Relative Cost of Producing Different Qualities of Wine

Why do better wines cost more? Good wine can only be made by limiting the crop of each vine (by pruning), and great wine can only be made by limiting it severely (severe pruning + green harvest). Unfortunately, the grower must usually choose before he discovers whether nature (by frost or hail or drought) will do it for him.

The economic implications (why fine wine is more expensive) are clearly displayed by the following figures originally calculated by famed Bordeaux shipper Peter Sichel. The table shows the costs of producing three levels of Bordeaux, but the results hold for other wines too.

The first is “great” wine in quantities of 27 hectoliters/hectare, with traditional planting density of 10,000 vines/hectare, using 50% new barrels each year and allowing for the unavoidable loss of 20% of the volume of wine during racking and fining and from evaporation in barrel.

The second is “good” wine at 45 hectoliters/hectare, with wider-spaced vines at 6600 per hectare, 20% new barrels, and 20% loss by volume.

The third is minimum-cost wine at 63 hectoliters/hectare from widely-spaced vines at only 2600 per hectare (common practices in California, but actually not permitted in Bordeaux), storage in vats, and a loss of only 7% by volume.

These are extreme examples, but they illustrate the fundamental question of whether the public will pay the much higher basic costs (plus overheads, finance charges, shipping, importing, distributing, and retailing costs – not to mention some profits along the way) for better, more concentrated, and more expensively matured wine. The answer seems to be that polarization tends to develop; the readiest sale is for the cheapest and the most expensive, which sells partly because of its blue-chip investment value and prestige. In terms of true value, the best buy is clearly the “good” wine in the middle which is made with almost as much care as the best and should have nearly as much “character,” but has no glamour-premium. It is also clear that a low-cost producer has little incentive to improve because his public is unlikely to follow him by paying more. The prices below (in 2003 U.S. dollars) show only production costs. Land values, bottling costs, financing costs, transportation, etc. are not included.