Wine: Very Liquid

(Photo: Wendy Harman)

Wine Spectator includes a feature (subscription required) on Nicolás Catena, who received the magazine’s Distinguished Service Award for 2012.  His online bio states, “One year, Domingo [Nicolás’ father] realized that it would cost him more to harvest than to leave the fruit on the vines. He asked his twenty-two-year-old son Nicolás, a recent Ph.D. graduate in economics, what to do about such a dilemma. Nicolás advised him not to harvest.”  You don’t need a Ph.D. to see the sense of Nicolás’ advice — if price is too low to cover average variable cost, shut down.  Sadly, “Domingo could not follow his son’s advice with a clear conscience and picked anyway.”  No doubt the family vineyard lost even more money than if Domingo had listened to his son.

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  1. Craig says:

    I disagree. In this case, the long term effects of not having a vintage would quite possibly damage the brand name and brand awareness among customers. Not harvesting would be fine if it were an unknown vineyard that had few to no customers, but missing a vintage for Catena is most likely more damaging in the long run. Also, it gives them another year of practice in making wines from their land. More practice, better wines. So, the father did the right thing in my opinion. And, of course, Catena makes very good wines today!

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  2. Nicole says:

    Get tourists to come and “pick their own grapes” to make into wine that later gets shipped to them? Easier with something like apples and pumpkins, but still, maybe they could build off that idea? …

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  3. Michael says:

    I’m not quite sure I get it. I understand the P<AVC argument clearly, but we're talking about Malbec here (at least I got the impression it was malbec). It has to age, so the relevant P isn't the then-current P, but the expected value of P in the future. Complicating things, they mention really high inflation. So really, you need to compare the E[P] of the future to the current AVC in "real" dollars (and think about if inflation effects each differently), not to mention the opportunity costs associated with the money used for harvesting (especially given the high inflation environment).

    I could imagine scenarios where picking was indeed the right choice. It could very well have been the wrong one. Either way, I don't think it's nearly as clear cut as this post suggests.

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    • m.m says:

      I agree. I’m not sure why he couldn’t just cellar it up and wait. I know that cellaring also costs money, but unless his winery was living “paycheck to paycheck”, as it were, he could simply stow the wine away until the market improved, and sell it then. Overproduction is a common problem in the wine business. Luckily, the products (especially reds like his) last for a long time after harvest (unlike, say, fresh fruit).

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  4. RGJ says:

    Something tells me the equation didn’t factor in the possibility of Domingo coming home and picking some dang grapes :-)

    I’m guessing about 0.0000001 percent of harvests in human history would have been profitable if labor had to be outsourced.

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  5. Joby Elliott says:

    As a few other posters have pointed out, there are more concerns than just money. A vinyard has to consider its brand, experience and general public image as well as its simple economics. The brand and public image might be more valuable over the long term, vs saving a few clams now at the cost of being “that vinyard that let all their grapes rot one year.”

    The world is rarely as simple as economists would like to believe.

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  6. Mark Cannella says:

    Sure, the “rational” business manager makes the decision at the price-less-than-variable costs. Some posts have covered the markets, the brand…but we are still missing something…labor.
    I am not familiar with large vineyard labor models, but I can guess. Regardless of the potential for disposable labor, I imagine there are some folks the owner wanted to keep around and not just lay off for the season. Might actually care about some of those employees and their families. OK, some are still shaking their head no. Call the HR manager and ask about the sunk cost and uncertainty of training new employees. What is easier to manage, a measurable operating loss or the uncertainty of market share and labor capacity impact over the next 3 years? I know what I do….pick the grapes, get a story in an international magazine and make the most of the publicity.

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  7. Mike Fladlien says:

    Among other factors, Mr. Catena might have been reacting to a sunk cost.

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  8. Reader says:

    Both of their opinions were right for their beliefs and their particular jobs. The dad, as a farmer, had to harvest. You don’t plant if you don’t intend to harvest after putting all that love and effort into it. The son, as an economist, looked at it economically while the father probably looked at it as his life. You live your life, period, you don’t opt out of it because the finances are off that year. After many years, you might, but not just one.

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