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Land prices and wine costs

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Ever wonder why a wine labeled “Cabernet Sauvignon” can sell for anywhere from $3.00 to several hundred dollars a bottle?

First off, what is “Cabernet Sauvignon”? It’s a red grape that is used to make some of the finest –-or most basic—dry red wines in the world. It harkens from Bordeaux, France, but, at an estimated 700,000 plus acres planted worldwide, it is also one of the leading grape types by area. Which means, therefore, it’s planted in a lot of different places.

Some of these places – parts of the Napa Valley, the Haut-Médoc of Bordeaux, Coonawarra in Australia, a few zones in Chile among a very few others—have developed a reputation for making world class interpretations whose reputations have been built over several generations or even centuries. One reason for this is because the natural conditions in these areas (the French call that “terroir”) very well suit a grape like Cabernet-Sauvignon (ask a home gardener why her tomatoes grow better in one spot rather than another).

But most other places just grow the grape because of its name and its reputation. Their terroir (don’t worry: it’s the same as “ecosystem”) could just as easily grow raisin or table grapes or less interesting grapes like Carignane. But growers in these less exciting areas–-read: less appropriate for Cabernet-Sauvignon--know they can cash in on the name and grow it anyway. Not immoral, not illegal, just the name of the game.

Now, if you are in the land of the great reputation Cab, literally, in the Haut-Médoc, etc, your land will be worth more than land in other areas. For instance, Bordeaux has almost 50% of France’s area planted to Cabernet-Sauvignon. The above-mentioned Haut-Médoc has about 16,000 acres of this grape. If you had vineyard land in the Haut-Médoc in 2011, it was worth on average about $35,000 an acre. Vineyard land entitled to the generic name “Bordeaux” would run you $7,500 per acre. Even more astounding are the prices for the 6 top rated villages in the Haut-Médoc. The cost for an acre of land in the most illustrious of the villages, the one called Pauillac—from whence come Châteaux Latour, Lafite and Mouton—goes for $828,000 per acre. Add to this the French laws which regulate how many tons you can get from an acre of land and you can see a major reason their wines are so expensive.

Look at an American example, where there are no yield regulations but which follows the same supply and demand laws. Vineyard land in the Central Valley of California, which grows just over a quarter of all the state’s Cabernet-Sauvignon, sells for as little as $8,000 per acre and up to $22,000. In the Napa Valley, where Cabernet-Sauvignon represents 56% of all its red grapes, land prices range from $55,000 to $180,000 per acre or more for mountain land. Realize further that Cab vineyards in Napa average 3 tons per acre while California’s average is twice that and you can do the math. Go the final step, and note that, in 2011, the average price for a ton of Cabernet-Sauvignon grapes grown in Napa was almost $4,700 while the CA average was $1,150 and you can grasp why “Three Buck Chuck” can sell for $3.00 and Freemark Abbey, Robert Mondavi and Joseph Phelps definitely cannot.

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