Over-Exposed – Vineyard Volatility Amid a Changing Climate

By Brett McKenzie

Climate disruptions are increasing in volatility throughout the world, impacting many sectors and industries. Among one of the hardest hit is agribusiness – specifically wineries – which depend on stable soils and climatological consistency to deliver a viable product. How will raging wildfires, searing temperatures and flooding rains change the business? And how can insurers assist worried vintners and their customers?

When you think of the world’s most renowned wine regions, what do you picture? Soaring mountain peaks, sloping hills, lush valleys, and sprawling open fields?

Part of wine’s inimitable charm is the power a glass of refreshing rosé from Provence or a rich Cabernet Sauvignon from Napa Valley to momentarily transport the drinker to a fantasy world, full of breathtaking vistas of vineyards and the quaint comfort of winery tasting rooms.

The very same geological splendor that makes “wine country” feel so extraordinary is potentially the industry’s greatest Achilles heel. The world’s best winemakers have put down their roots in volcanic soil, transported their treasured old world vines to dizzying new heights and even created entirely new wine regions in the middle of desert sands. They—and the millions of oenophiles who collect and enjoy the fruits of their labor—know that altitude, soil content, and climate are as important to winemaking as real butter is to baking pastries.

But these geographic characteristics invite plenty of risk. In an increasingly volatile global climate, winemakers and vineyard owners must contemplate their insurance programs more carefully than ever before.

Mother Nature Against the Vine

In recent years, natural disasters and catastrophes in wine regions have featured prominently in industry headlines. In South Africa’s Winelands, a two-year-long drought has begun diminishing recent vintage production volume. Just as South African wines were gaining renown and respect from wine critics and sommeliers around the globe, the El Niño-Southern Oscillation (ENSO) occurred and brought excessive heat and dryness to the country. ENSO, a recurring weather phenomenon that causes below normal rainfall in southern Africa, was the worst in 50 years this time around, and brought excessive heat and dryness to South Africa.

Meanwhile, on the other side of the world, formerly drought-impacted Californian appellations found themselves drenched with rain and were impacted by floods as nearby rivers overflowed—some for the first time in 10 years.

In Chile, in January, the worst forest fires in a century damaged or destroyed parts of at least a hundred vineyards, including some with vines older than 100 years, across the Maule and Colchagua valleys. Anguished winemakers were pained to witness the destruction of vines that their families had tended with love and sacrifice for years. Chilean authorities declared the damage as the worst forestry disaster in the nation’s history.

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Wildfires also diminished 2016’s crop in France’s Languedoc appellation in September, only a month after “golf-ball sized” hail destroyed hundreds of acres near Montpelier. Additionally, a late frost caused between $1.1 and $2.2bn in damages to vineyards in Bordeaux in early May 2017.

Meanwhile, in November 2016, New Zealand lost five million liters of wine in under three minutes when a magnitude 7.8 earthquake shook the southern island with an estimated force of “40 atomic bombs”. The loss equaled approximately 2 percent of New Zealand’s annual production. Many wines in the Marlborough region were moved to avoid damage due to the 1,785 aftershocks.

While, in general, a grape harvest during a hot year in a warm climate can produce a great vintage, excessive heat can be disastrous, causing sweeter and higher alcohol content wines, which isn’t always desirable. Problems due to climate change can range from irrigation difficulties to disease to soil erosion due to excessive rainfall or flooding.

Some climate specialists see southern parts of Europe and California as being particularly susceptible to the threat of global warming. In fact, some are predicting that in California by the end of the century only coastal areas cooled by the sea breeze may be able to successfully grow grapes due to rising temperatures.

In the Stellenbosch, Constantia and Swartland regions of South Africa, as well as the Hemel-en-Aarde region along the south coast, the general consensus is that the Western Cape is facing climate change that will be detectable as early as 2030. These predications are very complex but the overall sense is that great challenges are here now, forcing winemakers to respond immediately.

Most areas in South Africa are in the midst of a two-year drought. Water shortage is the crucial component of the effect of climate change on the wine industry there. Some old vines, which in South Africa are 30-50 years old, like Chenin Blanc and Semillon, are true survivors and have adapted very well.

An issue now confronting wineries is their ‘carbon footprint’, a problem that goes far beyond the wine industry. A few wineries are moving towards achieving carbon neutral status – though many more need to address this issue. The bottom line is that times will be tough for grape growers in general as time moves on. Most fine wineries are moving to organic and sustainable methods. The hope is that the tools for survival will be found in the vineyards, giving time for survival and adaptation in a harsher environment.

The Role of Winery Insurance

Sensational storms and catastrophic events are attention grabbing, but the reality is that wine has been grown, bottled, distributed and enjoyed around the world for centuries across climates and despite catastrophes.

Just as winemakers have an appreciation for how they can harness their natural surroundings to make award-winning wines, winery owners and operators must be prepared to tackle weather and geological events head-on when building their risk management programs.

The first step for any winery, from a boutique vineyard to a production powerhouse, is to choose an insurance agent or broker who has access to insurance companies that understand the specialized nature of winery operations.

Insurers should have the capacity to protect wineries in a world of changing climate, while understanding the nuances of the wine business. Additionally, generous limits on a winery package product help to alleviate concern over the fickleness of weather.

Winery owners and operators must prepare for volatile weather and unusual geological events caused by a changing climate when building their risk management programs.

*Sources:

1. Global Economic Vitiviniculture Data, Organisation Internationale de la Vigne et du Vin, Paris, October 20, 2016
2. Top 10 Wine Producing Regions of the World, Wine Folly, Jan. 26, 2013
3. Wine Maps of the World, Wine Folly, April 20, 2016
4. Michelle Renée Mozell, The impact of climate change on the global wine industry: Challenges and solutions, Wine Economics & Policy 3 (2014)