Capitalism comes to Barolo

Friday, 21. October 2016 - 11:00
Brunate, one of Barolo’s top vineyards. © Wojciech Bońkowsk
Was it €50m, €60, €70m? When the unexpected news of the Vietti sale broke in July this year, the internet was overflowing with guesstimates. Vietti is one of Barolo’s household names, with particularly high status in America, and the sheer value of the transaction made it major news for the industry. 
Local pride
“It is a dark day for Barolo,” a local vintner summed up the pervasive mood. “True farmers do not sell their land. We farm it with pride and passion. We are tied to our heritage.” Local identity was often emphasised: “Only people born in Barolo can be wardens of these hills.” But other producers were more benign and open-minded.
Alberto Cordero di Montezemolo of the historic Monfalletto winery said, “We respect the decision of the Currado family,” and Valter Fissore of the Elvio Cogno winery added, “This is surely a new stage for Barolo. It has all of us thinking. The risk is that business might become more important than history or culture.”
What happened? The Currado Vietti family sold the Vietti winery, brand, stock, and 34 ha of prime vineyards to the American Krause family, owners of the Kum & Go convenience store chain. At an estimated €55m, it is the largest sale to occur in Barolo in recent years, but by no means the only one. In 2015, Giacomo Conterno bought a 9-ha block for a reported €7m, and days after the Vietti sale, Luigi Einaudi announced a €6m purchase in Bussia, Barolo’s legendary cru.
The Krauses are the first foreign investor to take control of a major Barolo brand, creating an understandable stir. But retail mogul Oscar Farinetti (a native of Alba, the local hub, but with no wine production record) took over the historical wineries of Giacomo Borgogno and Fontanafredda in 2008. The Krauses, in turn, have been active in the zone for several years; in 2015, they purchased the 12-ha Serafino winery from Campari for €6.1m, and bid for the Arione vineyard eventually snapped up by Conterno. Additionally, in what now appears as a move synchronised with the Vietti sale, Krause Holdings assembled 12 ha in prestigious Barolo crus such as Mosconi, Briccolina, and Codana. 
Most of these recent sales have involved prices of around €1m per hectare, up 100% compared to as recently as 2013 (Assoenologi data). Prices of this magnitude are standard in Burgundy, Champagne, or Bordeaux, but were unheard of in Italy. The impact on the local market is enormous. Giuseppino Anfossi of Ghiomo expresses the universal feeling: “We are pushed out of the market, it becomes impossible to buy land adjacent to our existing vineyards.” Hardest hit is the dynamic young generation of local growers; stories such as that of Finn Riikka Sukula, who established a 1.5-ha estate in the Meriame cru in 2006 and now produces 5,000 bottles, are becoming unrealistic because of the sheer investment needed. Pressure on returns might be bad for the environment, too, argues one grower: “New producers will have less incentive toward organic farming, needing to produce more to pay back the debt.” Anfossi notes an isolated positive effect: “With higher value to our land, we can get more credit from banks for further investment. There is a literal race to sign contracts.”
Barolo bubble
Property prices inflate so banks relax rules for credit – does that sound familiar? The explosion in price for the top grand cru sites is understandable, given the cachet – and prices – these wines command. But also lesser vineyards are riding the wave. Later this summer a 5-ha estate, including 3.5 ha of DOCG Barolo (but not classified as MGA, menzione geografica aggiuntiva, or recognised cru), was offered at just over €5m.
A producer who contemplated the purchase estimated that at the current prices for Barolo, which are €15.00 to €20.00 per bottle ex-cellar, it would take more than 20 years to finance the land alone. “Buying a good vineyard is not a problem; you just need so much money…” says Silvia Altare of the Elio Altare winery. “You find nothing below one million euros per hectare,” confirms Alberto Cordero, though Barbara Sandrone, who was able to buy small parcels in Baudana, Villero and Cannubi over the last few years, adds that “with long-term relationships with growers, we can buy at more realistic prices.” But she adds, “speculation is a real problem.” Cordero echoes this: “There is too much enthusiasm. Things have no real value anymore; a mediocre vineyard is offered at the same price of a grand cru.”
“Vineyard owners are out of their minds,” another Barolo estate owner puts it more bluntly. The economics of the region are becoming more and more unbalanced. A vineyard of Barolo can produce a maximum of 7,250 bottles per year, which can be released after three years and fetch between €10.00 and €40.00 ex-cellar. Alberto Cordero stresses, “The average price of Barolo has not risen proportionately to the price of land from which it is produced.” This is particularly true of Barolo “normale” (non-cru).
Meanwhile, other appellations are also appreciating fast. Land in Barbaresco, considered Barolo’s “younger brother”, is now selling at €400,00.00 to €500,000.00 per hectare, a 100% increase in five years, with top sites such as Asili and Rabajà approaching Barolo levels. Even Roero, a far less glamorous zone also producing wine from the Nebbiolo grape, clocks in at €80,000.00 to €100,000.00 per hectare.
Paradoxically, a factor in this increase is an otherwise laudable measure by the local regulatory body, the Consorzio di Tutela Barolo Barbaresco Alba Langhe e Dogliani. In 2011, it limited new plantings of Barolo to 20 ha per year (with a cap of 0.4 ha per estate). Free expansion of the vineyard area was curbed to avoid the pitfall experienced by Tuscany’s Brunello di Montalcino, which grew in size from 700 ha to 2,500 ha in two decades, with dire consequences for quality and price. The measure is now backfiring as it puts further pressure on land prices.
An owner’s market
Another tangible effect is on vineyard leases. Because the land is so fragmented – parcels in the best sites are often less than one hectare – independent estates have traditionally relied on buying grapes from smaller growers. This system was gradually replaced by leases, where bottlers farmed the land as they saw fit.
For decades, lease prices remained very low: back in 2005, it was not unusual to pay €1,000.00 per hectare. Today, prices are calculated based on the average official grape price. In lesser appellations such as Roero or Barbaresco, a lease costs 15% to 25% of that price (at maximum permitted yield); in Barolo, it can be as high as 35% of €4.15 per kg. But prices for grand cru vineyards can be several times higher. A leading producer confesses he pays “well in excess of €20,000.00” for a plot in Cannubi, one of Barolo’s top sites. This puts the cost of lease at about €4.00 to €5.00 per kilo of grapes. Contracted for 15 or 20 years in the past, leases are now routinely shorter: seven or even five years.
This puts lessees under pressure. When a lease expires, owners might be tempted to cash in and sell the vineyard to the highest bidder. But the worst-case scenario for a lessee is when a lessor decides to farm the site and bottle the wine for himself. This was notably the case of Bruno Giacosa’s iconic Barbaresco Santo Stefano. The first vineyard-designated wine in the region (in 1964), it had to be discontinued after the 2011 vintage, the owner (Castello di Neive) having opted for increasing their own production of the cru. Another high-profile victim was Elio Altare, who lost his famed Barolo Brunate; at the end of the 16-year lease in 2011, the owner, Mario Marengo, decided to use the cru for his own production. A lease in the Cerretta vineyard also expired but Altare managed to purchase the vineyard (“with a 20-year mortgage,” adds Silvia Altare). Roberto Voerzio, another top maker, lost his most expensive wine, Barolo Riserva Capalot.
Wine prices to rise
Low interest rates worldwide are surely a reason why a growing number of investors from Italy, America, and Asia look at Barolo as an attractive asset. Higher real estate appreciations are already translating into soaring prices of grapes and bulk wine: Barolo currently sells at an all-time high of €8.50 to €9.00 per litre, and even more modest appellations have substantially risen in price: Barbaresco to €3.50 per litre and Barbera d’Alba to as high as €3.00. Yet Giuseppino Anfossi, who produces Barbera and Nebbiolo d’Alba, says “sourcing good Barbera on the secondary market is practically impossible.” Moreover, the production in 2016 will be lower because of several hail episodes, lowering supply at a time of record demand.
Alberto Cordero di Montezemolo argues, “The average price of Barolo has practically remained unchanged from 2006.” Perhaps not quite – Aurelio Settimo’s basic Barolo retailed for €17.00 a decade ago, now €23.00; Barale’s Castellero was €25.00, now €35.00; Ceretto’s Brunate, €47.00 and €57.00. But against village Burgundy or Bordeaux deuxièmes vins, wines comparable in their respective regional hierarchies, non-cru Barolo and Barbaresco remain arguably underpriced. Barolo can only produce a total of around 13m bottles per year, while strong demand continues from the US, Switzerland, and Germany, the key markets, as well as the UK and China, where Barolo is becoming popular. In this context, there is only one direction for prices to go: up.
Wojciech Bońkowski 
This article first appeared in Issue 5, 2016 of Meininger's Wine Business International magazine.