Monday, January 10, 2011

A wake-up call for BC wineries from SFU

Somewhere in the Okanagan wine industry, there are vintners who told researchers from Simon Fraser University that “there was nothing new in winemaking, so [there is] no need for innovation knowledge.”

That mule-headed sentiment is both astonishing and disturbing.

And that is not the only disturbing finding in a paper on the B.C. wine industry by SFU political scientists Andy Hira and Alexis Bwenge.

The paper, 62 pages plus references, was released this week on Prof. Hira’s web site: title: The Wine Industry in British Columbia: A Closed Wine But Ready for Harvest.

The report raised issues about the long-term competitiveness of the B.C. wine industry. “Though the B.C. industry has had remarkable success, we focus on issues on the horizon that threaten the possibilities for growth and stability in the industry,” the authors write.

They note what they call “the makings of a quiet gold rush” on the Okanagan (the study focuses primarily on the Okanagan). I would think that understates the continuing expansion of an industry in which the number of producers has grown by five times in a decade. There are now more than 200 wineries in British Columbia when one includes fruit wineries and honey wineries. At least eight more will be opening this spring.

“The question becomes, then, at what point will growth decelerate or reach a plateau,” the authors say.

Then they lay out where the industry is vulnerable and why; and it goes well beyond winemakers with no curiosity.

* First, there is the vulnerability that new wineries are exposed to because “the cost of land [in the Okanagan] has risen astronomically.”

Most wineries, especially those that have opened since 2005, are small, often owning less than 20 acres and producing only a few thousand cases. These producers do not have much opportunity to reduce their costs if there is a crunch from, say, a rise in interest rates.

* Most wineries sell almost all of their wine in British Columbia. “Therefore, lack of diverse markets is clearly a huge vulnerability for BC wines that led a number of interviewees to express their concern about the future of the industry,” the authors write. A number said that “the saturation point is coming close.”

In fact, I have seen evidence that it is here. Recently, I discussed the 2010 vintage with one producer. His winery harvested less than half the tonnage that it had in the two previous vintages. Many other wineries also had smaller harvests in 2010. Yet the producer I spoke to said it was not altogether a bad thing since the industry now will be able to sell the growing surplus of wine from the 2008 and 2009 vintages.

* A lot of wineries count on wine tourists to buy a substantial volume of their wines. That is one reason, Prof. Hira says, that there is not as much urgency as one would expect about developing markets beyond British Columbia.

“Reliance on just one revenue stream in a market where many suppliers are entering is, needless to say, another potential vulnerability,” he points out.

* Most wineries benefit from government preferences that make it easier and more profitable to sell in the domestic market than is the case for international competitors. For example, wine that bears the VQA seal and is sold directly to consumers escapes the heavy markups that the Liquor Distribution Branch imposes on imports. “ … Even BC wine that is sold in government stores receives a portion of the markup back as a rebate through the VQA Support Program or Quality Enhancement Program,” Prof. Hira notes.

Obviously, any change in that environment would send shock waves through the industry. “Industry participants seem to take the status quo for granted however,” Prof. Hira writes.

* Developing markets beyond British Columbia is not easy. Direct shipping to consumers and restaurateurs, an obvious outlet, is prohibited under a 1928 federal law effectively enforced by provincial liquor boards.

Secondly, export initiatives run up against the fact that “Canadian wines lack any clear reputation or branding …” the professor writes. “Interviews with a couple of winemakers who are producing wines for export markets revealed a complete lack of policy support for such efforts, especially stark if one compares to the high level of export promotional efforts of other winemaking clusters …. Considerably stronger federal, provincial and industry initiatives are needed in this area.”

* The British Columbia wine industry’s organization is fractured at best. One winemaker told Prof. Hira that he chats with his colleagues when and if he sees them in the local pub. “Several indicated that only once in a blue moon did they even interact with neighbours, such as to borrow equipment.” This reflects remarkable insularity.

There are numerous industry associations, none of which represent the entire industry. Local clusters of wineries recently have formed their own marketing groups. The notable success is the Naramata Bench Wineries Association. It remains to be seen whether the other nascent groups will develop a similar profile. Prof. Hira does not think so.

“… None of these associations have anywhere near the critical mass to develop the collective institutions and policies needed to address the vulnerabilities of the industry.”

One might expect this to be the role of the British Columbia Wine Institute. Unfortunately, the BCWI has insufficient funding. As well, a significant number of wineries are not BCWI members.

* Prof. Hira reports that “training opportunities for BC wine personnel are quite limited. A surprising number of wine personnel, including winemakers, come from another background and have had limited formal training… there is no university-led training institute.” In the winery sample SFU worked with, only about 30% of the winery personnel had formal training.

* He also warns about the lack of co-ordination between the Summerland research station (known as PARC) and the Wine Research Institute at the University of British Columbia. “PARC is spread far too thin, covering a wide variety of crops with just a handful of experts. In addition, PARC’s policy of controlling 100% of all intellectual property disseminating from its research efforts, even if collaborative, effectively prohibits research with UBC.”

That said, there seems not to be energetic demand from the wineries for “local” research. “The lack of recognition of the potential value of research was revealed early on in [this] project, with the lack of response, or even hostility, to responding to interview requests, including the support institutions,” Prof. Hira complained.

The professor argues that without a “cluster policy” – which is another way of saying without a lot more cooperation among all of the stakeholders – “the vulnerabilities noted above could lead to major problems in the industry.”

His conclusion is pessimistic. “In general, the policy literature tells us that major policy change does not occur unless there is a crisis.”


At January 11, 2011 at 7:53 PM , Blogger Ingo Grady said...

"The important thing is not to stop questioning. Curiosity has its own reason for existing."
Albert Einstein
Thank you John for your concise summary of Prof. Hira's study, which is a timely and much-needed wake-up call for our industry. It would be a shame if this body of work remained in the realm of academia, and the study’s recommendations unheard. The cited vulnerabilities are considerable and wineries will ignore them at their own peril. The industry will have to address these shared weaknesses: hobbyists, all-eggs-in-1-basket (BC) marketing "strategy", complacency, lack of cohesion, fractional funding, systemic territorial squandering of tourism dollars, an alarming # of winemakers lacking formal training in viticulture and enology, short-sighted and territorial academic funding. Good thing the BC wine consumer is so beholden to the local industry, but no gold rush lasts forever; a correction is already being felt.
I would like to express my grateful appreciation to Prof. Hira, et al for their astute understanding of our industry and for casting an investigative eye on our many (and shared) vulnerabilities.

At January 14, 2011 at 11:29 AM , Blogger Ogopogo said...

With over 190 grape wineries now in BC, and several licenses pending, clearly consumer’s have choice. A definitive factor in consumer selection is quality, a standard of which the BC Wine Institute (BCWI) works to promote through the "Wines of British Columbia (BC VQA)" as the preferred premium wine brand in BC. Over the past five years, annual BC VQA wine sales (in BC) have increased by $40 million, and, with an average yearly growth in provincial BC VQA sales of 9% over the last 5 years, clearly consumers have embraced BC VQA.

The BC Wine Institute’s (BCWI) volunteer membership represents 95% of BC VQA sales, 95% of the total wine production in the province and produce 88% of 100% BC grape wine production. Wholly supported through member sales, the BCWI represents the interests of BC VQA wine producers in the marketing, communication and advocacy of their products to all stakeholders. Whether in partnership with the BCLDB, its 21 BC VQA wine stores, the export market via the Canadian Vintners Association (CVA) or tourism and media stakeholders, the BCWI strives to provide leadership for the BC wine industry.


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