SYMPOSIUM “ACT FOR CHANGE”
INTERVIEW: “GEOPOLITICS, WINE & SPIRITS”



 

INTRODUCTION

On 20 and 21 June 2022, international professionals and experts gathered at the Cité du Vin in Bordeaux for the second edition of the Symposium “Act for Change”. These two days of talks were organised to shed light on the major changes and impacts on the production and distribution of wines and spirits by 2030. It was an opportunity to get together and discuss, exchange ideas, and work together to better prepare ourselves for the challenges that await the wine world in the coming years.

From the COVID-19 pandemic to the war in Ukraine and inflation, the various wine and spirits markets are navigating through troubled waters. When asked about the consequences of these crises for Europe, Thomas Gomart, Director of the French Institute of International Relations (IFRI), observes that our world has entered a new era in which Russia and China have joint interests to defend against the West. Christophe Navarre, Chairman of the board of directors at Vinexposium, insisted on the importance of having a strong brand to continue existing in markets that will be more competitive in the future, he said, given the crises to come.

SPEAKERS

This debate was moderated by Rupert Joy, an international consultant and wine specialist. Around the table were Thomas Gomart, Director of the French Institute of International Relations and Christophe Navarre, Chairman of the board at Vinexposium.    

THEME: GEOPOLITICS, WINE & SPIRITS

WAR IN UKRAINE, INFLATION AND NEW GEOPOLITICAL ISSUES - A REMINDER OF THE CHALLENGES AHEAD

We are witnessing environmental degradation with a great loss of diversity and heavy pollution. Societies and policies must take these climate factors into account. Also, countries are relying on technology again, with the idea that these investments could be a solution to global warming. Secondly (and this is the subject of research within the French Institute of International Relations), we must continue to closely monitor changes in fossil fuel reserves and the consequences of their reduction. Finally, it is essential to understand the importance of the geopolitics of data, which is unlimited and intangible. 

Regarding the consequences of the Russian invasion of Ukraine, what is at stake is the control of global capitalism. There are now two quite distinct blocks that are emerging. On the one hand, the American zone with Europe and the rest of the West, and on the other hand, a Chinese zone of influence with Russia. I think we continue to underestimate the profound consequences of this war, which began in 2014 with Russia’s annexation of Crimea. What is new here, apart from the great suffering of the Ukrainian people, is the extent of the structural and economic sanctions that Europe and Russia are inflicting on each other, which could send us into recession. 

Europe has lost a huge competitive advantage, that of being a continent at peace. We are entering a new era of transatlantic relations. There is a new NATO (North Atlantic Treaty Organisation), with Sweden and Finland joining the treaty. The supremacy of the dollar in trade is growing, coupled with the search for new gas supplies from southern Europe and the United States.

Many had previously shied away from the thorny issue of geopolitics. But this is a crucial point. Many BRICS countries (Brazil, Russia, India, China and South Africa) and those in the Shanghai Cooperation Organisation (2001) have continued to trade with each other despite this war. The Gulf States and Latin America have also never stopped trading with the whole world.

For investors and companies, I think it is important to be aware of geopolitical issues. This raises the question of the role of brands in taking a stand in a conflict, as has often been the case. Is this really their role? Finally, we need to think about this convergence between global warming and technologies at a time when the market is becoming very competitive.

(Thomas Gomart, Director of the French Institute of International Relations)

This is not the first time we have experienced crises: there was the first oil crisis in 1973 followed by a second one in 1979. We have also overcome the Asian currency crisis, the trauma of 9/11 and the subprime mortgage crisis in 2008. In Europe, there was also the war in Yugoslavia, which was not so long ago. What is changing today is the proliferation of troubled waters. From war to lack of leadership, rising nationalism and the climate challenge, uncertainty is everywhere. 

In business, and more specifically in the wine and spirits sector, we must seize the opportunities available to us. People who are lucky enough to have strong brands, who work well and have good strategies, should make it through the crises. You have to allocate human resources wisely and take note of the probability of developing your business. In the field of wine and spirits, South America comes to mind, of course. We must also continue to monitor the US market very closely as it remains the largest importer by value.

Finally, we must address the issue of Russia, as Thomas Gomart has done. Why do politicians interfere at our level, in business? This is a risk that politicians take. The number of people still working in Russia should not be underestimated. Of course, if business is not interested in politics, politics will be interested in business. The example of China is very simple. I spent 20 years there and I understood that you have to play the game in the country and accept their rules so that the government does not interfere. The importance of trademark protection must also be emphasised. We have spent millions on protecting the appellations, what we were selling, so it’s important to continue to do so.

(Christophe Navarre, Chairman of the board of directors at Vinexposium)

HOW TO ADAPT TO CRISES AND WHAT LESSONS CAN WE LEARN?

One of the promises of globalisation with increased trade was to lift many people out of poverty. It led to the emergence of a middle class around the world. 1.2 billion people have been lifted out of poverty. But with the pandemic, some people in this group have reverted to where they came from. The primary argument has been weakened. 

Now we are facing a return of political liberalism. When you deal with China, you are actually dealing with the Chinese Communist Party, a system where there is a fusion of powers between politics and various large industries. It is more or less the same in Russia. The question is: should we continue to have trade relations with China at a time when they have moved closer to Russia? Or should we trade with OECD (Organisation for Economic Cooperation and Development) countries instead?

(Thomas Gomart, Director of the French Institute of International Relations)

There is a real problem with exports today because of transport costs. One of the major issues facing wine companies is inflation. This is precisely where politicians need to act. Of course, we could increase prices. But this short-term view is not wise. What is needed is to have a strong brand and to strengthen its image over and over. Some companies will suffer the full brunt of all the crises listed above at a time of inflation. As far as fine wines are concerned, I’m not too worried as there will always be a high-end market. On the other hand, for low-level and mid-range wines, it is difficult to say whether the coming recession will plunge them into a crisis.

(Christophe Navarre, Chairman of the board of directors at Vinexposium)

BEYOND THE OBVIOUS NEED TO FIND SOLUTIONS TO CLIMATE CHANGE, WHAT OPPORTUNITIES ARE THERE?

The challenge of climate change represents a great opportunity for us. I honestly believe that it is our duty to change our packaging. The younger generation is very sensitive to these changes and is pushing the whole industry in this direction. We need to move a little faster. Last night I was in a vineyard and within thirty minutes, the crop was wiped out. The impact of climate change on our crops will be enormous. This is, therefore, a key priority for companies. We no longer have a choice. Heavy packaging destroys the environment and leaders must take appropriate action.

(Christophe Navarre, Chairman of the board of directors at Vinexposium)

We need to find the right balance between the climate challenge and the urgent responses that these crises impose on us. Germany is going to resume its coal industry because of the Russian gas cut-off, which is very interesting. Despite the objective of de-carbonising industries, wars are pushing us towards ever more pollution. I would add that China and the United States together account for 40% of global GDP (Gross Domestic Product) and 40% of greenhouse gas emissions. I’m not saying we should stop everything and ride a bike everywhere, but all countries should commit to the climate. It is true that Joe Biden has reinstated the Paris climate agreements. But are we honouring the agreements? Far from it.

Companies and young people have become accustomed to “just-in-time” and the fact that all products arrive quickly thanks to a robust and efficient supply chain. Although I think these chains will continue in some sectors, you have to ask the wine and spirits business, is this sustainable in the future?

(Thomas Gomart, Director of the French Institute of International Relations))

By “just-in-time”, we’re actually talking about how to manage time and stocks, but these mechanisms no longer work with the health crisis. I agree in principle: we need to change the model, and I still believe in globalisation. What will be the needs of China and the United States when we see their wines improve? Would they still want to import our wine when theirs match their tastes? 

The market does not “de-globalise”. I would say that market players are actually behaving pragmatically. Why would you pay more for a lower-quality wine? It therefore seems important to me that our wines remain competitive, or else that the leaders sniff out future opportunities. What will be the next El Dorado? Japan was for Cognac, then for Whisky. China used to be an El Dorado, but it has not yet matured. Africa is a continent that I think is worth looking at, especially for spirits. We have been very active in Nigeria, where the country’s strong growth has fostered the emergence of a middle class. I remain optimistic since the younger generation is pushing us to change and be creative. I want to see an evolution of capitalism and the economy, not a revolution. 

(Christophe Navarre, Chairman of the board of directors at Vinexposium)
 

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