The Chambre d’Agriculture de la Gironde recently published a revised edition of a study entitled: “Référential Technico-Economique du Vigneron Bordelais” (previously published in 2002 and 2009). The report analyses the production costs of two hypothetical wine producers, Mr Martin and Mr Durand. They each have 25 hectares of vines producing red AOC Bordeaux, with the same density of planting, age of vines etc. However, they have different approaches: Mr Martin sells his entire production in bulk and “is looking to manage his costs to produce a crop with an optimal price/quality ratio”. His strategy is to achieve the maximum authorized yield, a satisfactory level of quality and to simplify the management of the vineyard. By contrast, Mr Durand “sells the majority of his wine in bottle and is looking to adapt his production to respond to a specific product profile while also managing his costs and adopting an environmentally conscious approach”. His strategy is to ensure optimal grape health, to carry out each vineyard operation with the greatest of care and to maximise his environmental awareness.
The report starts out by looking at the equipment required for the two operations and the consequent investment: €104,900 for Mr Martin and €117,400 for Mr Durand. It then compares the viticultural practices of each, noting operations they have in common, such as double guyot pruning and mechanical harvesting, and where their techniques differ, for example Mr Durand deleafs mechanically while Mr Martin does not deleaf at all. Based on a yield of 50 hectoliters per hectare, Mr Martin’s viticulture costs amount to €3,862 per hectare, while Mr Durand spends €4,156 per hectare. Once land rental (“fermage”) costs, hail insurance and other overheads are taken into account, the total total grape production costs amount to €5,340 per hectare for Mr Martin and €5,633 per hectare for Mr Durand, equivalent to €107 and €113 per hectoliter of wine.
Winemaking costs (excluding barrel ageing) are €25 per hectoliter for Mr Martin and €29 per hectoliter for Mr Durand, bringing the total cost of the finished wine to €132 per hectoliter for Mr Martin and €141 per hectoliter for Mr Durand. The equivalent per tonneau cost (a tonneau, 900 litres, is the unit of sale for bulk wine in Bordeaux) is €1,186 for Mr Martin and €1,271 for Mr Durand. However, Mr Martin’s strategy is to produce the maximum authorized yield, so, conditions allowing, he will aim to produce 55 hectoliters per hectare. According to the study, this will reduce his production costs to €1,078 per tonneau. With the average price for bulk red AOC Bordeaux at less than €1,000 per tonneau these figures illustrate the difficulties faced by Bordeaux producers selling their production in bulk, which accounts for approximately 50% of total production.
By selling most of his wine in bottle Mr Durand incurs additional costs associated with bottling and marketing the wine. While his wine costs €1.06 per bottle to produce, the cost of bottling – €0.52 p.b. – and packaging and marketing – €1.30 p.b. – bring his total cost per bottle to €2.88. In markets such as the UK, with a high level of alcohol duty, his wine would be positioned well above the average spend per bottle.
The authors of the study are keen to stress that the main objective is “to provide the different operators in the sector with a tool for analysis of the production costs associated with different technical approaches”. However, it also illustrates the challenges for producers of AOC Bordeaux wines who are operating in the most competitive sector of the market. While some are able to generate positive returns by reducing costs through greater economies of scale for many the key is to find new markets willing to pay a premium for the Bordeaux brand.