Continued inflationary pressures will impact the wine industry in 2022 and beyond.
Because of the special nature of the wine industry (wines made in one year are sold one to five years later), the early impacts of supply-chain bottlenecks and rising inflation felt by other industries have been largely avoided by wine producers. But no longer.
Early 2022 is shaping up to be another challenging year for those growing, making and selling wine. Those whose primary interest in vino is its consumption will face higher prices, which may push many consumers to explore other options, including wines from less popular wine-growing regions and/or spirits, beer and non-alcoholic alternatives.
At the end of 2021, inflation was nearly 7%, which is a level not seen since the late 1970s and early 1980s. While many believe this is a short-term response as economies come back after the pandemic lockdowns, others see no reason to believe that increasing prices will abate anytime soon.
Lessons from the 20th century
World War I was triggered by the assassination of Archduke Franz Ferdinand, the heir to the Austro-Hungarian throne, and his wife on June 28, 1914. The killings took place in Sarajevo, the capital of Bosnia. The Serbians perpetrated the killing as retribution for Austria’s annexation of their country in 1908.
Backed by the Russians, the Serbians’ ultimate goal was to create a Slavic homeland that might eventually include the Balkan Peninsula. The Russians saw their support as an opportunity to gain assured access to the Black Sea Straits, which would provide them consistent access to worldwide foreign markets.
At that time Russia, having gone through a series of revolutions in the late 1800s and early 1900s, was still ruled by a czarist king, Nicholas II. The belief of many of Nicholas’ advisers was that after the killing of Ferdinand and hindered by conflicting alliances (besides Austria itself) most European countries would be unable, or at least unwilling, to enter into war.
But of course, that’s not what happened. Austria, along with Hungary, the Ottoman Turks and Germany joined forces against the Allies: France, Britain, Russia, Italy, Japan and eventually the United States.
World War I was the first war that deployed modern warfare. Motorized planes, trains, tanks and other vehicles combined with machine guns, chemical agents and trench warfare to ultimately kill 37 million soldiers and 7 million civilians, while at the same time setting the stage for World War II, which would start only two decades later in 1939.
Although many economies of the world were devastated by World War I, between 1914 and 1918, the United States government poured money into the wartime economy, fueling mostly boom years.
However, the boom didn’t last. The pandemic of 1918 required strict mask mandates, lockdowns and economic assistance and eventually killed 675,000 Americans between 1918 and 1919. The total population of the United States was about 100 million in the 1920 census. By the time the pandemic receded, the inflation rate ticked up steadily. A pair of shoes costing $3 before the pandemic, for example, would have cost $10 or $12 post-pandemic.
The rise in inflation at that time helped fuel what author James Grant has called the “Forgotten Depression.” To fight inflation, by 1920 the federal government had increased interest rates to more than 8% in a year that saw inflation rates reach more than 15%. By 1921, the U.S. stock market had lost nearly half its value, unemployment had reached 19% and countless businesses had gone bankrupt. In response, late in 1921, the Fed lowered interest rates to slightly more than 4%.
According to Grant, this rapid shift from raising interest rates to lowering helped spur the economic boom that followed. Between 1921 and 1929, the U.S. economy grew by 42%, fueled, in part, by easy credit and stock market speculation. Then in 1929 came the Great Depression.
What can we learn from this relating to wine?
Because the 18th amendment—which criminalized the manufacture, transportation and sale of alcohol—was enacted between 1920 and 1933, it is impossible to say exactly how the dynamics of that time affected wine production and sales.
However, there are four takeaways from that time. First, inflation is likely to continue. Second, the next lowering of interest rates may foretell good times ahead. Third, be cautious of speculation. And finally, choose your allies wisely.
