If you’re a little red grape born in the greens tucked away by the Andes, the journey to maturing into a delicious bottle of premium wine is becoming long and troubled.
Temperatures are increasing, and droughts are creating opportunities for your planter to sell the water you need to the mining companies who want it more. The warm nights increase your acidity. The warm days shorten your growing cycle, making you less flavorful. The warm soil spoon-feeds you small doses of arsenic. You’re aware that you very well may desiccate – your parents burned last season, after all, and yields have been decreasing from the earthquake, the flooding, and the ominous Sun that broods over Chile.
If you’re one of the lucky ones, you’ll make it.
Concha y Toro, that Chilean winemaker that sells over 28 percent of the wine in the domestic market and exports over 30 percent of the country’s wine, will buy and process you. You’ll ferment at another facility and age in French or American oak barrels. Our children will have lower tannin levels, the barrels, who have a two year lifespan, will whisper to you. So yours will lack flavor, they do not say. You’ll be poured into glass bottles made in Chile and sealed by corks made in Portugal. You then have a 78.2 percent chance to ship oversees. Soon shipping will be slower and more expensive, as carbon taxes are implemented and as rising sea levels force ports to relocate and disrupt petroleum prices. And, sure, your cost to reach consumers has increased and your quality’s decreased, but, by golly, today you’ve made it.
While all winemakers must address supply chain risks due to climate change, Concha y Toro Winery has been recognized by the Dow Jones Sustainability Index as being especially proactive. The winery prepared for upcoming droughts way back in 2010, becoming the world’s first winery to measure its water footprint. Since then, it’s implemented in its own vineyards more effective washing procedures and a drip irrigation system that achieves 90 percent efficiency. Today its water footprint is 60 percent less than the industry average.
Management has also made strides in preparing for carbon taxes. Since 2007, the company has been tracking its greenhouse gas emissions per bottle made. Not only has it reduced them (by 4 percent, for example, in 2015), but it has also begun to internally tax them, using the raised funds for carbon dioxide reduction projects. By pricing carbon taxes into its business strategy today, Concha y Tora has been able to invest in long term sustainability and weather any carbon taxes that may soon be levied.
The firm’s competitive advantage is in providing high quality wines desired around the world at prices no other vineyard can match. So it has taken sweeping measures to protect the quality of the grapes it grows. Like other winemakers in Chile, the company has begun to use helicopters to circulate air, keeping its vines from frosting in the winter nights and its grapes from overheating during the growing season. And understanding that temperatures will rise by as much as 0.5 C in the next decade, the company has acquired land in cooler climates – farther south in Chile and north of Sonoma, California – where it can ensure that its highest quality grapes can continue to grow in identical conditions.
While Concha y Toro has been extremely committed toward protecting its grapes and its production from climate change risk, it has done comparatively little to guard itself in other areas that climate change will impact. For example, over 50% of the firm’s grapes for its premium wines come from nearly 700 independent farmers in Chile. The firm signs one year contracts with the farmers to protect itself against fluctuating prices and unexpected, low yields. But the firm does not enforce the same quality control best practices with its partners, and, as droughts occur, these farmers give up their field’s water to mining companies, who pay more. To mitigate this extreme vulnerability, Concha y Toro must invest in its partners or acquire their land.
Nor has Concha y Toro considered how climate change will impact its logistics and transportation. As an end-to-end wine maker that bears its own shipping costs, it has to. In the short term, Concha y Toro should source closer cork and oak barrel suppliers, whose materials will retain relevant tannin levels. It should also enter into long term contracts with its freight partners. Climate change threatens the petroleum industry, after all, and may result in price volatility or price increases. In the long term, Concha y Toro should study whether rising tides will force any of its delivery ports to relocate and should assess the cost impact of that relocation on its bottom line. And it could study from other vineyards in California, Australia, Italy, and France, who are innovating as well with daytime umbrellas and new, experimental vines as they work to mitigate climate change risk.
Other industries have prepared for climate risk by diversifying their locations. Should Concha y Toro continue to do so and risk losing its identity as a Chilean winemaker? How else could a company with a global supply chain reduce the effect of climate change negatively impacting its transportation costs?