Wineries in Italy, Greece and Spain battle extreme heat and reduced production

of the year On the popular Greek island of Santorini, the wine harvest is in full swing, but the outlook for local winemaker Yiannis Paraskevopoulos is not looking bright.

Extreme temperatures are threatening the production of Assyrtiko, the native grape essential to the island’s internationally acclaimed fine white wines. Last year’s production of Gaia wines in Paraskevopoulos was about a third of what it would be in 2022. This year’s harvest is estimated to be a sixth of 2022 levels.

“We thought we had seen the worst, but we didn’t. 2024 has exceeded all expectations,” Paraskevopoulos told CNBC in a phone call.

According to a 2023 estimate from Gaia Wine, Assyrtiko could be endangered by 2040. For now, that timeline looks optimistic.

“This brings the trend line much closer to the present,” Paraskevopoulos said.

It’s not just Assyrtiko grapes that are suffering. According to the International Organization of Vine and Wine (OIV), global wine production is set to fall 10% in 2023 to 237.3 million hectolitres, the lowest level in 60 years, as “extreme weather conditions” strain harvests.

The problems facing wine producers prompted the European Union to launch a high-level group on wine policy last month to discuss “the challenges and opportunities of the sector”.

According to the OIV, production in Greece is set to fall by more than a third in 2023, while in Italy and Spain, production is set to drop by more than a fifth, as southern European wineries increasingly feel the impact of adverse weather conditions such as heavy rains, droughts and early frosts.

Such weather phenomena can affect not only that year’s harvest but also the production of the following year.

“We are definitely feeling the impacts of climate change,” our guide at Castello di Volpaia told CNBC during a recent tour of a 12th-century winery in Tuscany, Italy.

“Climate change is having a significant impact on wine production and quality,” Marco Pizzialetti, commercial director of nearby Castello di Querceto, said by email. “This situation is causing difficulties for all producers who have had to deal with high temperatures in the past.”

Reduced production and more difficult production conditions are driving up costs in an already price-sensitive consumer market. According to OIV estimates, wine consumption will fall by 2.6% annually in 2023, the lowest level since 1996, as higher production and distribution costs push up consumer prices.

As of August 2024, the price of 1 kg of Assyrtiko grapes ranges from $8 (8.9 USD) to €10, about double the price in 2022.

“That’s the price of Champagne,” Paraskevopoulos said, noting that Gaia Wines has yet to reflect the cost increases in its final bottle price. But he said it will eventually have to, and that it will hurt the business.

“If a bottle is more expensive than Burgundy, what are the buyers going to do? We’ll lose the market we’ve been working so hard to get into,” he said.

Some winemakers are changing their production methods to adapt to changing environmental conditions.

In Antinori nell’ Chianti Classico, the newest of several wine-growing estates belonging to Marchesi Antinori, one of Italy’s oldest and largest winemakers, vines are now being planted in a new direction to take advantage of increased sun exposure.

“Until a few years ago, vineyards were planted facing southwest. Now they can be planted facing northeast because they are exposed to extreme heat from both directions.” President Alviera Antinori told CNBC in a phone call:

Other techniques used on the property include erecting trellises to increase air circulation and planting grass between the vines. Antinori said this has helped improve the quality of the property’s production, despite a decline in yields in recent years.

But she described these victories as “Pyrrhic victories”, feats so costly that they were hardly worth winning.

Sergio Fuster, CEO of Spanish wine group Raventos Codorniu, said most of the regions where he owns vineyards are in a state of emergency and must be “increasingly efficient” in their use of water, for example by using buried irrigation systems.

Other winemakers are working the fields during the summer to accommodate an earlier harvest. At Domaine Skouras in Nemea, Greece, this year’s harvest began a record 20 days early. Winemaker Dimitris Skouras says grape quality has improved due to fewer fungal diseases, but he still expects a lower overall harvest.

“This year has been exceptionally hot. We had an unusually short winter, followed by a sharp increase in temperatures, resulting in the warmest July on record. Our vineyards have produced less than last year, which was already quite low, especially for Agiorgitiko,” he told CNBC in an email, referring to the grape variety used to make the region’s red wines.

Scuras now generally plants his vineyards in higher altitudes, where temperatures are cooler, and he seeks out areas with better water supplies to help the vines withstand the heat.

“There is no definitive solution yet, because we cannot predict the changes that will come or the extreme weather events that we may face. Our strategy is to adapt as best we can to this new reality of viticulture,” Skouras said, referring to his viticulture research.

Elsewhere, however, hopes for adaptation are less clear. In Santorini, where grapes are grown in traditional “kouluras,” or baskets, to protect them from the island’s strong winds and intense sunlight, the vines are at greater risk of being exposed to harsh weather conditions.

“The root system of these vines goes back three, four, five centuries, and they are dying,” said Gaia Wines’ Paraskevopoulos.

Extreme weather isn’t the only problem plaguing European vineyards. The rise of tourism has led to investment and human capital shifting traditional farming operations to hospitality.

In so-called rural tourism destinations, such as Castello di Volpaia in Tuscany, where small accommodation complexes are located on the property, guest accommodation can offset costs associated with reduced production. At Marchesi Antinori, both cellar tours and cooking classes are offered.

“We are lucky to be in a region and a country where tourism is not declining. Quite the opposite,” Antinori said.

But Paraskevopoulos worries that the growth of tourism could ultimately make places like Santorini victims of their own success.

“Climate change is obviously a huge concern, but tourism is also to blame,” he said. “Young Santorinians are no longer investing in wineries because they can make money in other ways.”

In a changing environment, EU representatives and industry stakeholders are meeting to discuss wine policy, with the first meeting scheduled for next month. The group is expected to meet at least three times this year and present recommendations in early 2025.

These measures are expected to reduce some of the biggest risks facing the industry, which employs around 3 million people across the EU and contributes around €130 billion to EU gross domestic product.

“If we don’t intervene, that’s the trend line,” Paraskevopoulos said of the Assyrtiko extinction prediction. “And that’s the question: Will we intervene in time, and will we succeed?”