How Businesses Can Diversify Sourcing to Address Climate Risks
As more frequent wildfires damage grapes in California, wineries are adapting through varied sourcing.
By Chelsea Hicks-Webster and Kerrigan Unter
Kerrigan Unter comes from a long line of farmers, growing and raising everything from dairy to corn, chickens, and pigs. When Unter decided to do a PhD, she wanted to “study something that reflected where I’m from,” she says.
And increasingly, one of the issues facing farmers is climate change. The impacts of climate change vary by region but can include wildfires, droughts, and even flash floods and frost snaps. In California, wildfires are one of the largest threats to the wine industry. Even if fires don’t engulf a vineyard, the smoke travels for miles and can taint the flavour of the grapes. Smoke also threatens farmworkers and can prevent them from harvesting grapes.
Climate change is scary, but companies are finding ways to reduce the impacts — to adapt. In a recent NBS article, we saw how a Chilean winery is lowering the impact of droughts through on-site modifications like a backup reservoir and soil moisture measuring. These efforts don’t make climate change go away, but they help companies operative effectively in a changing world.
For her PhD research at George Washington University School of Business, Unter studied a specific type of adaptation. She wanted to know whether wildfire risk motivated wine companies (or wineries) to start sourcing grapes from more vineyards (the farm where grapes are grown). That could mean setting up a new vineyard of their own or sourcing grapes from a third party. Diversifying production sites is a traditional risk management strategy to help if disaster strikes in one area.
She also studied whether there was financial payback for this type of adaptation. (Spoiler alert: The answer is “yes” to both questions.)
Unter won a best paper award at the 2023 Ivey-ARCS PhD Sustainability Academy for her research conducted with her colleague, Dr. Jorge Rivera. Read on for details on how climate is threatening one industry and how wineries are adapting and finding value.
Wildfires Damage Grape Production
California wine producers fear wildfires, and climate change is leading to larger and more destructive fires. “Smoke taint” is a particular problem. Even if a vineyard doesn’t catch fire, its grapes can absorb smoke from nearby fires that changes their taste. The damaged grapes must be either thrown out or mixed with other grapes to dilute the smoke flavour.
The impact of wildfires is growing, and not just in California. Wildfires are on the rise in other wine-producing regions, such as Europe and Australia. And wine producers aren’t the only ones affected. As wildfires grow in size and frequency, they damage many types of crops and grazing lands and limit workers’ ability to manage farms safely.
How California Wineries Are Responding to Wildfires
In California, wineries have traditionally housed all of their operations at a single site. That includes the vineyard and the facilities to make, bottle, and distribute the wine. This structure makes companies vulnerable to wildfires because there’s no back-up location. If fire damages grapes at the only vineyard, the company’s entire crop is affected.
In her research, Unter wanted to understand whether these single-site winery owners decided to source grapes from a greater number of vineyards in response to wildfire exposure. She also wanted to know if that choice had any financial upside, specifically on the value of the wine. Maybe efforts to respond to climate change could have unforeseen benefits?
To find the answer, she mapped the location of 535 wineries in California and the location of wildfires each year from 1981 to 2019. She could see which wineries had a wildfire within 25 kilometers, which is close enough to cause smoke taint — and maybe scare owners into diversifying their grape supply.
Then, Unter used the Wine Spectator — a popular wine magazine — to collect data on wines produced by those wineries. She could tell how many vineyards were sourced from for each type of wine during a given year, plus the wine’s price.
Diversifying the Supply Chain Boosts Price
Unter found that wildfires affected nearly 70% of the wineries in her study at least once from 1981 to 2019. And these exposures seemed to have a significant impact on sourcing decisions. Each exposure to wildfire was linked to decision-makers being 7% more likely to start sourcing grapes from additional vineyards. Over time, that adds up.
And when winery owners added new vineyard sources, it paid off. They earned an average of 75 cents more on each bottle of wine for every new source of grapes they added. (If we assume a cost of $20 per bottle, that means a 3.75% price boost for each additional grape source.)
Why the higher price? Unter believes it reflects increased wine quality. That could happen for two reasons. First, more sources mean less smoke taint. Even if grapes at one vineyard are affected, grapes at the other vineyards are likely OK.
Second, in the process of selecting new sources, growers can choose regions with prime soil and weather characteristics, which improves grape quality. If they are setting up a new site from scratch, they can also optimize vineyard set up, including how vines are planted and installing state-of-the-art technology.
The result? Tastier grapes, and wine that sells for more.
As with any research study, these findings have some limitations. The data can’t tell us whether the new sources were pre-existing vineyards or brand-new ones. This matters because it’s easier to optimize new vineyards during the set-up process than to modify an existing vineyard.
The data also did not include total revenue. So, researchers know that more growing sites lead to wine that sells for more per bottle. But we can’t say for certain whether total revenue went up.
Considerations When Adapting Your Farm to Climate Change
This study shows that adaptation can help businesses sustain a quality product and even boost price. But Unter is the first to admit that adaptation can be complex and expensive.
Intensifying wildfires aren’t the only change brought by global warming. Farmers will also experience higher average temperatures and hotter, more frequent heat waves. This can bring water shortages, though more frequent flash flooding is also likely.
For most grape producers and other farmers, adapting to climate change will require careful thought. The exact environmental changes will vary by location, so there’s no one-size-fits-all approach to adaptation. Before diving into costly adaptations, consider asking an agriculture or climate science expert to help project future climate risks. Experts can help identify high-risk locations, the types of potential risks, and specific adaptation strategies to reduce harm or take advantage of climate change impacts.
Unter’s main message is that change is unavoidable, and farmers and businesses should plan for it. “Mostly, I want to tell business leaders to be careful not to let their past experience dictate future decisions,” Unter says. “The future will be different than what you’ve experienced in the past.”
Lessons for Any Business Leaders
Climate change will impact your business— as well as the other stakeholders involved. Try to educate yourself on what the future holds. If experts predict you’ll experience damaging fires, heat waves, or droughts down the road, you should start adapting now.
Adaptation will have upfront costs, but the right adaptations can support long-term financial performance and resilience. To learn why climate change is relevant to every sector and best practices for adapting, check out the Network for Business Sustainability primer: How Can Business Adapt to Climate Change.
This article was originally published by the Network for Business Sustainability. B The Change gathers and shares the voices from within the movement of people using business as a force for good and the community of Certified B Corporations. The opinions expressed do not necessarily reflect those of the nonprofit B Lab.
