Grape Growing/WM/Transportation/Importation Costs Flashcards
What are capital costs?
-money invested in a business to generate income
-acquiring, improving, maintaining long term assets eg land, buildings, equipment
What are operational costs?
day to day costs- producing and packaging
What is often the first cost for a prospective producer? (VY establishment)
-buying/renting the land
Why does the price of land vary?
-potential to produce high quality fruit
-name of appellation, eg Napa Valley vs Central Valley
-scarcity of land- land in prestigious regions eg Champagne rarely come up, when they do= highest bidder
-GIs- limited are of land
Once the land has been purchased, there are considerable costs that will need to be incurred before the vineyard can become operational. Give examples
- Surveying land- suitable for viticulture and deciding which grapes most suitable. eg satellite imaging and taking soil samples
- Site clearance- removing vegetation/rocks
- Building access roads into vy and between vy plots
- Buying and planting vines
- Drainage channels and pipework
- Irrigation- boreholes, reservois, laying pipes etc
- Protection against weather hazards
- Protection against pests
- Buying machinery and equipment
Capital costs are high, and not helped by the fact that…
Vines take 3 years for production
How can producers get access to funds for capital costs?
-loans- but interest and capital repayments
-investors= but share in profit and management of business
-some countries- gov encouraging establishment of vy- offer subsidies
Why does the amount of labour vary?
-size, topography
-eg. more labour needed in steep Mosel (no mechanisation) than flat Central Valley
-organic/bio- more labour intensive- additional procedures
-balance between labour costs and capital costs of machinery
-Chile- low labour cost= less incentive to buy machinery
-Coonawarra- high labour costs= investment in machinery better option
-Varies time of year. Harvest= team of unskilled pickers= cheap, but if shortage= choose highest offer
What are the costs of vineyard management?
-labour
-electricity
-insurance/depreciation
-machinery and fuel
-supplies
-water
vineyard treatment-conventional= agro chemicals-
-weather station= prevent fungal disease. If vy too small for weather station- need to pay for gov run station
-org/bio= traditional treatments (sulfur)
What are the winemaking costs?
-Grape growing/bought in fruit
- cost of bought in grapes vary according to quality of grapes, variety, vintage
-can blend cheaper alternatives to reduce cost
-Labour
-Machinery and equipment running costs
-Winery materials- eg sugar for enrichment, cultured yeasts, filtering/fining agents
- Water
Electricity- signif amounts use- some generate own electricity- solar panels
-Maturation
-Packaging- bottes, labels, pallets, bottling lines required= £, label designs
-Depreciation- replacement cost of equipment, cost of water, electricity, winery related depreciation= ‘cellar overheads’
What are the maturation costs in the winery?
-storage space
-vessels= expensive
-labour
-loss of cashflow- eg Brunello di Montalcino only released from the Jan 5 years after harvest
What are the 4 main ways of transportation?
Air
Rail
Road
Sea
What is the cost of air transportation heavily dependent on?
-weight= additional fuel
-bottles of wine way heavy in relation to size and value
When would one use air transportation?
-special circumstances- eg competitions/bojo nouveau- Japanese market
When is road transportation effiecient?
-short journeys, eg Epernay- Brussels
When is road transportation excessively expensive?
-long journeys- eg Mendoza- NY
If journey involves crossing small body of water, what can you do?
-eg English channel
-drive truck directly on and off ferry
-quickest and easiest way of moving goods through a port, but costs of overall journey may outweigh benefit
Why does rail transportation cost vary?
-length of journey
-how goods are loaded on to train
-cost reduced by containerism
Why is sea transportation the cheapest method?
-cost per km/mile for long distances
-eg USA- Europe
-containerism essential
What is the disadvantage with sea transportation?
Slow- eg Australia- UK= 40 days
In the past 2 decades, there has been a … in bulk transportation of wine
Increase
In 2018, how much wine as a percentage by volume was exported in bulk?
34%
What are the 2 ways of transporting in bulk?
-plastic flexitank within standard steel shipping container
-non-flexible ISO tank
What is the main advantage for bulk transportation?
-much lighter than in bottle
-more efficient: standard shipping container holds 9-10,000 litres bottled wine
- large flexitanks= 24,000 litres wine in bulk
- ISO tanks- 26,000
-signif reduces amounts of fuel to transport same amount of wine= cheaper and better for environment
What is the disadvantage of bulk transportation?
-only suitable for large vols of same wine- not suitable for smaller production wines
What are the importation costs?
-labelling
-distributers
Explain the labelling costs for importation
-diff countries= diff labelling laws
-eg EU= abv to nearest whole/half unit, whereas USA permits 1.5% variance and health warning
-producers dealing with number of diff countries need lots of diff labels for specific markets= more expensive than if dealing with single market
Why are distributers beneficial in terms of importation costs?
-knowledge of markets and diff requiements (eg labelling)
-established list of potential clients
How do you calculate margin?
-the fee (operation cost and profit) divided by the revenue
-multiplied by 100 for 100%
eg:
Fee= £12 (that distributor adds on top of buying the wine and adds on for customers to pay)
Purchase= £20 (what distributer pays for wine)
Percentage margin= 20 + 12=32 (revenue)
£12/ 32= 0.38, X100 = 37.5%
What is the average % for margin?
-5-25% (ranges from distributer and country)
-selling to hospitality sector= higher costs larger staff than those in retail, therefore expect higher margins
-retailers buying from distributers may need to pay delivery costs
