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Malcolm Jolley: The wine world will have to adapt to a tough 2024

Commentary

Levi Dalton worked as a sommelier for three of New York City’s top chefs: Michael White, Masa Takayama, and Daniel Boulud. In their respective hallowed halls of gastronomy, Levi would have poured wines luxurious, esoteric, and rare. And he would have poured them not just for the rich and famous but also for the epicurean elite: the world’s famous chefs and, maybe more importantly, the world’s most respected winemakers.

If Dalton found respect for those winemakers then I am sure it was mutual. I know this from the one time I met him. It was a few years ago in a subterranean restaurant in the Piedmontese wine city of Alba. It was the welcome dinner for the press delegation to Nebbiolo Prima, the annual release of the red wines made from that grape in Barolo, Barbaresco, and Roero.

I was discombobulated from an overnight flight to Germany and a day’s journey via Milan to the Langhe hills. I assumed the tall dark-haired man seated next to me was a local producer because I had seen him talk to a number of the ones who began pouring their wines. But he introduced himself as a sommelier for New York and mentioned he had a podcast.

I was grateful to have my new friend as a seatmate. I hadn’t studied my itinerary very carefully and was surprised that the wines we were tasting and enjoying through dinner weren’t the Nebbiolo we would be tasting all week. What was in my glass was Verduno Pelaverga DOC, a rare, lighter red wine made from a grape that was nearly made extinct as its vines were pulled out to make way for commercially successful Nebbiolo and Barbera.

While I knew nothing, Dalton knew much about Pelaverga. Not only did he give me a concise history of the grape, he knew most of the producers and labels and could comment on each one. As producers rotated around our table with each course, he asked them interesting questions about the vintage and how each was made. He also explained that Pelaverga was enjoying a kind of moment in the New York sommelier scene.

I felt lucky and cool to have met Dalton. Still, I spent the rest of the week immersed in tasting and other events and I didn’t think much of our meeting until another wine writer I follow recommended his podcast, I’ll Drink To That, and I realized the host was the Pelaverga guy. He has been producing a podcast since 2012. And the show, running for more than an hour, was compelling and informative, just like the dinner before. I was instantly hooked.

The only trouble with Dalton’s podcast is that a subscription requires patience. Although he has made nearly 500 episodes, they sometimes come slowly. This is not just because they are long and well-edited and produced, but I think also because they are extremely well-researched. When Dalton interviews a winemaker, he’ll probe with questions, often about specific events, from the entire breadth of the producer’s career.

The latest episode features an interview with Robert Drouhin, the 90-year-old patriarch and head winemaker of Maison Joseph Drouhin from 1957 to 2003. Joseph Drouhin established the renowned Burgundy house in 1880 and his son Maurice took control of the grower-merchant business in 1918. By the time Robert took over in the late ’50s, he was steeped in the institutional knowledge of two generations.

The well of knowledge from which Dalton draws in the interview is deep. And rich. Drouhin’s tenure in Burgundy coincided with the modernization of the wine industry there and around the world. He tells Dalton that until well after the Second World War the family’s holdings were limited to the immediate area around their cellars in Beaune because that was as far as they could take their horses to work the vineyards. Only once the vignerons acquired tractors could they manage plots throughout the region.

Drouhin’s tenure in Burgundy also coincided with the rise in the profession of enology and the scientific study of the process of making wine. When he started, the cellar manager was a cooper, and the management of the company’s barrels was a key priority. With the arrival of the professionals came new technology, like temperature-controlled fermentation, which allowed for consistency and quality control from year to year.

Additionally, Drouhin’s tenure coincided with the internationalization of the wine trade and the exponential growth, in particular, of the American consumer market. Drouhin kept his eye on what was happening in the U.S. and made friends with California’s modern wine pioneer, Robert Mondavi, among others. Eventually, in the 1980s he would establish Domaine Drouhin Oregon in Willamette Valley.

Dalton’s podcast with Drouhin was been at the forefront of my mind in the last few weeks. Not just because it’s entertaining—Drouhin is a charming and eloquent guest—but because the news of the wine world coming into 2024 is grim.

A recent report estimates that Australia currently has 875 Olympic swimming pools worth of wine in storage, with no foreseeable buyers and the 2024 Southern Hemisphere harvest looming. Another reports Champagne sales are in decline, even in France. At my local provincial retailer, I see an increasing number of bottles marked down, especially in the $20 to $30 range, typically made by smaller family businesses. Things look rough and some things are bound to change.

Dalton’s work, and Drouhin’s career, offer hope. They show that despite all the marketing appeals to tradition, the wine industry is remarkably adept at change. Trends come and go. And so does technology and new techniques. As Drouhin says in the interview, “Innovation that works becomes tradition.”

After all, the vigneron must adapt to the changing weather and pest conditions of each growing year, and the caviste to the unpredictable process of fermentation. How the world of wine changes and evolves in the next quarter of the 21st century should be a good story. Stay tuned.

‘This policy shift is not economically sound’: Mikal Skuterud on the problems with Ottawa’s immigration increases

Commentary

As Canadian immigration policy and its economic effects receives new policy and political election, The Hub’s editor-at-large Sean Speer exchanged with University of Waterloo labour economist and leading immigration policy expert Mikal Skuterud about, among other things, the link between immigration and Canada’s disappointing GDP per capita growth.

SEAN SPEER: Do we have a sense how much the Trudeau government’s higher-than-historic immigration rates have influenced GDP growth? Is there a back of the envelope rule for the link between population growth and GDP growth?

MIKAL SKUTERUD: The historically high immigration levels Canada is experiencing in this post-COVID era are undoubtedly contributing to GDP growth. The biggest component of the increase are temporary foreign workers and international students whose labour market activity and tuition payments undoubtedly serve to boost the overall size of Canada’s economy. In the most recent quarterly data (2023 Q3) Canada’s GDP is growing at an annual rate (year-over-year) of 1 percent while the population is growing at 3 percent. How much slower GDP would be growing if the population were growing at the pre-Trudeau norm of 1 percent per year is impossible to know with any certainty. The effects of immigration on the economy are highly complex because newcomers are both consumers and producers affecting many sectors of the economy. Recessions are usually defined as two consecutive quarters of negative GDP growth. Whether exceptionally high immigration is keeping Canada out of a recession is impossible to know, but it is a possibility.

SEAN SPEER: Do we have a sense of how much population growth has contributed to falling GDP per capita? If so, should we care if it is a major factor?

MIKAL SKUTERUD: Since we don’t know how higher-than-usual population growth is contributing to GDP growth, there’s no way to know with certainty if and how much high immigration rates are the cause of falling of GDP per capita. Nonetheless, it is worth considering what current GDP growth would be under the “null hypothesis” that heightened immigration is having no effect on GDP per capita growth, either positive or negative. To do this, first note that the growth rate in GDP per capita is roughly the difference in the growth rates of GDP and the population. In the most recent data, GDP is growing at 1 percent and the population at 3 percent, so GDP per capita is falling at an annual rate of 2 percent.

If Canada had maintained its permanent and temporary immigration inflows at their 2000-2015 norms, its population would be growing at roughly 1 percent instead of 3 percent. With a population growth rate of 1 percent, GDP would have to be falling at an annual rate of 3 percent for GDP per capita to be falling at the rate of 2 percent that it is actually falling at in the most recent data. Do we believe that Canada’s GDP would be falling at a rate of 3 percent if it had maintained its immigration rates at the historical norm? The last time Canada’s economy contracted at a rate of 3 percent annually (before COVID) was in the depths of the 2008-2009 financial crisis, and before that in the depths of Canada’s exceptional recession in the early 1990s. Although these types of “counterfactual” questions are impossible to answer with certainty, I’m not seeing any economic developments inside or outside Canada that make me believe Canada would be sinking into a deep economic recession currently but for its exceptional population growth. To the contrary, the U.S. appears, if anything, in the midst of an exceptional economic boom. This suggests that heightened immigration is, at least in part, responsible for Canada’s declining per capita GDP.

There’s, of course, also good economic reason to believe that heightened immigration is contributing to falling GDP per capita. A first-order determinant of GDP per capita in any economy is average capital per worker. Capital is what allows workers to be productive, and includes everything from machinery and equipment, to factories, to highways and public transportation systems, to schools, hospitals, and housing. When the population grows at a faster rate than the capital stock, as we’re seeing now, there is less capital per worker which lowers labour productivity and average economic living standards. Second, the post-COVID era has seen the Trudeau government shift immigration policy from a longstanding prioritization of candidates with high levels of human capital and, in turn, high expected Canadian labour market earnings, to plugging holes in lower-skilled labour markets where the growth in job vacancies has been overwhelmingly concentrated. If the policy objective of immigration is to leverage immigrants to boost growth rates in GDP per capita, this policy shift is not economically sound.

SEAN SPEER: Is there a trade-off between higher GDP per capita and egalitarian concerns about distribution?

MIKAL SKUTERUD: The hypothesized relationship between GDP per capita and inequality is the known as the “Kuznets Curve.” The curve hypotheses an inverse U-shaped relationship in which countries who are in the early stages of economic development tend to see increasing levels of economic inequality up to some maximum, beyond which further advances in development tend to reduce economic inequality. It seems entirely reasonable to believe that Canada is on the downward sloping part of the Kuznets Curve where further gains in average living standards tend to benefit the most disadvantaged in society. The success of the Canada Child Benefit in reducing child poverty rates is a noteworthy example pushing us along the downward sloping part of the Kuznets Curve.

GDP per capita can be thought of as the size of the average slice of the national economic pie. When the size of the average slice is growing over time, citizens are more willing to support bigger slices for those with the smallest slices because doing so doesn’t require anyone to have less. But in an economy where the size of the average slice is decreasing, support for progressive policies can quickly turn as citizens become more focused on maintaining what they already have. In the words of a song from my youth: “the grabbing hands grab all they can.” More troubling, if heightened immigration is seen as contributing to falling GDP per capita, Canada’s historical and exceptional public support for high immigration rates risks being undermined. This, in my view, is the ultimate risk of Canada’s current immigration policy experiment.

SEAN SPEER: What if any consequences are there for a growing GDP per capita gap with the U.S.?

MIKAL SKUTERUD: As noted earlier, a key mechanism through which immigration has the potential to boost GDP per capita is through its potential to increase the average human capital of the population by attracting and retaining top international talent. One obvious risk of a growing GDP per capita gap with the U.S. is that it exacerbates Canada’s ability to attract and retain skilled workers, and not only immigrants, but also Canadian-born workers who might increasingly look to the U.S. to realize their career and economic ambitions. This is one mechanism through which declining per capita GDP can be self-perpetuating.