Devil's Advocate: No Way Back

As the war in Ukraine continues, and Covid refuses to disappear, many wine professionals are wondering when life is going to return to normal. Robert Joseph suggests that this may not be the right question.

Reading time: 2m 30s

Robert Joseph - with horns
Robert Joseph - with horns

February 22nd seems like a lifetime ago: a relatively hopeful moment when we all imagined that the world might finally be emerging from the two year-long tunnel of Covid.

Now, however, we all know how it felt to be living in America in 1940, watching helplessly as a conflict brought death and destruction to Europe. Except, of course, we are all far better and more vividly informed than the US spectators of 80 years ago who had to rely on radio broadcasts and movie newsreels.

While praying for the carnage to stop, we are all going to have to consider how the world will look when it is over. After WW2, the few countries that had not been directly involved or occupied could do their best to carry on as before, but that won’t be the case this time.

Quite apart from the 190m citizens of Russia and the Ukraine and the devastated infrastructure and the businesses and organisations that will have been affected in so many ways, there are millions of refugees, many of whom are in countries like Moldova which was already struggling economically.

In any case, even before Russian troops crossed the Ukrainian border and European nations began to have to imagine reducing their dependency on Russian oil and gas, the world was already supposed to be considering the costs of giving up fossil fuels to get to Net Zero by 2050.

The cost of going green

According to a study by McKinsey presented at the World Economic Forum in January, these amounted to a staggering $3.5 trillion per year - the equivalent of a quarter of all world tax revenues, 60% of global corporate profits, and 7% of household spending

Set against those costs, the fact that moving away from Russian oil and gas might lead to an estimated 2-4% contraction of the German economy seems almost like small change.

As Adam Tooze makes clear in an essay in Foreign Policy magazine that’s something a wealthy country like Germany could sustain, but its EU neighbours to the east and many nations further afield will find this kind of sacrifice far harder to make. Before the pandemic, in 2019, the World Bank classified 33 countries as being in, or at high risk of, debt stress. That figure has risen to 35, with 12 being potentially likely to default on debt payments before the end of 2022.

All of this would be daunting enough, but those of us with memories that stretch back as far as early February will remember that shipping and dry goods costs were already rising at an alarming rate. Some of this inflation was attributable to the pandemic, but not all.

In short, most of us are going to be tightening our belts in ways we may not yet imagine. And, unlike historic cyclical recessions, which might last for three or four years, this won’t be a short term experience. It may be more reminiscent of the way that wartime rationing in the UK continued from 1945 until 1954.

I make no apology for painting this gloomy picture; too many of my wine industry friends seem to imagine that, one way or another, life is going to return to the ‘normal’ of 2019. But I don’t think they’re right.

Even at lower prices wine is an often-complicated product with low margins that depends on often limited marketing skills. Nobody needs to buy a bottle of wine, let alone a particular style or brand.

In previous recessions, the tendency has always been to economise by cutting costs on research and marketing. This has always been an error, but I’d suggest that it would be even less wise now. For all but the lucky few producers with established markets and waiting lists for their wine, in today's market knowing whom you are selling to and communicating effectively with them is going to be more important than ever. And the same is true for distributors as they face growing competition from wineries selling directly to consumers. 

Knowing where else to make those economies – and how to improve margins so as the reduce the need to do so remains the bigger challenge.

Latest Articles