Wineries in Italy, Greece and Spain suffer from extreme heat and reduced production

This year’s The Greek island of Santorini is in the midst of a vibrant harvest for its ever-popular wine, but for local winemaker Yannis Paraskevopoulos, the outlook is not bright.

Extreme temperatures are threatening production of the island’s indigenous Assyrtiko grape variety, essential for the island’s internationally recognized premium white wine. Paraskevopoulos’ Gaia Wines produced about one-third of its 2022 output last year. This year’s harvest is expected to fall to one-sixth of 2022 levels.

“We thought the worst was over, but it wasn’t. 2024 has exceeded all expectations,” Paraskevopoulos told CNBC in a phone interview.

According to Gaia Wine’s 2023 prediction, Assyrtiko could become extinct by 2040. Currently, that timeline seems optimistic.

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

And it’s not just the Assyrtiko grape: Global wine production is set to fall 10% in 2023 to 237.3 million hectoliters, the lowest level in more than 60 years, as “extreme weather conditions” sap the harvest, according to the International Organisation of Vine and Wine (OIV).

The problems facing wineries led the European Union to set up a high-level group on wine policy last month to discuss “challenges and opportunities for the industry.”

Greek production fell by more than a third in 2023, while Italian and Spanish production fell by more than a fifth, as wineries in southern Europe were increasingly affected by bad weather including heavy rain, drought and early frost, the OIV said.

Such weather events can affect not only a particular year’s harvest but also the following year’s production.

“We are definitely being affected by climate change,” a guide at Castello di Volpaia, a 12th-century winery in Tuscany, Italy, told CNBC on a recent visit.

“Climate change is having a significant impact on wine production and its quality,” Marco Fizialetti, sales manager at nearby Castello di Querceto, said in an email. “The situation is creating difficulties for all producers who have already had to deal with high temperatures in the past.”

Falling production and difficult growing conditions are driving up costs for an already price-sensitive consumer market. The OIV estimates that wine consumption will fall 2.6% in 2023 to its lowest level since 1996, as rising production and distribution costs lead to higher prices for consumers.

As of August 2024, the price of a kilogram of Assyrtiko grapes ranges from 8 euros ($8.90) to 10 euros, roughly double the 2022 price.

“That’s the price of champagne,” Paraskevopoulos said, noting that Gaia Wines has not yet passed on the increases to its final bottle prices. But it will eventually have to, which Paraskevopoulos said would hurt business.

“What will buyers do if a bottle of wine becomes more expensive than Burgundy? We will lose the market we worked so hard to enter,” he said.

Some wine producers are now changing their production methods to adapt to changing environmental conditions.

At Antinori nel Chianti Classico, the newest of the wineries owned by Marchesi Antinori, one of Italy’s oldest and largest winemakers, the vines are being planted in new directions to take advantage of the increased sunshine.

“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 Albiera Antinori spoke to CNBC by phone.

Other techniques the estate employs include raising trellises to improve ventilation and planting grass between the vines, which Antinori said have improved the quality of its produce in recent years, despite declining yields.

However, she described the victory as “la vittoria di pyro,” or a Pyrrhic victory: a feat so costly that it was hardly worth winning.

Sérgio Fuster, CEO of Spanish wine group Raventos Codorniu, noted that many of the regions in which his company has vineyards were in emergency conditions and had to become “increasingly more efficient” in its use of water, for example by using buried irrigation systems.

Elsewhere, other winegrowers are working in the vineyards in midsummer to accommodate an earlier harvest. At Domaine Skouras in Nemea, Greece, this year’s harvest started a record 20 days early. Winegrower Dimitris Skouras said a reduction in fungal diseases has improved grape quality, but he expects overall yields to be lower.

“This year has been unusually hot, with an unusually short winter followed by a rapid rise in temperatures and the hottest July on record. Our vineyards are seeing lower production than last year, especially of Agiorgitiko, a grape variety used for the region’s red wines, which was already quite low last year,” he told CNBC in an email.

Skouras is currently establishing vineyards at higher altitudes, where temperatures are generally cooler, and identifying areas with good water supplies to help the vines survive the heat.

“There are no definitive solutions yet because we cannot predict the changes that will come or the extreme weather events we may face. Our strategy is to adapt as best we can to this new reality in grape growing,” Skouras said, referring to viticultural research.

But elsewhere, the prospects for adaptation are less clear. In Santorini, where grapes are grown in traditional “kurla” baskets to protect them from the island’s strong winds and intense sun, vines are at risk of being exposed to even harsher weather conditions.

“These vines have roots that go back three, four, five centuries and they’re dying,” Gaia Wine’s Paraskevopoulos said.

Extreme weather isn’t the only problem plaguing European vineyards: rising tourism is shifting investment and labour away from traditional agriculture and towards the hospitality sector.

So-called agritourism destinations with small accommodation facilities on site, such as Castello di Volpaia in Tuscany, can offset the costs of reduced production by hosting guests, while at Marchesi Antinori, wine cellar tours and cooking classes are all part of the offering.

“We are fortunate to be in a region and a country that is not seeing a decline in tourism, quite the opposite,” Antinori said.

But Paraskevopoulos said he feared places like Santorini that have ridden the wave of growing tourism could ultimately become victims of their own success.

“Climate change is certainly a very worrying thing, but tourism is also a cause,” he says. “Young people in Santorini don’t invest in wineries anymore because they have other ways to make money.”

The changing landscape has brought EU representatives and industry players together 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 publish its recommendations in early 2025.

These measures are expected to mitigate some of the biggest risks facing the industry, which employs around 3 million people in the EU alone and contributes an estimated €130 billion to the EU’s gross domestic product.

“If we don’t intervene, that’s the trend line,” Paraskevopoulos said of the Assyrtikos extinction projection, “and the question is, will we intervene in time and be successful?”