Why is the price of wine produced in Burgundy skyrocketing?

In May 2022, a new record was set on iDealwine for the sale of a bottle of Musigny Grand Cru Leroy 2006, which went under the hammer for 33,000 euros. In light of this, it is fair to ask how can such a high price be justified? For many years now there have been several reasons for the extreme rise in the price of wines from Burgundy, so let’s explore these further.

Production costs, especially of viticulture and vinification processes, are the first factor to consider when calculating the total cost of wine. For example, farming a hillside parcel requires more work, particularly manual labour, as it is significantly more difficult to use machines on sloping vineyards. Winemaking equipment and the choice of ageing the wine in new oak barrels also constitute a substantial cost factor, especially in a time when the price of wood is shooting up. Taxes, packaging, distribution, sales and  transportation costs also need to be taken into consideration since they have also soared over the last few years, with the price of a container now five times more expensive than in spring 2021. However, it should be noted that none of these factors are solely specific to Burgundy, especially since the more expensive the wine is when it leaves the domaine, the less it is influenced by production costs. Therefore, it is necessary to evaluate other reasons for this spike in price.

First of all, it is common knowledge that wines from Burgundy are rare since the AOC only covers an area of 30,000 hectares in Burgundy, compared to almost 120,000 hectares in Bordeaux. The average size of a domaine is just 6.51 hectares and the fact that some of these parcels are so small, makes it more complicated and also more expensive for the winemaker to produce various cuvées. Let’s not forget that Burgundy has no fewer than 84 appellations!

Grand Crus are typically the most expensive wines produced in Burgundy as they only account for 1% of AOC production. For instance, the Musigny de Leroy, which was sold for the highest
price on iDealwine last May, was produced on a parcel of just 0.27 hectares. Therefore, the bottles being produced on such plots are extremely rare and we could even go as far as saying that they are unique due to their exceptional characteristics and such small quantities.

iDealwine´s 2022 barometer, which analyses the auction results from 2021 organised on the iDealwine platform, converts this idea of scarcity into figures. While Bordeaux remains the leading region in terms of volumes traded, with 40.5% of the total compared to 22% for Burgundy, the latter consolidated its leading position in terms of value sold, with 38.3% of the total amount auctioned in 2021, against 33.9% for Bordeaux. Therefore, it comes at no surprise that, year after year, the most expensive bottle sold at auction comes from Burgundy.

Market Forces
This scarcity must keep up with an ever growing global demand, particularly from abroad. One out of every two bottles of wine produced in Burgundy is sold abroad, with a little less than a half
remaining in Europe and the rest being sent outside of the EU. Therefore, the amount that the end customer is willing to pay is carefully considered. Vineyard owners and wine merchants are
faced with an unavoidably limited supply and to meet this demand they must find a way of increasing their production, either by buying grapes or more parcels.

This is where the problem lies nowadays as it is difficult to buy plots of land in reputable areas and given that it is rare for land to be up for sale, transactions are often quick and confidential. The soaring cost of vineyards (see our article “How much does a hectare of vineyard cost?” for more information) makes it difficult for one of the descendents of the family to inherit and take over a domain. The amount of inheritance tax heirs need to pay may lead to the domain being put up for sale, which could cause disagreements between the family members who want to
take over the domain and those who wish to sell up.

These high property prices also restrict a large number of winemakers from buying land, which is not necessarily the case for wine merchants as they tend to have a stronger capital base. Winemakers are also encouraged to develop trading activity to increase their sales. The price per kilo of grapes rises simultaneously with the purchases made by the wine merchants, who are searching in volume to make new cuvées or to produce larger quantities. The increase in the price of grapes contributes to the increase in the price of wine.

There is the opportunity to buy wine from Hospices de Beaune at their event, which takes place on the third Sunday in November, in which the domaine auctions wine produced from more than 60 hectares of its vines, including a large number of Grand Crus and Premier Crus. Over the years, records have continuously been broken in terms of price and final proceeds, however, we must not forget that this is a charity auction and at the end of the evening the majority of the sales proceeds are donated to the Hospices de Beaune to support the operating costs of the hospital. Furthermore, each year one or more charities are chosen to receive the profits from the famous “Presidents’s Piece” lot and the buyers’ generosity is clear to see. For almost 20 years, the auction has had strong media coverage which has helped to attract a growing circle of bidders, putting the region of Burgundy in the spotlight.

Although wine merchants are no longer the only bidders in these types of sales, they are still the serious players, as is the case with Albert Bichot, the leading buyer. Given the worldwide popularity of the sale, when a merchant buys a piece at a high price, it is likely to increase the average selling price within the appellation concerned. The day after the sale, talks between merchants and grape growers resume using the prices reached at the time of the sale of the wines as a reference point and so, this sale also plays a part in the increase of the price of Burgundy wines.

Climate considerations
In recent years, winemakers have had to face countless challenging conditions linked to climate change, such as spring frosts and droughts.

Frost can drastically reduce harvest yield, particularly when it happens late in the spring. Although spring frosts are not a new phenomenon, global warming causes the vines to grow quicker and consequently budbreak (appearance of the buds) takes place earlier, so when there is a frost, the young buds are particularly vulnerable and become victims to the low temperatures.

Later in the season, drought can cause water stress and to protect against excessive temperatures the vines stop growing and sacrifice their fruits which affects the yield.

Consequently, a winemaker may not be able to produce the same quantity of wine as he did the year before and must be aware that future vintages may be at risk.

Angélique de Lencquesaing, cofounder of iDealwine, said in the 2022 barometer: “To all those who are disappointed by the fact that they may never be able to try a great Burgundian wine at an affordable price, I believe that you should turn this around and take it as an opportunity to keep on discovering new wines and searching for domaines and wine regions that we are less familiar with and that are under appreciated.” Here at iDealwine, we strive every day to find small domains that are the rising stars of the industry, so that you can purchase directly from them. We are currently partners with no fewer than 850 domains and we promise that there is a wide variety of talents to choose from! Have pinot noirs from Côte de Nuits become unaffordable? Chardonnays from Côte de Beaune as well? Then why not try a Côte Chalonnaise or Mâconnais and even domains a little further afield, towards Alsace, Jura, or beyond? There are so many amazing things to discover.

There is no doubt that it would be nice to savour and be blown away by an exquisite, expensive bottle of wine that you could only dream of with close friends or on a special occasion.

If one thing for sure it is that winemakers from Burgundy make exquisite wines and although their prices are sometimes unjustifiable, it should be taken as a homage to their talent and a sign of their dedication.

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