The financial penalty wineries now pay for climate change

Wildfires in California and Australia have played havoc with insurance premiums - and that's only the most obvious financial penalty. Jeni Port reports from Australia on what climate change is costing wineries.

Photo by Ben Kuo on Unsplash
Photo by Ben Kuo on Unsplash

There is a hidden cost of climate change to wine producers and the Australian wine industry had a small taste of it in the lead up to Christmas, from rising insurance premiums to cancelled winery tours.

Through November 2019, eastern Australia, already in the grip of one of its worst droughts, burned.

Mega bushfires across New South Wales closed in on the state’s capital of Sydney, spewing pollution into the air; so much so, that at times the Air Quality Index reached 12 times the hazardous level, choking the city. Schools closed, office workers walked off the job and tourists in the harbour city cancelled tours.

Meanwhile, in the Hunter Valley wine region that’s two hours north of Sydney, bushfire smoke enveloped vineyards where the impending 2020 vintage crop of grapes was emerging. Hunter tourism operators counted the cost as toxic smog across the region led to tour and accommodation bookings being cancelled.

In a short space of time, the financial costs associated with climate change came into sharp relief.

Was the industry prepared for the micro implications of climate change and costs associated with such items as keeping the Australian Wine Research Institute operating over the Christmas holidays in order to continue testing grapes from the Hunter, and other smoked affected wine regions, for smoke taint? Or the continuing rise in insurance premiums for winery and vineyard owners? Or the loss of winery tourism in fire-ravaged regions?

“We believe the wine industry is feeling the effects of climate change,” says Angus Barnes, executive officer of the New South Wales Wine Industry Association. “We have not done projections on the cost of climate change. I believe it would be a very difficult exercise and involve massive assumptions that could be challenged.”

In Victoria’s Mornington Peninsula wine region, one wine producer believes it’s time for the industry to seriously consider hidden costs and embrace risk mitigation strategies. Dr George Mihaly of Paradigm Hill started his career in medical research, specialising in clinical pharmacology. He was involved in the development of new medicines for diseases such as cancer and Alzheimers. He believes what Hunter Valley vignerons have been experiencing in recent weeks is just a “small taste” of what is likely to follow in the years ahead.

“My observation is that there seems to be little recognition of the monetary cost of damage associated with these extreme weather events – things like physical damage, lost productivity, etc – even though the one in 100 year events are happening one in five or one in three years,” he says. “By contrast, the insurance industry seems to be well ahead of the curve, as illustrated by the approach they are taking to costing the risks associated with different possible events, such as those associated with increased frequency of extreme weather, into renewal premiums.

“For example, on a personal level, our winery insurance premiums have gone up 100% this year. If we agree to a raft of risk mitigation strategies, the premium increase is 50%.”

Insurance companies have been among the first to act in response to climate change.

In November, Lloyd’s of London was reported to be no longer underwriting policies for large wineries in California’s North Bay wine region because of the increased annual risk to wine production and storage caused by wildfires. The company was also reported to have moved away from the unprofitable business of insuring grapes on the vine, wine in production and the finished wine, up until a winery releases it and cedes control over it.

It was claimed that the move was part of a global reassessment and that aspects of insuring wine and other perishable goods were no longer profitable.

While Australian Grape and Wine has yet to perform any specific costings related to climate change, it says it does intend to put it “front and centre” into its strategic planning.

“I will have a closer look at this over the next month or so,” says AGAW Chief Executive, Tony Battaglene.

Jeni Port

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