However, the world has changed just as much during the subsequent 30 years, in a way that has at least partly passed me by.* Yes, that is right — I do not have a Facebook, Twitter or Instagram account, and my mobile phone does little more than receive phone calls. I have, however, run two blogs (including this one), if that counts for anything.
The point here is that I do like to think about where things are heading, even if I do not necessarily like to follow along. One thing I sometimes contemplate is the application of modern technology to the wine industry. So, the future of wine production and sales is of interest.
However, the title of this post is somewhat of a pun, because what I am talking about in this particular case is (the future of) Wine Futures — the idea of paying for your wine now, after the grapes have been crushed, but before the wine has been matured and bottled, and then taking delivery of your possession at some time in the future. How will this century-old idea change in the modern world?
The idea of Futures is very straightforward. The winery gets its money up front, so that it can spend the money on finishing the current vintage, and starting the next one. This is quite an appealing idea if you happen to be in the agriculture business, with new expenses throughout the year but income only once per year. In return, the customer gets to pay the current price, rather than the future price, as the latter is expected to be much higher. This is quite an appealing idea if you happen to be the one forking out the money, where it is often difficult to balance income with expenditure. So, both parties avoid the use of banks (and bankers) in the transaction!
So, why aren't there more Futures markets in the wine industry? The most famous (and oldest) is the en primeur system in Bordeaux, although we are told that “the system is increasingly used for wines from other regions, notably Burgundy, California, the Rhone Valley, Italy and Port” (Wine futures and en primeur). I don’t know about “increasing”, because it has been tried in some other places without much success. However, given the limited quantities of some burgundies on release, for example, buying them via wine futures is sometimes the only route to ownership. So, the idea is clearly here to stay.
Mind you, pay now / receive later does not always benefit the buyer. The Wine Spectator (How (and why) to buy wine futures) notes an example of each possible outcome — some parts of the 2000 Bordeaux vintage are now valued at double or triple their release prices, while the all-time high en primeur prices of the 2010 Bordeaux vintage have not held up at all (current wines are now available for well below their release prices).
What has all of this got to do with the blockchain? Well, the latter is simply an electronic ledger, in which all changes can be made only in public (in computer terms, it is a “distributed ledger”). This is clearly a potential tool for Futures, which require both a certificate of authenticity and a certificate of ownership (of the wine). Indeed, the same thing can be said of all “fine wine” sales, especially on the secondary market. Fine wine is said to currently be a hot investment; and a standardized way of demonstrating authenticity and ownership clearly has a role to play. The blockchain seems to be a good candidate.
The blockchain was invented as part of the development of the first successful cryptocurrency (Bitcoin). However, its application extends far beyond cryptocurrencies, irrespective of your attitude towards such non-government coinage. An electronic ledger can be used anywhere that a ledger is required. For example, it can also be used for contracts, in which case a trustee is not needed (and it is thus called a “smart contract”), as well as supply-chain management, anti-counterfeiting, etc. These days, companies offering blockchain services are proliferating.
An important distinction is that a cryptocurrency is a Fungible Token, which means that one coin can be exchanged for any other coin of the same type — each entry in the ledger refers to one of a large set of interchangeable items. A Non Fungible Token (NFT), on the other hand, is absolutely unique — each entry in the ledger refers to one thing and one thing only (ie. the tokens are non-interchangeable). NFTs are therefore what we are interested in for investments (whether it be in art, or land, or wine), or any other sort of financial service.
So, using NFTS on a blockchain would be one way to bring the Futures (en primeur) system into the 21st century.
But who would be using it? Given that the Futures approach is not usually used by ordinary wine drinkers, the potential market is presumably investors, and the rich in general, as well as the wine trade, in the broadest sense. In this regard, it is important to note that an electronic ledger details the entire history of the NFT in a verified and public manner; and it can contain whatever information is desired, in this case including, but not limited to, things like grape provenance and wine storage conditions.
There is at least one old-style example of using the Futures approach for individual wines for the general public, as well as the trade. Way back in 1977, the Saltram winery (in the Barossa Valley, Australia) decided not to fund the 1978 vintage, due to a fruit surplus. The winemaker at the time, Peter Lehmann, then literally became legendary, by deciding that this was no way to treat the grape-growers, all of whom he knew personally. So, he took out a bank loan, assembled the necessary equipment, and built a small winery to process their grapes. The first wine, in 1980, was called The Futures, because it was marketed on a “pay now and pick it up after two years in the cellar” arrangement, which was literally the only way it could ever work. When the money started coming in, naturally Peter made sure to pay the growers first. The high quality of this wine, incidentally, marked the beginning of the current resurgence of the Barossa Valley as a premier wine-making district.
So, there are good precedents here. The way to find out how this works in the 21st century, of course, is to try it, by releasing some wine using NFTs. It should therefore come as no surprise that this is, indeed, happening. A short while ago, a PR release appeared noting that the entire Neldner Road (Barossa Valley) 2021 vintage wines are to be sold by NFTs (Neldner Road winemaker Dave Powell’s “vintage of the century” to be sold by NFT). You can read a bit about the wines on the OpeanSea NFT website. This seems to be a world first; and I will be interested to see how it goes.
Mind you, this is not going to be cheap. Dave Powell, the winemaker, used to run Torbreck wines, and their prices were way out of my league. The current Powell & Son (now Neldner Road) wines are not much better, at $US 100-500 per bottle. If you want to buy the entire 2021 vintage, which you technically can do by purchasing a single NFT (rather than a set of NFTs), you will thus need the upper side of $US 9 million. [Update: you can now read more here: Aussie winemaker pivots from China to crypto] [Later update: other wine NFTs have started appearing; Luxury vintage wine barrel to be sold as NFT]
Finally, what are the currently known downsides of an NFT? The main criticism has been the energy cost of the computing needed for validating blockchain transactions, so that they have a high carbon footprint. This is not a trivial issue, if the blockchain is to be a widespread part of the future.
I wrote this post at least partly to prove to myself that I am not such an old fuddy-duddy as I sometimes think.
* I am currently trying to set up a new iPad Mini, which is now such an automated process that it is impossible to sort it out the problem, when things are not happening the way the description says they should. I cannot set it up from my old iPad, because I was never given the option, and the messages say that I cannot restore from the old iCloud backup, nor update the iOS wirelessly. I am seriously considering putting the thing back in its box, and continuing to use the old one until it collapses completely. Thanks Apple!
No comments:
Post a Comment