Financing the production of cognac has always been a challenge – particularly for the smaller growers. At a recent meeting led by the former CEO of Courvoisier Cognac, Jean-Marc Olivier, this issue was discussed in depth.
Cognac: 1.4 % of global spirit volume
Olivier gave an in-depth overview on the state of the cognac industry. He explained that the industry has been constantly improving its methods of assessing and planning for the future. Cognac represents 1.4 per cent of global spirit volume, however that equates to a massive 6.8 per cent in monetary value, generating a turnover of 2 billion euros per annum.
In particular he discussed the stocks of cognac held in reserve, and ways that these are financed. Over the years the amount necessary to be held in stock has changed somewhat. It used to be accepted that holding at least 6 years of stock was necessary, but in the 1990s this was reduced to 5.4 years. In 2000 this was raised to 7.8 years, and the current figure stands at around 6.5 years.
However, because of the rapid rise in the popularity of old and vintage cognacs, these must now be included in these stocks. And this is raising all manner of difficulties, especially to do with the fact of financing these stocks.
Data collected by the PWC shows that between 1995 and 2002, revenue from a single hectare of cognac vineyard was around €4,000 per annum. (But what kind of hectare? Grande Champagne, Fins Bois…?) By 2006 this had increased to €11,363. Today it has dropped and stands at €8,888. However, at the same time production costs have regularly increased, meaning that the wine from each hectare costs more to produce. There’s been no drop in production costs, even though there’s been a drop in revenue.
The banks don’t like to lend too freely to growers, saying that they feel that the industry is fairly well self-funding. And to add to this, if growers want to borrow they face the stalemate of banks only lending when they have guaranteed contracts. But it’s forbidden to dip into the reserves for these contracts.
Leading figures in the world of cognac took the opportunity to challenge this problem during the meeting. And they admitted that the current regulatory procedures are not perfect. However, Jean-Marc Morel, President of the BNIC, asked that the banks be clearer cut with their lending policies, and not to mislead those who might be in the situation of wanting to borrow funds.