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Hey everybody. Peter Zein here coming to you from Scott base vineyard in Centro Otago, New Zealand, just outside of Cromwell. This is my favorite winery after all of my visits to New Zealand, and after living here for a little bit, having some other Pinot right now. And I was going to use this as an opportunity to discuss the geopolitics of wine now, wine is one of the top 20 internationally traded commodities by value, meaning that it definitely has a geopolitical angle. And to understand where the world of wine is going to go in the future, we have to understand what are kind of the two big types of wine that we grow today. And it’s not red and white. It’s irrigated or not. In the pre industrial era, you were pretty much dependent upon rainfall coming in the right cycle to make grapes do their thing, and in most places, that meant you couldn’t grow them. The problem is regularity. So if you don’t get enough moisture, obviously you’re not going to have a crop. That’s not a real shock. The problem with grapes is if you get too much water at almost any point of the growing cycle, the grapes burst from over hydration. So you want water at certain parts of the cycle, but not other parts. One of the problems they’ve been hearing having here in Scott base this year is they’ve gotten some late summer rains like yesterday, and you have to wait for about a week, maybe even two weeks after the rain falls before you can harvest otherwise, the water hasn’t been digested by the plants yet, and the water, it basically over waters and de concentrates the flavors, if you will. And so that means you’ve got this huge split in the world of wine between New World and Old World. Old World wines here in Iran, Lebanon, Germany, Italy and France, they happen to be grown in places where the hydration cycle is ideal, where you usually have a fairly dry fall. But in the new world, it doesn’t matter so much. It’s mostly about being dry. You can grow in deserts, whether it’s in Argentina or Washington state, or here around Cromwell in New Zealand, or, you know, southern Australia, and you just have to have irrigation, which you can meter out drop by drop to drop by drop in order to grow exactly what you want, continuing on, but now with some Pinot Cree, because of the difference in reliability that irrigation can bring new world grapes. The way that old world grapes have been competing in a globalized world has been with value add, which is something that a lot of first world countries have some experience with in the last 40 years. Specifically, it’s the cellaring process, whether or not you’re toasting your barrels, whether you’re getting new oak or French oak, or American oak, or Hungarian oak, or whatever it happens to be, the old world folks, because they cannot produce the same volumes as the New World folks. They have to focus on differentiation and quality. And so you get a very different type of wine producing industry that’s focused a lot more on legacy as opposed to capital. And that is specifically where the wine industry is going to be facing a lot of challenges in the not too distant future. And the issue is demographics. One of the things that we know for sure is that as you get older and your job improves and you build up assets, is you become more capital rich. And so in the age group, from 55 to 65 when most of your kids have left home and you’re preparing for retirement, you’re generating more money than you ever will in your life, and that private capital that you generate is what pushes down the cost of borrowing for everyone, well, more than most agricultural systems, more than any economic sector. In fact, wine is capital intensive, because from the point that you put the vines in the ground, it can be years, maybe even decades, before you get a reasonable crop that you can actually turn into wine. So all of this has to be financed at the front part of the process, and especially if you’re starting from scratch, if you’re not a multi generational vineyard, you need the money to get going. And so access to capital moving forward is going to be a big problem. Now, for those of you been following me for a while, you know that the global demographic has been steadily aging ever since the Industrial Age began, and over the course of this decade, the 2020s the bulk of the first world is going to move from a capital heavy demographic with a lot of people in their late 50s and early 60s, to a retired heavy demographic with a lot of people pushing past 65 where they’re no longer providing capital, but they’re absorbing a lot of capital from the state. And that shift in progress right now, well past the point of no return, is going to change everything about the world of wine. Pinot rose a bubbles. Anyway, this all means that we’re about to see a new split in the world of wine between those countries that can generate their own financing are easily imported from other places, and those that cannot, which means for those of you who have become used to your Argentinian milebacks might be facing some issues because. Argentina, even in the best of days, is not exactly what I would call well run and even though it has a healthy, positive demographic structure, it exists in a period of abject capital shortages and wine is something that is very, very, very easy for the government to tax and mass, making foreign investment really hard to come by. On the flip side, if you’re interested in Australia or New Zealand. You’re talking about countries that have relatively young demographics. New Zealand is the youngest demographic in the rich world, and they’re relatively open to foreign and especially American investment, making it easy for them to generate the capital that’s necessary to start new projects from scratch. In the case of Scott base, here in the Cromwell region, this is a region that wasn’t producing wine 25 years ago and has a lot of room to grow. It has a lot of similarities to places in the United States, like, say, the back range in Colorado or interior Washington around Walla. Walla, where it used to be a fruit zone, or to a certain degree, still is a fruit zone, because it has that magic mix of irrigation and hot climate with desert like conditions where they can control the water access to get exactly the growing private profile that they’re after. That makes it a magnet for investment coming in. United States should also do pretty well. But if you’re talking about the old world, Europe is just aging massively, and as the entire continent turns into basically a geriatric camp, it’s going to be difficult to justify the volume of capital that’s necessary to keep a mature much less a new wine growing region running. The sole exception, and it’s a big one, is, of course, France, which has the third healthiest demography in the rich world, and arguably the richest cultural history for bringing wine in to the degree that they can even get state state subsidies in order to finance their everyday costs for get startup costs. All right, that’s it for me. I’ll see you from another agricultural product. You.
