DESCRIBING some leading 1985 Bordeaux wines, critics have used words like "ripe," "precocious" and "charming."
But what would an economist say about the 1985 vintage? That it's overpriced; that it suffers from the vagaries of the foreign-exchange market; that with another large, healthy crop in 1986, the supply of fine Bordeaux wine far exceeds demand. All of which adds up to the possibility that a crash is coming in the Bordeaux wine market.
The wine industry tries hard to escape these economic facts of life. The great chateaux of Bordeaux imagine that they are producing works of art, rather than a potable agricultural commodity. They seek to avoid the competitive pressures of the market in several familar ways:
Product differentiation. A 1985 Gruaud-Larose is not the same as a 1985 Leoville-Las-Cases, even though the wines are produced a few miles from each other in the commune of St. Julien in Bordeaux. Both are second growths, and both properties produce consistently excellent wines. The first sells for $250 a case, the second for $400.
Rationing supply. Scarcity is essential to maintaining prices. An example is Burgundy, where small production helps account for very pricey wines. Consider that the total production of Grands and Premiers Crus Burgundy is 100,000 cases annually of red and less than 30,000 of white. By contrast, Chateau Lafite-Rothschild in Bordeaux alone produces about 25,000 cases a year.
Creating demand. The best thing that has happened to the wine business in decades may be the recent growth of wine snobbery in the United States. There is a growing market for fine wine in the United States, fueled by wine critics and their often-pretentious testing notes and by glossy magazines like Gourmet and Bon Appetit.
Using these tactics, the wine producers can beat the market -- but not forever. For as with any other agricultural commodity, what goes up in price must eventually come down. The true enemy for wine producers, as with corn and soybean farmers, is overabundance. And just as an agricultural economist would predict, the recent string of good years -- of large crops and high prices -- have produced a glut.
Consider this: Prices for the top classified growths have doubled in the three years between 1983 and 1986; there are considerable unsold stocks of the fine 1983 vintage, with the mediocre 1984s arriving now. After a brisk start in the futures market last summer, demand for the good 1985s has gone flat, and some American merchants have cancelled or drastically reduced their orders. This is the scene as growers set prices for their 1986s, another good and prolific vintage.
The wine industry's problems are aggravated by the dollar's instability. A strong dollar in 1984-85 helped cushion American consumers from the worst effects of the price spiral. But today's weak dollar exacerbates the spiral. At the current rate of six francs to the dollar, a price reduction of 20 per cent will leave the 1986s at about the same price in dollars as the 1985s. But that price cut in francs probably won't be steep enough to clear the market.
The trade in Bordeaux is divided over what to do. There is concern that a sharp price reduction for the 1986s would have a serious secondary effect, sending prices for the 1985s tumbling. This, of course, is exactly what is needed, but some producers who have grown rich over the past few years are prepared to defend the inflated prices by withholding stocks from the market. This is a risky and expensive course, and one doomed to failure if consumers do not panic.
Some Bordeaux properietors seem to be preparing for a battle to keep prices up by restricting supply. One of the notable features of a drive through the Medoc these days is the number of storage cellars under construction, their "fortifications" for an upcoming siege.
So what about the coming crash? Prices coming out of Bordeaux indicate a mood of caution. Well-known properties -- chateaux such as Lafite-Rothschild, Mouton-Rothschild and Palmer -- have released their first tranches of 1986 wine at prices 15 percent to 20 percent below last year. My guess is that prices will dropfurther, at least another five percent to 10 percent, to make the 1986 wines attractive to American buyers.
Wine fanciers may feel a sense of deja vu, for a similar market situation prevailed not so very long ago, in the early 1970s.
That time around, the sharp escalation in Bordeaux prices began with the release of the excellent 1970 vintage. Reasonable opening prices rose quickly throughout the year, as merchants quickly took up their allocations.
The following year, the less good and more variable 1971s were offered at prices much higher than for the previous vintage, in some cases two or three times as high. Nevertheless, they sold. The next year the dismal 1972s opened at similar prices (does this sound familiar?) and many large buyers, Bordeaux negociants as well as foreign merchants, took up their allocations. The crash soon came.
With the winter of 1973-74 came the energy crisis and prolonged recession. Bordeaux produced two more abundant, mediocre vintages in 1973 and 1974. Companies holding vast overpriced stocks dumped them on an already depressed market. Prices did not fully recover until the 1978 vintage.
There are similarities with the current situation and some important differences. The great 1982s opened at reasonable prices and quickly rose in response to worldwide demand. The good 1983s opened at much higher prices than the 1982s and also sold well. The mediocre 1984s opened at absurdly high prices, but this time the trade was more cuatious. The two following vintages are of good quality, and a reasonable price would re-invigorate demand.
Today's wine crunch stems in part from the unreasonably high prices paid for wine "futures" -- typically wine sold before bottling, when it is still aging in the barrel. Producers need this futures market to provide capital for their operating costs. So, in theory, they should offer a price attractive enough to entice consumers to assume responsibility for holding the wine to maturity. Because fine Bordeaux is a firm, long-lived wine, unattractive when young, someone must assume this stockholding responsibility. Negociants no longer will, and few wine merchants can afford to. This leaves the chateaux proprietors and consumers.
The present high prices indicate that the proprietors want it both ways. They want consumers to assume the stockholding responsibility, but also to receive the mature wine price.
Wine consumers this year should perhaps pay less attention to the exotic tasting notes ("lush fruit," "silky finish" and so forth) and more to the economics of the market. Above all, they should not be rushed into purchasing futures by wine merchants' hype. Bordeaux is now a buyer's market, and if the prices are too high, just sit this year out. The wines will still be available in two years' when they are bottled and shipped. Joseph Ward is co-author, with Steven Spurrier, of "How to Buy Fine Wines."