Burgundy ponders foreign investments

With more foreign investors gaining a toe-hold in Burgundy and tough vintages hitting producers financially, Burgundy’s vignerons are mulling what the future holds.

Speaking to the drinks business, Meursault-based winemakers François Mikulski and Guillaume Lavollée commented on the difficulties of the last few years and how the locals are facing up to vineyards being bought by outsiders and how local organisations like the Syndicat Viticole are helping winemakers.

Meursault, Volnay and Pommard in particular have suffered from the hail damage in the last three years (2012, 2013 and 2014), damage which has led to large drops in volume across the region and pushed small producers into extremely difficult financial straits – not helped by many producers having no insurance for hail damage, a situation now largely remedied.

“Three years with only half a harvest,” said Mikulski, “it’s starting to get difficult for winemakers, especially in Volnay and Pommard.”

Will there be a spate of sales in the coming year as the full effects strike home? Mikulski said he knew of no land on or about to go on the market but stated, “it will happen next year. It’s going to be very difficult for certain estates.”

Unfortunately, these small – but qualitatively very good – vintages have coincided with rising interest in the region’s wines around the world fuelling rising prices on the wines and land.

Winemaker Olivier Bernstein told db earlier this year that demand for land was reaching “fever pitch” and, for the first time, outsiders are gaining footholds in what was previously an extremely difficult market in which to buy vines.

“More and more foreigners are interested in Burgundy’s wines so it’s understandable,” Nelly Blau, export director of the BIVB, told db.

The outside investment has sometimes been French: LVMH buying Clos des Lambrays and the Frey family acquiring Château Corton André, but the real news is when a foreigner buys land in Burgundy.

A US tech mogul, Michael Baum, bought Château de Pommard this summer and there was a lot of commotion when a Macau billionaire bought the crumbling Château Gevrey-Chambertin in 2012 – a move which provoked fury from a local group that was out-bid and which subsequently accused the French government of not doing enough to protect the locals’ heritage.

Burgundy simply isn’t used to outside investment in the way, for example, Bordeaux is; where estates have been owned by British, American, Dutch, German and, lately, Chinese families and companies down the centuries.

Château de Pommard

The rising land costs – easily €1 million for a hectare of Meursault premier cru for example – coupled with France’s punitive death duties (25% on the value of all holdings) and the inheritance laws which parcel out holdings to all descendants can make selling up an attractive or even necessary option – further opening the door to potential outside investors.

Normally, whenever a local wants to sell up he simply tells his friends and neighbours and they buy up what they want or need but properties do, for whatever reason, appear on the market – Canadian wine entrepreneur, Moray Tawse, managed to buy the five hectare Domaine Maume in Gevrey-Chambertin in 2012.

Mikulski said he saw “two visions” as to how foreign investment might work. “The bad vision is that the vines are going out and we have no control,” he said.

“The good vision is that you [the investor] buy the vineyards and I work on it and make wine on it,” he explained, elucidating a long-term partnership between him or any other winemaker with whoever has bought the vines.

The “good vision” has its downside too though: “But if the vines are sold on to someone else, then I could lose my job.

“If you invest you’re trying to make a return and it’s very hard to keep a low price on vineyards,” he added ultimately concluding, “it’s better to work on your own vines.”

Mikulski is a former president of the Meursault Syndicat Viticole, a producers association that exists in each appellation. Current vice-president, Lavollée, explained that one of its functions is to “protect our plots from investors. Farmers can’t compete with foreign money.”

One way to do this is agreeing that one hectare of vineyard (in Meursault) is sold for more or less €1m (depending on the quality and prestige of the plot) when one winemaker buys from another., an attempt to put some order on the fairly arbitrary property pricing market.

The Bureau Interprofessionnel du Vins de Bourgogne is also doing its bit to help, exempting producers from paying their fees to the group if their crop is completely or severely destroyed for example.

It is worth considering of course that although there have been more news stories on the subject in recent years, foreign investment is still minute compared to Bordeaux.

“It’s nothing like Bordeaux,” said Blau. “Things are changing but not that fast.”

Furthermore, those buying land in Burgundy are often buying it for more than simple investment purposes. Burgundy, unlike other many other wine regions of the world, summons up passionately romantic feelings in non-Burgundians verging on mystical cum religious veneration. It’s the very last thing they want to destroy.

“What is interesting to see is that they very much want to keep the identity of the wines – the terroir,” said Blau.

“Non-Burgundians are very interested in producing good wines and looking after the land, having a good winemaker at their estate, someone respected – like at Château Gevrey (where Eric Rousseau of Domaine Rousseau was brought in as winemaker).”

Scepticism from Burgundians about foreign investment is understandable although hopefully those foreign vineyard owners who are currently in Burgundy can show that there’s more to their interest than a return on their investment.

As Mikulski concluded, vineyards are too often viewed as a purely monetary asset when they are, quite simply, the winemaker’s most important tool.