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Climate Change Is Coming for the $3.6 Billion Cognac Business

Climate Change Is Coming for the $3.6 Billion Cognac Business

(Bloomberg Businessweek) -- Since at least the 15th century, the gentle hills of the Cognac region in southwestern France have been planted with the Ugni Blanc vine, which yields an acidic, yellowish-white grape. Every autumn the fruit is picked, dumped into vats, mashed, and turned into an insipid wine that few would have any interest in drinking. Instead, the wine is boiled and distilled into a liquor called brouillis. After a second distillation, the liquid is poured into barrels made of oak from nearby forests, to emerge anywhere from 2 to 200 years later as the brandy known globally as cognac.

Climate change threatens all that. Warmer summers and longer growing seasons mean the grapes get sweeter and less acidic on the vine, which dramatically changes the character of the wine, and thus the cognac it makes. Earlier harvests can mitigate the damage, but a single superhot stretch of summer weather can ruin a vintage, endangering what has grown into a $3.6 billion-a-year business for distilling giants Pernod Ricard, LVMH, and Rémy Cointreau, and scores of smaller houses. And European Union provenance laws mean producers can’t simply move to higher—and cooler—ground outside the region and still call the harvest cognac. “What we’ve been doing for centuries will no longer be possible 50 years from now,” says Pierre Joncourt, director of operations at Martell Cognac, founded in 1715 and today owned by Pernod Ricard SA. “We need to adapt.”

Climate Change Is Coming for the $3.6 Billion Cognac Business

The distiller’s adaptation efforts can be seen in a low greenhouse near a small outcropping of trees 15 minutes by car from the medieval village of Cognac. Inside, the sun pours down on seedlings of Ugni Blanc and similar grapes that scientists say might provide enough of the acidity needed for cognac when it has a longer growing season. Thousands of vines ranging from an inch to 3 feet tall grow in black plastic pots resting on the concrete floor. Once mature, they’re transferred outside to an adjacent vineyard, where they’ll be tested in the region’s chalky soil over the next two decades for taste and resilience as temperatures increase.

Cognac has grown in popularity across the U.S. in recent years amid frequent shoutouts in rap songs and a revival of classic cocktails such as the Sazerac (cognac and rye whiskey) and Sidecar (mixed with Cointreau and lime). Sales in China have almost tripled over the past decade, to $475 million, according to BNIC, a cognac trade group, as the spirit became a favorite gift for the political elite and growing middle class. Producers, who employ almost 17,000 people in France, are seeing a similar surge in South Africa, Vietnam, and other emerging markets. “Thirst for the liquid isn’t going to go down in the next few years, but it can only be produced in the region, and the climate is only going in one direction, so that’s not very optimistic,” says Spiros Malandrakis, an analyst at researcher Euromonitor.

Pernod Ricard and BNIC are spending several hundred thousand euros a year on the experimental greenhouse. Scientists have cloned 100 of the most promising seedlings grown since the facility opened two years ago. This spring they planted them in the vineyard and, within four years, they expect to move about 2,000 vines to the fields outside. Technicians will harvest the grapes and analyze the DNA of each plant to see if any are suitable substitutes. “We’re starting trials now, but we don’t yet have the answer and I might not be there to see it,” says Baptiste Loiseau, 39, a cellar master at Rémy Cointreau responsible for ensuring that cognac’s flavors stay consistent year after year.

The BNIC says each increase of 1C (1.8F) in maximum daytime temperature during the growing season accelerates the harvest by about 10 days. Fears began to mount in the early 2000s, when several exceptionally hot and dry summers resulted in September harvests—about a month earlier than usual—and unusually sweet grapes. Vintners in nearby Bordeaux face similar challenges, with the region’s overripe cabernet sauvignon and merlot grapes yielding higher alcohol levels. But in the near term, those wineries benefit from being reevaluated annually based on the characteristics of each vintage, and the variations are part of the sales pitch.

Cognac can’t use that marketing yarn, as brands seek consistency throughout the years by blending a brandy with distinctive taste notes. The grape’s vulnerability to higher temperatures will result in a marked shift in flavor that might alienate customers, says Guillaume de Guitaut, a “brand ambassador” who travels the world to promote Hennessy, the world’s best-selling cognac. “We need to find new ways and new varieties,” de Guitaut says. “Because if you’re good at bottling but there’s no product coming in, the story’s over.”

To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Cristina Lindblad

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