Swirling Wine and Climate Change Ahead of Earth Day

As the world slowly warms, temperature and moisture changes will impact sensitive vineyards. We look at where the wine industry is located globally, what’s expected to happen as a result of climate change, and some of the steps vintners are taking to adapt. The kinds of wine available and their qualities will be impacted over time, but wines will also continue to evolve in new and exciting ways.

The Approach

We first look at the larger areas for wine production. Red dots in the map below indicate current significant areas of viticulture (i.e., cultivation of grapevines). Producing more than 50% of the world’s wine are France, Italy, the U.S., and Spain. But all regions tend to focus on a handful of grape varieties because of tradition and growing conditions. In some cases, not all the varietal wines produced are exported.

Map of World With Major Wine Areas Noted

Source: FactSet

The Middle—First Taste

One thing to notice in the map above is that prime grape growing regions are located at about the same latitude north and south. And as a sidenote, our comments generalize about latitudes, but we agree that any specific vineyard will have highly local variations in temperature, sunlight, soil conditions, moisture, and exposure to climate change.

Indeed, the band from 30-50 degrees latitude (green lines) both north and south of the equator (black line) is the typical band used to depict better growing temperature areas.

Source: FactSet

The 35 – 55 degrees latitude (blue lines) on the map above illustrate where the band of better growing temperatures would shift to as a result of global warming by 3 degree Centigrade (5.4 degrees Fahrenheit). Northern zones shift further north, and southern zones shift further south.

The five degrees latitude shift toward the poles is approximately 325 miles (~500 km). It roughly approximates a 3 degrees Centigrade change in average annual temperature (more so going from 50 to 55 degrees latitude than from 30 to 35 degrees latitude). A 3 degrees Centigrade incremental temperature corresponds roughly with the 2.6 degrees Centigrade warming that many experts are starting to assume instead of the previous 1.5 degrees Centigrade goal. As a result, the five-degree latitudinal change is reasonable. That said, some sources view the latitude bands shifting further toward the poles—by 10 degrees rather than 5—implying more heat and impact on existing growing areas.

With a five-degree shift in latitude, some areas are incrementally challenged, and some areas become incrementally more viable as growing regions. More challenged could be southern Brazil, Northern Argentina, South Africa, and many parts of Australia. China and traditional European areas remain in a favorable temperature band as does most of the west coast of the U.S., except perhaps for Southern California.

China has become a major consumer and grower of wines in the past few decades. Areas that potentially become more amenable to grape growing could be southern Argentina, more of Ukraine, Poland, Germany, and the U.K., and perhaps the southwest coast of Canada.

IPCC Scenarios

In addition to slightly higher average temperatures with the most favorable range shifting toward the poles, moisture changes anticipated with climate change could also come into play. Anticipated precipitation in any area tends to change proportionately in different warming scenarios.

The IPCC (Intergovernmental Panel on Climate Change) is the UN body that considers all science related to climate change and periodically issues major assessment reports. The recent IPCC maps below show average temperature change and seasonal mean precipitation percentage change in their modeled 3 degrees Centigrade scenario.

Climate Change and Regional Patterns in a +3 C Degree Scenario

Source: IPCC, AR6 WG1, pg 645

A warming of any amount is modeled to have an uneven impact around the globe, with the poles seeing disproportionately more warming than other areas. Nonetheless, the map suggests every wine grape growing region is impacted by global warming.

The precipitation model in the 3 degrees Centigrade warming scenario suggests drier future conditions for producers in the Mediterranean, Chile, South Africa, and Australia. Wetter conditions are concentrated at the poles, along the Pacific Equator, and across the desert ecosystems of Africa and the Mideast. Wetter conditions seem to miss most of the leading wine grape growing regions.

The Finish

In modeled climate change, all current top-producing regions will experience warmer temperatures with some also expected to experience drier weather conditions, on average. Clearly these changes and comments are very macro in nature; importantly, every acre will be impacted by changes in local conditions.

However, some generalizations can be made about all regions. In as much as these global changes are happening gradually over a long period of time, vintners have several years to adjust their crops in many ways. Over time, it’s likely more wines with enter the market from more countries, including new varietals from existing producer countries. Availability in the next 20 years will change—in a positive and exciting way—compared to familiar offerings of the past 20 years.

How Some Vintners are Adapting

Too much heat or cold tends to decrease the amount of fruit produced on a vine. In addition, a longer and/or hotter growing season could change (raise) the sugar content of the grapes, reduce acidity normally enhanced by cooler nights, leave the vines to struggle too much, and alter planting and harvesting times.

Winemakers will tweak operations where conditions are changing. This might include:

1. Planting more drought-resistant varietals, particularly proven winners from other regions of the world.

2. Moving planted acreage to higher, cooler elevations.

3. Adding more irrigation.

Two examples of vintner steps to deal with climate change include Californian Cabernet Sauvignon growers experimenting with grapes that currently produce leading red wines from Australia and warmer Mediterranean locations in Portugal, Spain, and Italy. Similarly, the Bordeaux region recently approved six new varietals that perform well in hotter climates.

Interesting New Regions for Wine Production

With the band of favorable climate conditions moving further away from the equator, climates previously too cold should become more favorable for grapes. In response to climate change and anticipated further warming, many of those areas are expanding production and experimenting with grapes that have traditionally done well in warmer climates.

China, for example, is rapidly advancing as the fifth largest consumer market in the world and the seventh largest wine producer. These growth trends have led to some trade issues among China’s traditional international suppliers. Planted acreage is reported the highest in China’s more northern latitudes. Also in Southeast Asia, Japan has been noted as an improving producer utilizing some unique hybrid grapes.

England, Belgium, Ireland, Scandinavia, Poland, and the Netherlands have been mentioned as potentially growing producers of wine. In general, cooler northern latitudes and the resultant higher grape acidity favor white and sparkling wines.

• England has traditionally focused on sparkling wines using French Champagne varietals, but the country is seeing more producers and is experimenting with a wider variety of still wines.

• Belgium has been rapidly expanding its wine production, primarily in the lighter white types. A warmer climate will allow development of more complex wines in time.

• In the Netherlands production has grown significantly over the past 20 years, with efforts to match the varietals traditionally common in northern France, Germany, and Austria.

• Poland is another area of particular interest. Hundreds of years ago it had a solid wine industry that declined over time with geopolitical and weather changes. However, there’s been a trend toward more planted acreage.

Consumption Trends

While there is much to consider on the impact of climate change, wine markets are evolving as well and not always in a positive direction. In some surveys about U.S. market demographics, for example, the only growth segment is the 60+ age group.

Younger adult consumers are not entering the market. For younger consumers, habits are more of low- or no-wine. The result of the shifts is fairly low wine market growth between 2016 - 2019, only 3% growth during the first year of Covid in 2020, and slight declines in 2021 and 2022.

As in many markets, 2023 could be more of an indicative year for demand trends with comparisons to the Covid impact diminishing.

Two other market trends that have gotten some attention is a steady shift toward the premium wine categories (maybe linked to older drinkers) and a tilt toward smaller producers over larger ones. The latter trend is akin to the plethora of microbreweries in the beer arena that have captured a disproportionate amount of the beer market’s low growth. Comments from many of the public wine companies found in transcripts on FactSet’s workstation suggest they are emphasizing the premium segments. However, the industry as a whole is exposed to the changing market preferences.

Some analysts have also postulated that affordability in a bar or restaurant in part gets to comparing the costs of a beer, a spirits drink, and—sometimes a more expensive choice—a glass of mid-tier wine. Restaurants, too, are tending to offer fewer brands (despite wine being one of the most diverse product categories of all consumer goods) and more ‘beverage’ lists rather than wine lists.

Beyond dealing with modest or negative climate change impacts, producers have also indicated that insurance and shipping costs have risen. The glass supply chain has been tight with costs higher, though several beverage companies suggest this supply chain has eased in recent months. Labor, foreign competition, and water availability are three other areas of winery concern, but U.S. public companies have not mentioned these factors of late.

Foreign competition, particularly with high growth in China, has led to some tariffs around the world which, of course, have uneven impacts on domestic and import businesses. The wine business is capital intensive, so it is also quite possible that higher interest rates will stymie capital flows into the sector as well.

All in, some challenges for the wine business with climate are creating more changes on the horizon and already leading to some changes in vintner practices. Consumers in the future will likely enjoy more wine varieties and new experiences with pricing impacted by both potential oversupply in the mainstream segment but also rising industry costs.

Cheers!

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