French wine in crisis: an industry in need of pruning

French wine in crisis
An industry in need of pruning

So, French wine is in crisis. In short, they are making too much and no one is buying it. Producers are taking direct action, in some cases violent, because they feel that the government is not doing enough to help them. Even more wine than ever is being distilled into alcohol, an act of subsidy for those who make unsaleable wine. It’s looking rather bleak. What is the answer?

The current French wine crisis is a rather complicated problem, but here are my assorted thoughts on it.

First, we can’t consider ‘wine’ as a homogeneous whole. This confuses things. Simplifying things a little, there are two poles to the wine industry. First, wine that most people drink. Commodity wine. Then there is what I term rather loosely ‘fine wine’, although this needn’t be expensive — it’s wine bought by people with a specific interest in wine, usually made in smaller quantities; usually produced along the lines of an ‘estate’ model where the grapes are grown on the same property that makes the wine. A niche market. Between these two poles is a middle ground that is fast diminishing, mainly because medium-sized producers can’t produce enough to service the current dominant channels of distribution and sale.

Now French fine wine is thriving at the moment. Wine nuts can’t get enough of it. If you make top quality wine that is critically acclaimed, you are on to a winner. The problem for the French is that while they can do fine wine very well, they’re not terribly good at making cheap wine. This problem is compounded by the failure by the authorities to recognize the dual nature of the wine market.

Why are the French failing in their attempts to make good cheap wine? There are several reasons, including the rules for wine production, the sense of entitlement of growers, lack of commercial drive, the climate of many of France’s wine regions and the reticence of the government to embrace market forces.

The appellation d’origine controlee (AOC) system is to be praised for its role in preserving wine diversity. But it fails to ensure quality. Marketing wines by AOC (e.g. Chablis) simply doesn’t work. It assumes that regulations about yield, site, pruning, harvesting and so on ensure a certain level of quality. That they don’t is evidenced by the fact that all appellations still produce lots of rubbish wine, and that the average level attained is mediocrity. In the new world the brand owners are the producers, and they have a very strong incentive to maintain quality. Where branding is by entire AOC, as it is in most French regions (producers chip in and the marketing is carried out on their behalf by generic bodies), then individual producers have much less incentive to do well, and those benefiting most from this branding are in fact the producers with the lowest costs, who cut the most corners.

AOC also fails spectacularly for cheap wines, and has been part of the reason that France has largely failed to produce successful brands. Export markets have grown fussy: the Australians have been able to make cheap wine that tastes OK, so the same is expected of the French. Plonk that we’d have drunk without complaining 15 years ago now won’t sell, because our expectations of what commodity wine should deliver have changed.

Another reason for failure has been the growers themselves. Their general attitude sucks, quite frankly. It is one of entitlement. Their parents had a living out of the land. Therefore this entitles them to one, too. Irrespective of achievement, merit or their ability to read the market and deliver what the market wants.

The French attitude has for too long been one of make the wine first, then try to sell it. In fact, it would be unfair to single the French out on this account: it’s an attitude common in many ‘old world’ wine producing countries. It’s the wrong way round. Things have changed over recent years. There is now a global over-supply of wine. The UK marketplace has been wooed by the wines of Australia, Chile, Argentina and South Africa, all of whom have been able to make cheap wines that taste good and which are easy to understand. They are also made in the sorts of quantities to match the demands of the supermarkets (where most wine is now sold), and support promotional campaigns targeted around single brands. These days, people who want to succeed in selling their wines look at the market and what it wants before they even crush a grape.

The modern marketplace is a tough one. At the top end, France has nothing to fear. It makes a diverse range of profound fine wines that the new world can’t even begin to match. But the bulk of its production is more commercial wine, and this is currently very hard to sell because it is uncompetitive. Outside the fine wine sector, the French look doomed unless they can do something quickly to turn their wine industry around. This will likely involve some tough political decisions. Most importantly, they have to stop bailing out the poor growers. They need to allow the market to weed out growers who are making wine or growing grapes that no-one wants to buy. People who make unsaleable wine need to go out of business, not to be rewarded for their poor efforts.

At the more commercial end of the market, the industry needs to come out from hiding behind all the rules and begin building some strong brands. These wines needn’t be boring, dull or artificial – I’ve recently tasted some great Vin de Pays. But these Vin de Pays are unfairly discriminated against by the AOC system, which stigmatizes them to an extent. Also, the Vin de Table category—which doesn’t allow information such as the vintage on the label—needs to be relaxed if producers are to be free to build brands from across regions or with unauthorized grapes. In short, the AOC system only really works for what we’re calling here ‘fine wine’.

However, while market forces would help prune the French wine industry, unrestrained market forces may be a bad thing. I can see that there might be a justifiable level of government support for an industry that is going through a hard time. Many economic changes are cyclical. If the industry is buffered by government help during the downturn of a cycle, then this may place it in an advantageous position to when things start improving again, and it could grab market share. With the economic cycle, there is a lag period between the change and the response of the industry, which results in a pendulum effect. So there is oversupply as the demand falls, and then undersupply when the demand rises.

With wine, changes in production capacity take several years to realize, resulting in a large lag time and a potentially severe pendulum effect. Government intervention such as paying growers to grub up vines, or paying them for unsaleable wine can help to buffer this effect. These sorts of interventions are potentially valuable, but should only be over the short term. If they are practised too widely or for too long, however, then the pruning effect of market forces is tempered and the industry grows inefficient and uncompetitive. A vicious circle is then initiated, which is what I believe is now happening. The French have cosseted their wine industry, it has become uncompetitive, and like an addict it is caught up in a cycle of oversupply, government intervention and loss of efficiency.

It’s entirely understandable. One thing the French do extremely well is striking. If the government were to expose its wine industry, which is an important part of the social fabric in many regions of the country, to unfettered market forces, the consequence could be widespread social disintegration. There would be an outcry. I suspect no government would have the political courage to make this sort of move, even though it may mean short-term pain for long-term health.

Perhaps a more feasible course is the following three-prong strategy. First, provide top quality consultancy services to the various regional wine authorities. This would help them become more market focused. Second, relax the rules where appropriate to make it easy for successful, entrepreneurial producers to flourish. Third, wean producers off subsidies – they protect poor performers. France’s wine terroirs are a national treasure, and it’s a scandal to see how poorly the potential of these wonderful wine growing sites is being realized, partly because too much of the land is in the hands of people who simply haven’t got a clue.

I think the future for French fine wine has never looked brighter. Let’s hope they can make the changes to their industry that would allow them to compete across the board. The resources are there, but is the will?

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