Category Risk Management

Over-exposed - vineyard volatility amid a changing climate

23 August 2017 Allianz
Due to changing climate, many wine producing regions may be untenable by the turn of the century, if not sooner.

Due to changing climate, many wine producing regions may be untenable by the turn of the century, if not sooner.

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?

• Wineries, dependent on stable soils and a consistent climate, are especially volatile to wildfires, drought, floods, increasing temperatures and other byproducts of a changing climate
• Problems due to climate change can range from irrigation difficulties to disease to soil erosion due to excessive rainfall, flooding or prolonged heat
• Some in the wine industry predict that parts of California, France, Spain, Portugal, Australia and South Africa will become too hot and dry to produce quality wines by 2050
• Winery owners and operators must prepare for volatile weather and unusual geological events caused by a changing climate when building their risk management programs

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 has to momentarily transport the drinker to a fantasy world 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 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. The 2016 ENSO, a recurring weather phenomenon that causes below normal rainfall in southern Africa, was the worst in 50 years. Meanwhile, on the other side of the world, formerly drought-impacted Californian appellations were drenched with rain and impacted by floods as nearby rivers overflowed — some for the first time in 10 years.

In Chile, in January 2017, the worst forest fires in a century damaged or destroyed parts of at least a hundred vineyards, including some with century-old vines 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. 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 $1.1bn and $2.2bn in damages to vineyards in Bordeaux in May 2017.

Climate change and catastrophe risks in the world's major wine regions

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% of New Zealand’s annual production. Many wines in the Marlborough region were moved to avoid damage from 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 caused by 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 as a result of rising temperatures.

“I recently spent a good deal of time in the Stellenbosch, Constantia and Swartland regions of South Africa, as well as the Hemel-en-Aarde region along the south coast,” says Dan Pastore, Distributor and Manager, Kings Fine Wines & Sprits, Short Hills, New Jersey. “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, of course, but the overall sense is that great challenges are here now, forcing winemakers to respond immediately.”

Pastore adds that 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 to 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.



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