On the Economics of Cognac (1)
May 2013. It's Pandemonium in The little world of Cognac: The prices for the liquor of angels seem to have joined them in the clouds, and by extension, the land of production has also begun to make its way to the heavens, much to the disarray of the locals: Prices for an hectare of land (a tenth of a square kilometer) in Cognac have shot up by roughly by 10% a year for 2011 and 2012, a ludicrous amount by rural property standards (circa +1.2% a year for the whole of France). In Champagne and Cognac prices top-rated vineyards have reached € 1 M /ha (€ 5,500 median in France)
At this price, the only ones capable of buying vineyards for Cognac production are the big corporations in look of a profitable investment. " Sales at this level clearly show that some buyers are speculating on land prices rather than using the land as production tool." complains Thomas Diener, spokesman of the Jeunes Agriculteurs, a union representing young farmers. Trouble is, young farmers are utterly unable to buy land because of the price of doing so, which means that very few enter the business of cognac to inject new blood into it.
The union is thinking about regulating the property market by prioritizing transactions to farmers or future farmers in an attempt to prevent big corporations from owning all the land. Another possibility would be to create financial products that would allow investors to finance producers without owning the land themselves. Something in those line has already been done by sheep producers: they linked up with an investment bank and created the Labeliance Agri 2013, a fund that aims to raise 20,000,000 Euros by July 2013.
The locals see good reason to be frightened as in their eyes, cognac is progressively changing from a small, family owned affair to another business owned by faceless corporations: several of the major houses were bought by big companies and most of the smaller have bulk contracts with them. The land prices might be the last straw, or the drop of cognac that made the glass spill.
Land prices, all experts agree, are, alas, a proven indicator of bubbles.