Is Happy Hour Over? The Impact of Climate Change on E & J Gallo Winery

Should vineyards be ‘wine-ing’ about climate change?

The Problem

For wineries such as E & J Gallo, climate change is a major potential disruption to their business. Grapevines are heavily sensitive to climate variation – quality and yield are hurt by rising temperatures, declining precipitation, and an increase in extreme weather events [1][2]. Vine trunks can be damaged by sudden temperature drops in the fall and by sub-zero temperatures in the winter, while early warming spells can pull vines out of winter dormancy too early and leave the plants susceptible to subsequent freezing. Irreparable damage to vine trunks from these extreme weather events means the vines have to regrow from the roots, a process which takes years [3].

All of these factors sum up to a troubling future for major wine producing regions like California (the primary location for E & J Gallo’s vineyards). A study published in 2013 estimated that in major wine producing regions, the area suitable for wine growing would decrease by 25% to 73% by 2050 (see Exhibit 1) [4].

There are early signs that the industry is already feeling the impact of climate change, with global wine production estimated to drop by 8% in 2017 [5]. In the last two years, wine grape growers in the western US have harvested their crops 4-6 weeks earlier than was normal 25 years ago, which has impacted the character of the fruit and flavor of the wine [6].

Exhibit 1:[7]

As wine producers look to address the issue of climate change, they have three main variables they can flex: changing vineyard location, changing grape varieties, and changing winemaking practices.

Current Solutions

Wine companies have already started to take on a number of actions to address this problem. Due to their size, large growers like E & J Gallo are able to diversify by having a portfolio of land across a variety of regions and climates. This allows them to reduce the risk of being significantly impacted by one particular region being hit by drought or frost. Growers are also shifting their geographical focus towards areas where temperatures are cooler – moving towards more northern areas, higher elevations, and areas closer to the coastline [8]. Vineyards are already rapidly expanding in new geographies in North America, including eastern Washington, Idaho, and in British Columbia [9].

In addition to adapting to the impact of climate change, the industry is also making an attempt to reduce its own contribution to the problem. E & J Gallo was part of a group of growers that helped create the Code of Sustainable Winegrowing in collaboration with the California Sustainable Winegrowing Alliance [10]. The goal of this code is to help develop and spread the use of sustainability strategies in the California winegrowing community.

Future Solutions

Looking to the future, there are a number of additional ways in which viticulturists could address this issue as it continues to advance. Farming techniques to mitigate the impact of heat stress include hanging shade cloth, positioning rows on a sun-sheltered northern slope, or increasing the use of irrigation of misting on vines [11]. A large player like E & J Gallo could also use its industry influence to form a cooperative that researches additional winemaking practices which mitigate the negative impact of climate change (similar to its industry collaboration work on the Code of Sustainable Winegrowing).

Vineyards can also use experiment with grapes that are better suited for warmer or drier climates. Researchers have resurrected old wine varieties and tested them for their ability to thrive in hot, arid climates [12]. Some wine varieties have berries which can restrict or slow leaf growth or have advantageous ripening periods, leading to better water retention. Researchers also point to the opportunity to cross-bread diverse lineages to create offspring that are better suited for specific climates [13].

While climate change presents many risks for the industry as the whole, it might also present an opportunity for more adaptive producers to outperform slower-moving competition. Winemaking in Europe is steeped in cultural norms and tradition which might make it more difficult for the region to make the adaptations required to address climate change. For certain types of wine (such as Champagne or Bordeaux), strict requirements around geography and winemaking practices are actually codified in international trade agreements, adding additional barriers to change for wine producers [14].

Open Questions

Can an industry like wine production, which is so steeped in tradition and heritage, adapt quickly enough to deal with the changes stemming from climate change? Are there other ways in which wineries can adapt their strategy to mitigate the impact of this issue?

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[1] Emily Benson, “The wine industry’s battle with climate change,” High Country News, May 1, 2017, [http://www.hcn.org/articles/wine-in-the-wests-changing-climate], accessed November 2017

[2] Lee Hannah et al, “Climate change, wine, and conservation,” Proceeding of the National Academy of Sciences, vol. 110 no. 17, 2013. http://www.pnas.org/content/110/17/6907, accessed November 2017

[3] Emily Benson, “The wine industry’s battle with climate change,” High Country News, May 1, 2017, [http://www.hcn.org/articles/wine-in-the-wests-changing-climate], accessed November 2017

[4] Lee Hannah et al, “Climate change, wine, and conservation,” Proceeding of the National Academy of Sciences, vol. 110 no. 17, 2013. http://www.pnas.org/content/110/17/6907, accessed November 2017

[5] “Global Economic Vitiviniculture Data,” press release, October 21, 2017, on OIV website [http://www.oiv.int/public/medias/5681/en-communiqu-depresse-octobre-2017.pdf], accessed November 2017

[6] Emily Benson, “The wine industry’s battle with climate change,” High Country News, May 1, 2017, [http://www.hcn.org/articles/wine-in-the-wests-changing-climate], accessed November 2017

[7] Lee Hannah et al, “Climate change, wine, and conservation,” Proceeding of the National Academy of Sciences, vol. 110 no. 17, 2013. http://www.pnas.org/content/110/17/6907, accessed November 2017

[8] Brian Handwerk, “New Vineyards Could Create Conservation Challenges,” National Geographic News, April 11, 2013, [https://news.nationalgeographic.com/news/2013/03/130409-wine-vineyards-climate-change-culture-science/], accessed November 2017

[9] Lee Hannah et al, “Climate change, wine, and conservation,” Proceeding of the National Academy of Sciences, vol. 110 no. 17, 2013. http://www.pnas.org/content/110/17/6907, accessed November 2017

[10] “California Code of Sustainable Winegrowing Workbook – Third Edition”, [https://www.sustainablewinegrowing.org/docs/California-Code-of-Sustainable-Winegrowing-3rd-Edition.pdf]

[11] Lee Hannah et al, “Climate change, wine, and conservation,” Proceeding of the National Academy of Sciences, vol. 110 no. 17, 2013. http://www.pnas.org/content/110/17/6907, accessed November 2017

[12] Matthew Sedacca, “Resurrecting Ancient Wines That Can Survive Climate Change,” The Atlantic, July 17, 2017, [https://www.theatlantic.com/science/archive/2017/07/at-least-there-will-be-good-wine/533886/], accessed November 2017

[13] E.M Wolkovich et al, “Phenological diversity provides opportunities for climate change adaptation in winegrapes,” Journal of Ecology, Volume 105, 2017. http://onlinelibrary.wiley.com/doi/10.1111/1365-2745.12786/full, accessed November 2017

[14] Agreement between the United States of America and the European Community on Trade in Wine, March 10, 2006

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19 thoughts on “Is Happy Hour Over? The Impact of Climate Change on E & J Gallo Winery

  1. I am confident that the wine industry will adapt quickly enough to deal with the changes stemming from climate change. The reason I am so confident is that the industry has no other option but to adapt.

    Global warming affects wine-makers indiscriminately, so even those regions like Burgundy, which are incredibly steeped in tradition and heritage and have monopolies over certain types of wine, are at risk. There will probably come a time when the pinot noir grapes required to produce Burgundy wine can no longer be grown in that region.

    I think that wineries can adapt by expanding consumer perceptions of what constitutes a “good” wine and cultivating consumer tastes in wines that are less dependent on specific varietals of grapes. My understanding is that there is a great deal of waste currently because many wines require grapes that have been grown in specific conditions. Any time that the conditions diverge from what is “optimal,” these grapes cannot be used. Thus, wineries can help themselves by growing the consumer market and demand for wines that are made from these “suboptimal” grapes or a blend of these grapes.

  2. I agree that the wine industry, among many other produce industries, will suffer from climate change. The smaller producers will likely face the pressure first, as they don’t have the capital and resources to change their practices. Larger producers may have the ability to adapt to these conditions, but will face challenges of implementing new technology and techniques across much more land, which will take significant time and labor to do so.

    Another issue I see with the cost of production increasing due to needing additional resources to adjust for climate change, and yield rates are decreasing, the cost of wine to the end consumer will likely increase. This can cause many downstream effects on the wine market, such as less wine being consumed, affecting the businesses of distributors and retailers.

  3. I would imagine that the supply of wine will be hard to optimize as global warming extremifies. Crop yields and conditions will be harder to control, which would directly impact the volume of marketable wine a given vineyard or producer can bring to market every year.

    I can see wine producers engaging in innovative ways to restrict the supply of wines in global markets in the coming years, in response to global warming. Wine producers will be incentivized to maintain the price of their wines by artificially restricting available supply, to match years when global warming has a severe impact on supply. Equalizing prices across periods through this “restrictive” strategy would allow winemakers to hedge against volatility in the industry.

  4. This article is very enlightening. I never realized the implications of climate change on the wine industry. What struck out most to me was the significant disadvantage regions such as South Africa and Australia are in due to geographic limitations. While other regions can expand to cooler areas, these regions are already on the coastline and cannot move any further. If other solutions cannot be adopted, such as using grapes that thrive in warmer weather, wine from these regions could reduce dramatically over the next few decades.

  5. Interesting take on the challenges facing the wine industry. It’s unbelievable that wine production will drop 8% YoY in 2017. Expanding production areas will help, but is this going to continue to be possible with new entrants entering the market seemingly every year? The barriers to entry for this industry are incredibly low, so I am skeptical that the large producers can sustain this practice.

    Increasing awareness for sustainable strategies will be vital moving forward, so it will be interesting to see if large producers will be open to partnering together for a mutual benefit. I’m also wondering what the effect of new technologies will have on the industry. Farming techniques have improved dramatically over the past several years with new developments in tech – will the wine-making industry follow suit?

  6. From this article it seems clear that climate change is going to have a direct and increasingly adverse effect on wine industry. While vineyard operators can certainly take steps to mitigate these impacts (as mentioned by the author),it seems as though some amount of increase in volatility is inevitable. What I wonder, then, is what this will do to the industry from a consumer demand perspective. If consumers see the price of wines fluctuate significantly year to year, will wine fall out of favor? What if the quality becomes variable as well? Consumers certainly have a wide variety of options for alcohol consumption, so stable demand for wine is not a given. I think winemakers will need to take steps to not only mitigate volatility from an operational perspective, but also manage consumer communication and marketing to ensure stable (and ideally increasing) demand for wine.

  7. I think a key factor in addressing this problem is the consideration of variability. Most climate change predictions are massively complicated models boiled down to a few new “average” temperatures or precipitation levels for public consumption. What this means is that current and future wine growing locations aren’t facing a smooth shift in temperatures but a period of increasing volatility. As such, growers should be favoring a diverse portfolio of land and tools in an attempt to build some degree of resiliency.

    Where financially feasible, growers should invest in land in different areas to spread the risk of local climate phenomenon ruining an entire year’s yield. Local measures such as sun screens and north-slope planting should also be aggressively pursued. For culturally constrained wines, altering grape type may be the only option. I think this niche of the industry will handle this well – customers’ experiential expectations of their product is tied as much to customs and history as it is to a specific taste of wine.

  8. Great piece (and really loved the puns). I wonder about the financial implications of these changes for vineyards — I assume that in most cases it will be more expensive — due to R&D, sustainable practices, etc. — to implement these changes than their current cost structures. From that, I would expect the cost to be passed on to consumers, which may then push prices to more up-market levels. Will that end up changing demand, or will consumers being willing to bear the financial burden of sustainable winemaking?

    The other thing that I find interesting here is that the strategy of expanding the land area upon which the wine is grown (essentially moving into the blue areas on the map in Exhibit 1) is not itself a long term solution. If the planet keeps warming, we will eventually run out of suitable climates for grape growing altogether.

  9. Fascinating piece about an oft-overlooked industry. I am particularly struck by Exhibit 1’s visualization of how little overlap there is between areas suitable for grape growing now vs. in 2050. As a wine consumer, I look forward to seeing what innovations in grape varietals and types of wine come out of this.

    You mention that grapes will have to be grown in new geographies in the future. I wonder how the need to shift production to new countries will change the structure of the supply chain. I imagine there will be significant ‘set-up’ and ramp-up time to plant new grapes and scale up production in new geographies. Will this benefit incumbent small wineries in those regions, or will large vineyards still win out with their superior resources and knowledge? Will this lead to the rise of additional players in the supply chain, such as businesses that specialize in raw materials production (i.e. growing grapes) and ship them to traditional vineyards for the actual wine production?

    Moreover, how will the institutions of traditional wine regions, especially where tourism is a significant contributor to the economy (e.g. Bordeaux, the Loire Valley, Napa Valley), respond to this inevitable threat? Perhaps they will pursue technological innovation rather than shifting their geography. I know that Iceland is able to produce a meaningful portion of its food domestically thanks to greenhouses that provide a more suitable climate – maybe wineries will be able to invest in climate-controlled facilities to continue growing grapes in their natural terroir.

  10. Very interesting findings! My immediate question after reading this is that how are they leveraging technology to compensate the loss and the volatility of production volumes from climate change? Knowing that wine production is very susceptible to weather change, I am very curious to know how the owners invest more for R&D for the future innovation in order to supply the sustainable volumes. For example, could we create a specific environment where we create ‘perfect for grapes’ temperature and humidity for different types of grapes to be ready for any types of weather. As this is going to be long-time investment, could multiple growers be unionized and develop the disruptive innovation to the wine industry?

  11. This article presents a very interesting result of climate change. Mother Nature is changing the playing field, and time will tell if West Russian wines will eventually be competing head-to-head with fabled Bordeaux bottles. Ultimately, I think the first question which needs to be asked is how much customer appeal is tied to vine geography – consumers may feel dirt overwhelmingly trumps know-how. To the extent that brands are tied to their geography, an optimal strategy may be to adjust grape blends to suit new climate patterns. On the other hand, if brands are just tied to their name and perceived know-how, then a better approach may be to procure grapes from newly-attractive growing regions and simply apply the proven bottle label.

    A key supply chain aspect which might merit further consideration is the ability of growers to decrease their sale of wine forward contracts (with upfront payment). By holding more wine internally, wine producers can benefit from higher prices in years when good wine is scarce due to “bad” climate dynamics. As we learned in marketing, some firms are already experimenting with holding additional stock and constraining supply.

  12. Very interesting read. ¡Salud! The approaches to mitigate the effects of climate change you laid out seem quite reasonable and appropriate. In addition to those I might suggest that further attention be paid by Gallo to emerging technological trends in agriculture such as those being developed by Indigo Agriculture. Perhaps grape vines could be treated with a chemical that allowed them to exist in climates not as optimal for growing. Of course this may have a substantial impact on the flavors in the wine, and therefore pose a risk to the product itself, but it is perhaps also plausible that a new varietal or new blend of grapes could be established creating a new category of wine.

  13. Assuming climate change will continue/persist into the future, I think E&J should take a different approach than some of what’s suggested here. Despite glacial government/societal-level efforts to take action to stabilize global temperatures, it seems a more prudent course for E&J would be to invest in new land holdings in areas in which winemaking was previously not viable, but which will become possible as climate change materializes in the future.

    I feel that lobbying efforts will bear no measurable gain for E&J, other than the possibility of rent-seeking from governments (i.e., receiving subsidies to replace lost revenue and reestablish vineyards in new locations), and therefore aren’t worth time or emphasis from the wine industry. It also seems like the expertise within the wine industry already knows which grapes, plants, soils, and techniques are best for various climates, therefore the research efforts seem largely unnecessary. One place where research could be useful, though, would be potential GMO variants of existing wines- while low-tech efforts the author mentions do seem viable, GMO grapes could be engineered to easily withstand anticipated temperature changes, thereby reducing the need for moving winery locations.

  14. This article enlightened me to the impact of climate change on the wine industry, one that I admittedly had not given much thought to since this is a luxury, nice to have product. I think E & J Gallo is taking steps in the right direction to mitigate against water risk, but more could be done.

    E & J Gallo has used their substantial size to influence the industry, and it should be commended for doing so, but its size is the exact reason why the company should look inward and attempt to make their own production more efficient, since there will likely be large economies of scale. Can they possibly invest in water saving technology? Or look into reducing the total agricultural footprint it uses by streamlining grape varietals and SKUs?

    Last but not least, your final point with regards to protected wine regions and naming regulation is interesting; will “champagne” cease to exist as the region becomes no longer suitable to grow grapes, leaving us with many varietals of sparkling wine but none named champagne?

  15. Great article! While the industry as a whole is under pressure from climate change, I would venture that there will emerge a new class of “winners” in the space long-term – and that the key will be to pursue product innovation and leverage new engineering, scientific or production techniques. Specifically, if E&J Gallo aims to be in this camp, it should begin dedicating a portion of its land toward an “innovation lab” at which it can test some of the ideas that you proposed, such as bringing back ancient wine making strategies or berries with higher water retention. These wines can be used as pilots and produced in small batches, and the wineries can work with distributors to place these pilot wines in key retail stores or restaurants to gauge customer response, such that E&J Gallo can determine which techniques to pursue at scale.

    On diversifying land as an option, I believe that creating a portfolio of different winery regions is likely a useful intermediate solution for wineries that are not bound by region specifications like E&J. However, I am skeptical of geographic diversification as a long-term solution. These wineries are still at the whim of changing climate conditions, and further requires a highly capital and labor-intensive approach.

    In either approach (i.e., innovation vs. geographic diversification), E&J Gallo’s main goal should be to maintain consistency of the quality of the product. Both new geographies and techniques will add variability to the quality, which creates the risk that new products fall short of the “specifications” that customers expect to be delivered at the high end (taste, smell, color). A failure to maintain consistency of output could cause end buyers to change their alcohol consumption patterns longer term, even if wine is still in supply.

  16. Great article. It is striking to me that wine production is expected to drop 8% in 2017 as a result of climate change. I firmly believe that climate change is one of the most pressing issues of our time, and I applaud E & J Gallo’s efforts to promote more sustainable growing strategies in California. I am curious to know what these strategies entail.

    Given the challenges that climate change presents, it seems to me that grape growing and wine making will become more of a science and less of an art in the future. With the rise of genetic engineering, do you believe traditional wine makers will be open to the idea of using GMOs as a means to cope with the threat that climate change poses?

  17. The idea of genetically modified crops really jumps out to me here. We’ve seen some success with more commodity based crops such as cotton and corn. So for winemakers to think in terms of innovation may actually give the one who does it right a great first-mover advantage and IP protected vines. I think the long lens of innovation in a more traditional industry may serve a firm such as Gallo a way to counter the forces of nature out of its control.

  18. This article describes the challenges that the wine industry faces very well. What I found most interesting in this article is that E&J Gallo is addressing the problem of climate change by strategically locating its vineyards in locations where the climate is more favorable and diversifying its vineyard locations at the same time.
    Moving grow locations is something I would have thought to be very challenging in the wine industry, since much of the value of wines is derived from the location where they are grown. In other words, appellation in wines can make a substantial difference in the price a winemaker can charge. This may be due to the quality of wines that E&J Gallo primarily produces, but I would suspect that this solution may not be an option for many other winemakers, which is why I think it’s more important for companies like E&J Gallo to invest in R&D to find other solutions to fight climate change (like some of the climate-controlled environments or grape-type solutions you mention). Although, for E&J Gallo, having the ability to grow their wines in various locations does yield additional flexibility in its bottling and distribution supply chain, which may be more beneficial to its business model than the R&D benefits discussed above.

  19. This article was very illuminating on an issue I did not associate with the wine industry. While I knew that droughts in California were leading to fires, which caused vineyards to harvest early for fear of destruction, I did not know that other climate change phenomenon were affecting the industry. Additionally, I did not realize how long it took for a vine to grow back once something like freezing occurred. One of the most interesting points in the article is the point about forming a cooperative to research growing and wine-making techniques. Climate change is going to significantly alter the way wine is made for all players, and more good can be accomplished if resources are pooled together to find solutions.

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