Re: [wine] Great Discussion! Feakonomics

Dear Russ, Alicia et al: I, too, figured Mr. Staples omitted several costs. However, after some research, I think his estimate is somewhat better than what we might think. Hey, when you're retired and it's a snowy day in Colorado (powder day tomorrow), you have time to do this. 1. In 2005, the University of California at Davis estimated total costs per acre to produce organic wine grapes in Napa County. Go to http://coststudies.ucdavis.edu/current.php and select Wine Grapes, Napa County, Item No. GR-NC-05-0. Estimated costs per acre are: $3,821 Vineyard costs (pruning, irrigation, mildew mitigation, cultivation, etc.) $2,040 Cash overhead (office costs, insurance, property tax) $11,060 Non-cash overhead. Includes land at $140,000/acre(!), depreciated at $8414/year. Also vineyard establishment cost of $26,579, depreciated at $2209/year. Total costs $16,921 per acre. Assuming a harvest of 3 tons/acre, a yield of 140 gallons of juice per ton and 5 bottles wine per gallon, you get 2100 bottles per acre. Divide $16,921 by 2100 and you get a little over $8/bottle for the cost of juice. However, about 50% of that is in land depreciation, which would not apply to Lafite. It has been in the Rothschild family since Baron James de Rothschild purchased Chateau Lafite in 1868. So, let's call their cost of juice $5.00. Granted, these are Napa costs, not Bordeaux. I did come across a post from our old friend Russel Bevan, who said premium Napa Cab costs are well above that of a First Growth Bordeaux chateau. 2. I perused Mark Squires' wine talk forum on erobertparker.com and other sources (which I can provide). I also used my experience (admittedly dated) as an Industrial Engineer for Gillette Company, where we did a LOT of packaging. As a result, I opine we can use the following costs of production per bottle (although they seem high to me): $0.90 glass bottle $0.20 capsule $0.90 cork $0.20 label $0.05 shipping container $3.00 barrel and storage costs $0.20 bottling costs Total $5.45 for packaging materials, packaging labor and aging. 3. The total so far is under $11 per bottle. Facility costs are more than were captured by UC Davis in #1. That was only for growing grapes, not running an entire enterprise. There are items like winemaking labor and equipment, marketing, distribution and all the new Bentleys for the barons' families (although I guess the Bentleys come out of profits, not expense). But I would venture a guess that the total cost of everything would be under $50 per bottle. The only way to tell is to hire a spy disguised as an accountant for Lafite. 4. I remember paying $14 for a 1967 Chateau Haut-Brion, probably around 1971. The Consumer Price Index has increased about 5.32 times since then. This means that the $14 Haut-Brion cost $75 in today's dollars. If the people with more dollars than sense were extremely discretionary, we might be able to buy a first growth for around that amount today. 5. Of course, I realize that this exercise may be interesting, but futile. It doesn't matter what it costs Lafite to produce a bottle - it's what foolish rich customers are willing to pay. Producers will drop prices only if demand decreases. I quit.Ted > Date: Wed, 1 Apr 2009 08:36:27 -0500 > Subject: Re: [wine] New market wine trouble > From: sauternes76(a)gmail.com > To: russellmccandless(a)frontiernet.net > CC: tedcarm(a)hotmail.com; jellings(a)me.umn.edu; wine(a)thebarn.com > > Yeah I agree with Russel. That's $13 for packaging, not product, PPE, > labor, etc ...someone needs to double check their accounting work! > Cheers, > Alicia

>