As well-heeled investors target prime vineyards, and new inheritance laws bite, RUPERT JOY asks if Burgundy’s small domaines can survive in family hands
Philippe Engel was one of the great characters of Vosne-Romanée, a bon vivant who produced lovely wines on his estate of 6ha (hectares). In May 2005, still a bachelor at 49, Engel died suddenly.
With no family to take over, Domaine Engel was bought for €13 million (£10.3m) by billionaire businessman François Pinault – owner of Château Latour, Christie’s and Gucci – and renamed Domaine d’Eugenie.
The domaine’s purchase by an outsider had a seismic effect in the small world of Burgundy. Unlike Bordeaux’s large estates, the region is dominated by small, familyrun, artisanal domaines.
Although négociant houses such as Jadot or Bouchard Père & Fils have sizeable holdings, most Burgundian domaines are built on a human scale and feel a world away from the commercial atmosphere of Bordeaux châteaux.
In the Côte d’Or, top grands and premiers crus sites are strictly delimited. Investor demand for these tiny parcels has led to soaring prices. ‘In 1990, Lalou Bize-Leroy bought half a hectare of Romanée St-Vivant grand cru for 1 million francs,’ recalls a Vosne producer. ‘Everyone thought she was mad. Today it would be worth 20 times that.’ One hectare of villages Vosne or Chambolle now sells for about €1 million (£800,000).
A hectare of premier cru is at least double that, while a hectare of grand cru, when it comes onto the market, costs a small fortune. A single ouvrée (1/24th of a hectare) of Montrachet grand cru, it is said, sold for €1 million not long ago.
Rising costs
Many producers are concerned that such inflated prices pose a threat to the future of family domaines. ‘My father used to say that every three generations outsiders arrive and buy the vineyards.
Eventually, they get discouraged and sell up, leaving locals to take over again,’ recounts Etienne Grivot of Domaine Jean Grivot in Vosne. But the rising cost of viticultural land is an additional worry because it makes transferring domaines to the next generation so expensive.
Vineyards are considered an asset and therefore subject to inheritance tax. President Sarkozy’s 2007 law raising the inheritance tax threshold from €50,000 to €150,000 (£40,000 to £120,000) helped average taxpayers. But, since assets worth more than €1.7 million (£1,350,000) are taxed at 40%, it did little for wine producers with high vineyard values.
Eric Rousseau of Domaine Armand Rousseau in Gevrey-Chambertin recall that ‘after the Second World War, the income from a single harvest was enough to pay off inheritance tax on one hectare of Charmes-Chambertin grand cru. Today it would take 10 years.
It’s even more crippling for domaines that have difficulty selling their wines, because they can’t afford to set aside money to pay for future inheritance taxes.’ To make matters worse, under France’s complex Napoleonic inheritance laws, a proportion of your assets must be left to each child in equal shares. So heirs must agree to run a domaine jointly or one has to buy out the others.
‘We’re lucky,’ says Grivot, ‘because my father was an only son and his sister had no children. But I’m building up bank deposits so the domaine can stay intact.’ Rousseau agrees: ‘To survive, you need a treasury to buy back land from the family.’
There are plenty of winemaker families that have managed the succession process well, particularly where the domaine is large enough for all of the children to get a viable share.
A good example is the Gros family, whose holdings have repeatedly been divided since the family first arrived in Vosne in 1830. All three scions – Anne, Michel and Bernard – run thriving domaines today. But when heirs cannot work together, or one has insufficient funds to buy out the others, the only alternatives are to find an investor or sell up. The last of these options is a growing temptation, given current prices. (Puligny’s Domaine Monnot was sold this year, because the heirs did not want to keep it.)
Either way, land is increasingly likely to end up in the hands of business or investors, because few domaines can afford to expand. SAFER, a public body with the right to buy agricultural land pre-emptively, is designed to help small vignerons by fixing land price ceilings in each commune.
But few believe that it has made a significant difference in controlling prices for the top parcels. Secure capital growth ‘Since Pinault arrived,’ notes a Vosne producer, ‘investors from all over the world have become interested in vineyards here. We can’t compete with the sort of price he paid for Domaine Engel. It’s a great danger for Burgundy.’
There are persistent rumours that other notable domaines in the region are also for sale – some by sealed bid. Another inherent problem for winemakers is that returns on investment in vineyard land are small if you’re making wine (2% or less per year), but the capital growth is high if you intend to resell it.
‘Burgundy, while expensive, is nothing like as expensive as Bordeaux,’ says Jean-Marc Roulot of Domaine Guy Roulot in Meursault. ‘So the rise in land prices is not sustainable for producers, unless they seek outside investors.’ Jacques Carillon of Domaine Louis Carillon in Puligny-Montrachet reckons the price of land had increased 20 times in the past 10 years, whereas winemakers need 50 to 60 years to see a return on their investment.
‘If you’re going to find the money to expand, at €1 to €2 million (£800,000 to £1.6 million) per hectare, you need to be sure your children will want to keep up the domaine. Many winemakers increasingly prefer to buy a second house or take holidays abroad.’ Faced with these challenges, family domaines adopt a range of strategies to survive.
One approach is to create companies to minimise inheritance tax, though tax still has to be paid on the shares. Another is to gift land to your children or grandchildren during your lifetime, though this, too, incurs taxes. A third alternative is to seek investors.
Diversity in danger
But the threat to small family estates remains. ‘Unless there’s a change to inheritance taxes, Burgundy will follow Bordeaux,’ says François de Nicolay of Domaine Chandon de Briailles in Savigny-lès-Beaune.
‘You can’t cultivate vineyards here on a large scale as in Bordeaux, as the terroirs are so much smaller: you have to know each parcel well and treat it accordingly.’ ‘We’re making a good living at the moment,’ acknowledges Grivot. ‘But it’s getting harder to ensure the continuity of our domaines. There are fewer and fewer real family domaines left. I think there will be more cases like Domaine Engel.’
‘If things continue as they are’, says Rousseau, ‘all the great terroirs in Burgundy will be owned by large corporations and small producers will only be able to afford the lesser terroirs.’ The Bordeaux precedent suggests that business investment can bring improved quality to both greater and lesser estates.
Some would argue that it has also led to greater homogenisation and a loss of terroir character in some wines – not to mention prices that put top wines beyond the reach of all but the super-rich. It would certainly be a pity if that were to happen to the family domaines of Burgundy, whose diversity is one of life’s great pleasures. The world moves on.
Written by Rupert Joy
