Dear RoyRoy Hersh wrote: ↑Wed Dec 04, 2019 3:11 am Dear Adrian,
Two years ago, regulations loosened and the Duriense grape growers were no longer restricted from charging "whatever the market would bear" for grapes to be used for Port production; whereas in the past the pricing was far more controlled.
a. Does this also apply to Douro still wines?
b. The increase in the cost of grapes must add to the overall production costs of Port, how much does this translate into per bottle increases in cost?
c. In the view of the Port trade, was this a healthy dynamic for grape growers or will it ultimately hurt them in the long run?
I am not sure I recognise your first point. Grape growers have always been free to charge what they want for grapes - Portugal my be socialist but it is not a controlled economy. However, in a region where the supply of grapes has often out stripped demand then people will clearly practice the market price. The 'Beneficio', the amount of the grapes any farmer can convert into Port, has been in place since the 1930s and is long over due for change.
I think you are probably referring to the increase in the price of grapes in the 2018 harvest which happened because of low yields caused by disease. As the amount of grapes was below the demand prices rose. This did not impact Port because the Port industry has always purchased its grapes at a price higher than the cost of production. The table wine industry had to pay more to secure grapes and, as a result this changed the demand picture. Some DOP Douro table wine producers said that they could not make a profit if grape prices were above Euro 450 per pipe. As cost of production is at least Euro 650 per pipe (according to Casa do Douro studies) then this was an admission that without subsidy, some DOP wines are not viable. The higher costs translated to higher selling prices of bottled wine into the market and that is why you are seeing an standard DOP Douro table wine sales volume down 13.5% on the annual moving average to end of October 2019. Value is down 8.5%.
Yes, grapes are the largest component cost of Port but spirit has a part to play and that has dropped in recent years.
The biggest cost is labour and the recent proposal to increase the minimum wage from Euro 600 to Euro 630 per month (up 5.83%) will have a direct impact on farmers margins.
Finally, it is healthy if farmers make a profit and can reinvest in the Douro. We are seeing too many abandoned vines which are incubators for disease; disease exacerbated by climate change. Such disease impacts all their neighbours and was a main source of the problems of a small harvest in 2018.
Kind regards
Adrian
