What could go right - #12 - Wine & climate change
In each issue (bi-monthly), we'll explore the threats to the current business model of a company or of an entire industry, the forces that could take them down or drive systemic changes, and most importantly we'll imagine possible solutions, looking at new and evolving trends, untapped niches, new business models or venture opportunities...
In this issue, in the midst of the current heatwave we recently went through, we will be taking a look at how wine companies should approach climate-related business risks.
Welcome to the new Apocalypse Files: What could go
wrong right ?
Heaven is a place on earth
Agriculture’s most essential role is to provide food supplies for mankind. It has been at the center of humanity for millennia and will continue to play a vital role, as humanity is growing at a fast pace.
Today, agriculture, as we know it in developed countries, is automated & industrialized, which we all benefit from in many ways: immense quantities of food at prices that were beyond imagination a few decades ago, little field labor, ... We live in a better world thanks to the modernization of agriculture. However, agriculture also has many downsides: our craving for better lifestyles at low prices drives overproduction, deforestation, chemical pollution, and also GHG emissions: with 20% of greenhouse gas emissions, even 30% if we include deforestation (Jancovici), agriculture has become a major contributor to global warming.
Agriculture itself is also endangered by its own failings. It is both a cause and a victim of climate disruption - and potentially a solution? The consensus is clear: agriculture needs to change! But where to start? Let’s take it step by step and start with one of our many sources of national pride - Wine!
Red Red Wine
So, what’s at stake in our beloved French wine industry?
A huge economy and a global leader! France is the second-largest wine producer in the world, after Italy. On average, we produce 46,6m hectoliters of wine per year - that’s almost 18% of the global wine output (Forbes, 2020)! About 30% of the production is sold in export markets, proving €8.7bn revenues according to the International Organisation of Vine and Wine (Capital, 2020).
French wine stands for quality - everyone knows that! 57% of French wines carry certified protected designation of origin (AOC), which is the strictest designation, and synonymous with quality in the eyes & ears of consumers (Business France). Beyond certification, France has managed to build a solid image around wines, which continues to strengthen our terroir & know-how at home and abroad: have a look at gastronomy, tourism - wine really is everywhere!
To get to where it is now, the wine industry has relied on many passionate & hard-working people over the centuries. Today, it accounts for nearly 600,000 jobs in France, half of them indirect, including over 142,000 wine growers and 3,000 sommeliers (La Revue du Vin). A threat for the wine industry is a threat to all these people.
In light of climate change, all of the above are at risk. Here’s a practical framework to do a slight risk assessment. In the world of engineers, it’s called FMECA (Failure Mode, Effects & Criticality Analysis): let’s define the criticality of an event as a combination of occurrence and severity. For each of these dimensions, the idea is to assign a rating to the following criteria:
Prevalence: unlikely/remote - rare - occasional - probable - frequent - permanent
Severity: low impact - minor impact - critical impact - catastrophic
Every event, climate-change related or not, can be positioned on the following matrix :
Basically, if you end up in a green area, the risk of failure is negligible thanks to low prevalence and low severity levels. If you end up in a yellow (acceptable) or orange (undesirable) area, you’ll can choose to tackle either prevalence or severity (or even both?) to improve the position of a given event in the assessment matrix. And if you end up in a red area (high occurrence and severity), the risk you take is unacceptable - you better do something fast.
But what has this got to do with wine?
We have identified 3 climate change-related risks the wine is already confronted to. Let’s do a quick assessment :
Risk #1: With global warming, the grapes reach maturity 2-3 weeks earlier than they did 30 years ago (CIVB). However, the operational consequences of a calendar change (let’s just focus on those for now) have a limited impact on wine-growers. Thus, the criticality seems to be acceptable - which does not mean we should standby, but we can handle it.
Risk #2: Higher average temperatures and more direct sun exposure lead to increased sugar rates in the grapes, hence to a different sugar/acid balance and totally different composition & taste profiles. The wine offering will progressively disalign with consumer demand, which is shifting the opposite way (less concentration and lower alcohol rates, France Inter). The value proposition gap will grow, impact wine-growers quite severely, and require mitigation to strengthen resilience. However, it’s not critical: wine-growers will continue to produce wine and will have (some) time to look for new solutions & adapt their business-as-usual. In the mean time, they might even compensate the business risk with higher prices. An evolving wine composition is definitely undesirable, but consumers and wine growers can learn to live with it (and even adapt).
Risk #3: Extreme weather events, for instance, droughts and hailstorms, are also becoming more frequent. These events can lead to severe & immediate consequences for wine-growers : lower yields, vine destruction, ... Severity is the decisive factor here: a destroyed harvest can mean insolvency for a wine grower. Among all three assessed risks, this is the one wine-growers should identify as their #1 priority, as it shows as unacceptable, and the resulting action plan is urgent.
Here’s what our slight risk assessment **looks like for these 3 events :
Now we have a quick & semi-quantitative approach to assess & prioritize our risks. So what’s next? For every risk-assessment and relative position on the matrix, there is a risk-management strategy!
Wine players should build climate-change related risks into their general strategy, following three levels of ambition:
reduce the severity of the risk with short-term mitigation actions
adapt our activity to become better suited to the risks that hang over our heads
rethink the value chain as a whole resilient ecosystem
1/ Take the hits & protect your activity at all costs: for how long?
Maintaining a reactive approach, hence mitigating the risks, has proven to be more and more complex and costly. In the past years, freeze episodes in the spring have been increasingly frequent and long, putting vine production at stake. Since traditional solutions like firepots are not sufficient anymore, some wine producers in Gironde even called in helicopters to fly over their vineyard during the night to try to push down warmer air and save the vines!
Similarly, other extreme situations have been registered in the summer, like heatwaves and droughts. And like for the freeze, solutions to mitigate the impact on the vineyard are more and more complicated and not cost-effective as these extremes progress. For instance, some vineyards of California and Australia are spraying liquid clay on vines to act as sunscreen to shield leafs from the sun, to ensure that they stay as they are and protect the grapes. An original idea, but with a very relative efficacy.
All in all, such interventions are not guaranteed to succeed. They are not sustainable, neither environmentally nor economically. And they do sound ridiculous. But they demonstrate the extent to which wine-growers are willing to go to tackle and mitigate the danger and the severity of these events.
2/ Adapt to reduce exposure to climate change consequences
Adapting the cultivation to climate conditions is not new: On Lanzarote (Canary Islands), vines are grown with semi-circular stone walls around them to protect them from the strong wind they are exposed to. In some locations, these stone walls can also create shade for a few hours, reducing the exposure to critical consequences.
As for any agricultural activity, French winemakers have to adapt their methods of production. Among the go-to strategies that can be found on the market:
Wine growers around the world have come up with solutions to change cultivation processes. For instance, drip irrigation, an Israeli agrotech invention that delivers just the correct amount of water and nutrients to the roots at the right time, enables strains to grow in droughty regions in the Middle-East & Africa. Agrivoltaism also provides a less reactive approach: cohabitation between agricultural production and photovoltaic electricity production on the same surface. Installing PV electricity production over the vines can help reduce solar radiation with the installation’s shadow, thus reducing thermal and water stress and also directly protecting the vines from hail & wind, while producing renewable energy for the surrounding area.
Aside from looking at other ways to grow vines, the answer might be in the type of vines being grown. Some grape varieties are more adapted to the new climate conditions and could be an answer for French winegrowers, who are considering cultivating other strains. Strains from Italy, Greece, Tunisia, Australia, the US, South Africa, … are better suited to resist the upcoming heat waves, but winegrowers might lose their protected designation of origin. Changing just the rootstock could be an intermediate option, and has helped in critical solutions before. For instance, this strategy has been used to protect some vines from phylloxera (an insect pest of grapevines), by grafting phylloxera-resistant American rootstock to European vines.
Conversely, our strains might move north, introducing vine cultivation in new locations, within France or in another country like the UK or Norway, where the climate may become milder. However, with no protected designation of origin, the activities would require building a new brand image.
3/ Beyond direct-risk management and adaptation, wine producers have the opportunity to take action and contribute to cutting CO2 emissions & other root issues plaguing agriculture.
First, activate short-term sources of revenue to secure their long-term transformation. Any ambitious and far-reaching transformation will require time & resources, which wine growers do not necessarily have. To do so, they can leverage the rise of the demand for carbon credits to offer these kinds of services, securing additional revenue while bridging the gap towards a more positive impact. And if some investments are required to diversify their activity, funding for green projects is slowly becoming more accessible (France Relance).
The environmental impact of wine production, like many other agricultural productions, goes beyond CO2 emissions. Wine-growing relies heavily on chemicals to optimize an increasingly chaotic production, and they very often end up in water streams, which can completely disturb ecosystems. Solutions include using vegetation covers to enrich the soil and reduce inputs: their roots would help structure the ground and improve water circulation below ground, thus reducing water usage, and their presence would prevent the development of other weeds, thus the use of weed killers. Looking beyond, wine should definitely be one answer to improving biodiversity, an enabler for a richer and more robust ecosystem around it, to protect itself as well as give a boost to the surrounding flora and fauna. The positive impact of groves on reinforcing and enriching ecosystems has been well established and is making a comeback in more and more agriculture exploitations.
Finally, there is an opportunity for winemakers to completely change their business. As mentioned, changing the grapes and production locations means changing their product and the way it is marketed. In a time when consumers are looking for other alcoholic drinks like seltzers and even the rise of non-alc drinks, this could be the perfect timing for wine producers to switch production. But whatever the new products they plan to develop, consumers will be the judge of it. Will they happily drink more wines from grape varieties suitable for hotter climates, such as Zinfandel or Sangiovese? Will they accept a different flavor from their usual Cabernet Sauvignon grown in Bordeaux? Will they actually embrace Bordeaux seltzers? Whether these new products are successful will come down to consumers and the new drinking habits they will adopt.
Man in the mirror
The climate urgency calls for a serious reassessment of our productive system and the way we consume all sorts of goods. Since wine-growing makes up only 15% of France’s agricultural revenues and only 3% of the land area used (Business France), it’s not going to be enough on its own... but it could be a role model to encourage less visible segments to start their own transformation! Through this zoom on the wine sector, we have showcased the need for proper risk-management & innovation strategies. Which other industries would you like to see evolve?
That's all folks!
PS: If you haven't guessed, all paragraph titles are from singles in the 1988 Billboard Hot 100.
To find out more on the covered topics and/or methodologies, you can also check out:
The latest Summary for Policy Makers by the IPCC (Intergovernmental Panel on Climate Change)
The introduced risk-assessment framework is a simplified version of the the FMECA (Failure Mode, Effects & Criticality Analysis), which was developed in the 1940s to help the US military develop preventive maintenance: basically, how do you “anticipate failure [in an equipment] and prevent it” instead of waiting to “find failure and having to fix it” (reactive maintenance). Today, it is largely used by engineers to improve maintenance, but also to minimise failures by design. Engineers usually add a third criteria to prevalence & severity : the probability of non-detection, or failure effect probability (from no effect to probable loss). The combination of all three metrics, graded 1-10, is called the Risk Priority Number (RPN). For further information, have a look at An Introduction to the full Failure Mode, Effects & Criticality Analysis (FMECA)