not exceed 10 percent, except for a few wines such as rare Pomerols and some of the first growths.

Of the wines that have already finished the en-primeur campaigns, some have increased their prices beyond the suggested threshold. Early market signs suggest that the increases are excessive and have reduced demand for these wines.

With the influx of great vintages in Bordeaux and elsewhere in Europe, it would be wise for those chateaux yet to release their prices not to be overly greedy and maintain attractive prices to ensure a successful campaign. This would be the best way to bring Bordeaux bouncing back after the pandemic.

Jean-Philippe Weisskopf is Associate Professor of Finance at École hôtelière de Lausanne, Philippe Masset is an Associate professor at Haute école spécialisée de Suisse occidentale.

This article first appeared in The Conversation.

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ANALYSIS: Is France food self-sufficient?

The war in Ukraine and, in the longer term, climate change have prompted concerns about supplies and cost of food - but would France be able to produce enough to feed its population if necessary?

ANALYSIS: Is France food self-sufficient?

As food prices rise in France and elsewhere, questions over the country’s food security and self-sufficiency have been asked.

Russia’s invasion of Ukraine – a major exporter of wheat, corn and oil – has affected global markets, with prices for such products increasing dramatically, while sanctions imposed on Russia – the world’s biggest wheat exporter – following the invasion are also hitting prices. 

It has also prompted questions as to whether, if necessary, France could feed the 67 million people who call it home, while both the European Commission and the G7 set out plans to safeguard global food security. 

Unlike other countries, such as Switzerland, France does not have a formal policy of self sufficiency for food – though it does have a policy for energy security.

READ ALSO Why is France so obsessed with nuclear power?

“There is no risk of shortage in France because our agriculture and our agri-food sectors are strong and sovereign,” former agriculture minister Julien Denormandie said on March 16th, while acknowledging that the industry faced a number of challenges.

He pointed to the economic and social resilience plan published by ex-Prime Minister Jean Castex to protect the French economy from the the effects of the Ukraine war, and which included measures to, “secure our producers, our processors as well as our agricultural and food production from 2022.”

Food prices, as predicted, have risen, both for imports and for domestically produced goods as farmers are hit by rising costs for fuel. The agriculture industry has been among the sectors consulted and farmers have been singled out for support, in order that they will be able to minimise price rises to consumers.

In April 2020, at the height of the Covid pandemic, it was estimated that France imports about 20 percent of its food.

But France – a food exporter – could feed its entire population, according to a report by the think tank Utopies, published in April. There’s a reason the country has been referred to as the ‘bread basket of Europe’.

The study found that France currently meets 60 percent of its own food needs, but has the potential to become self-sufficient. The report said that the 26 percent of food products currently grown in France for export or incorporation into processed food could be used to cover 98 percent of France’s domestic needs, the report said.

Food processing in France, of which some 24 percent is currently exported, could cover 114 percent of the country’s needs in that sector, it added.

Of course food ‘needs’ don’t include luxury imported items like exotic fruits, chocolate and coffee, so diets would see a change in a completely self-sufficient France.

More recently, drought has also prompted short-term concerns, with French farmers worried about their harvests this year. 

France is the EU’s biggest wheat exporter, and one of the top five in the world. But hopes that French farmers would be able to offset at least some of the shortfall in the world’s supply of grain following Russia’s invasion of Ukraine have been hit by the record low rainfall so far this year, which have prompted warnings of a large drop in yields.

ALSO READ ‘No region has been spared’: Why the dry weather in France is causing concern

The forecast is for a smaller than usual French wheat harvest this year. With wheat-producing states in the US such as Kansas and Oklahoma also suffering in drought conditions, a poor harvest in France this year could be particularly significant – and could lead to wheat prices rising even higher in the short term.

At the height of the pandemic, president of the Fédération nationale des syndicats d’exploitants agricoles (FNSEA) Christiane Lambert told Les Echos that there were two key pillars to ensuring food security and independence in France – the ability to produce and the ability to store. 

“No one bought French flour anymore because foreign flour was cheaper,” Lambert said. “So we produced less. But with the coronavirus crisis, it was necessary to respond to demand and therefore relaunch the production lines by running them day and night to avoid shortages.”

French agriculture was able to meet the challenge then. “We have in France a complete ecosystem which allows us to control all the links in the food chain … It must be preserved if we want to be sovereign over our food,” Lambert added.

But there would need to be a change in philosophy about food, according to Les Republicains’ senator Laurent Duplomb.

In France, “entry-level” agricultural products are mainly imported, since authorities have insisted on reorienting domestic production towards quality over quantity.

“We must also stop focusing on high-end agriculture because food sovereignty means being able to produce for everyone,” Duplomb said back in 2020. 

“The risk in a few years is to have two French consumers. The first will have the means to buy top-of-the-range French products, the second will be condemned to consume only imported products since France will no longer produce them.”