On the Economics of Cognac



China, Cognac and All That

Chantal Martell has asked me the other day to write about the economics of Cognac, and she hates taking a no for an answer. “Please, write about the situation right now,” she wrote, “not the usual historical mumble-jumble, just what is happening NOW with markets, prices, China’s demand, and all that…”

And all that… It’s a nice assignment, but to understand Cognac, “Liquor of the Angels” or “Liquor of the gods” if you have a pagan leaning, one needs History. No way out of that.

So, let me first give a few sensible hints for research minded readers.

If I had to give a beginning date for the current complex situation of Cognac I’d probably point at the first years of this millennium, between 2000 and 2003. So, let me recommend an excellent paper written in 2004 by Milica Koscica at the American University in Washington DC that you can download here . It is a good idea to check not so old rapport out, first because I’m going to quote it abundantly, and then for the good reason that it gives a succinct and accurate account of the situation of the Cognac world then to serve as a reference point of the revolution that has taken place in these last 9-10 years. Once we have a fair idea of that transformation we may be tempted play Oracles…

cognac_figure3 trade

Fig 1 Cognac Exports in 2013

If we look at the last statistics available from the French National Cognac Bureau(April 2013 at

http://www.cognac.fr/cognac/_fr/4_pro/index.aspx ) and we compare them with Koscica’s 2004 data we see that a huge change has taken place and you can tell it all with a 5-letter word: CHINA.

In 2004 China didn’t even make it to the statistics of Cognac exports (see fig 1), although we must assume that the lion’s share of what was imported through Singapore and Hong Kong finally found its way, then as now, to the Mainland. So, in 2004 we can assume that China consumed somewhat below 10.2 Million bottles of Cognac.

Now, if we apply the same logic to the data of the Bureau National du Cognac we find that in 2012 the exports to China- Singapore – Hong Kong trio reached 15,855,000 litters of pure alcohol (the industry’s measurement) equivalent to 56,6 M bottles. A whooping five-fold increase in eight years. CHINA is big and the Chinese love Cognac.

But then there is a second data that has lots of people sweating cold in Cognac these days: in April 2013 Cognac imports to China were 20% less than in April 2012. And the trend be may there to stay. There are new people in power in Beijing and those gentlemen have pretty clear ideas about what place, if any, may foreign luxury products have in their Chinese dream. Politics and dreams sometimes make odd bedfellows. I’ll go back to that in my next post.