Ten Wine Scandals – Should Have Gone To Blockchain

Ten Wine Scandals – Should Have Gone To Blockchain

Since my first Blockchain article, there’s been lots of interest in the potential of using this emerging technology in the wine industry, especially to guarantee wine origins, safety and quality. In this article, I suggest that Blockchain could be the solution to prevent future wine scandals.

Rules and regulations

There are lots of complex wine standards and regulations that have evolved over many years. These legalities are to protect wine origins, quality and safety. In short, they exist to provide Trust. In turn, that requires various institutions to verify, monitor and enforce them. For example, if you buy a bottle of Champagne you want to know that your purchase was from Champagne. And that it meets the quality standards laid down and that it is in the condition the producer intended. Also, you want to trust that drinking it will be enjoyable and not damage your health. And rightly so, even though the rules set for wine protection differ by region and country. In short, you want authentic wine, which reaches you in good condition, is of fair value and safe to drink. Does it do what it says on the tin?

Two new wine scandals have just hit the headlines. Duplicity, especially wine adulteration and fakery, has always been with us. But discovering scams after the event and dealing with them costs a lot of time and money. Of course, most actors in the industry are bonafide, but the collateral damage can be immense.

The central problem

The fundamental problem is that each stage in the wine process is separate and opaque. It breaks traceability and makes tampering relatively easy. The wine industry is a global business. There are thousands of producers, appellations, countries, regions, packagers, wholesalers, shippers, storage facilities and retailers. The market depends on trust, while globalisation can make distribution chains long and convoluted. Sometimes, that trust is misplaced.

Wine is about fun and flavour for most of us drinkers. For fraudsters, it’s always about exploiting wine industry processes to make easy money or reduce economic pressures. The temptation and rewards are high. Conversely, the likelihood of being caught and the sanctions are usually small. Wine, being a liquid in a long and complex distribution chain, is an obvious target. There are opportunities to cheat, from grape to glass, at every stage.

Meanwhile, new markets grow, wine fashions change, and wine prices escalate. Hence, I believe we are likely to see more incidences of scams in future, not less. Up until now, the industry can only be vigilant. Unfortunately, this means it can only react to new scams by shutting the door after the horse has bolted.

The potential solution

Now Blockchain technology, the Internet of Things (IoT) and Smart Contracts exist. In combination, they offer a proactive decentralised solution to protect wine origins, safety and quality. In my opinion, many of past scandals wouldn’t have been possible if Blockchain had existed and been in use at the time. This new technology can verify the producer and the product, join up transactions and monitor life-history in real-time. It can do this transparently and indelibly, without needing to trust anyone. It’s a matter of time before the wine industry sees these benefits. But the technology needs to mature and become better understood. There will be deployment costs, but those will fall as adoption rises. In any case, it will also bring significant savings, for example in monitoring, or reducing intermediaries in the distribution chain. In this respect, it’s no different to the take-up of e-commerce during recent years.

After all, it only takes one single scandal. That can destroy a valuable brand, damage the reputation of an appellation, cause industry-wide losses, and close off export markets. It can even hurt those institutions trying to protect the product.

Wine scandals of recent years have taken many forms, as this infographic shows:

 

In the scandals mentioned below, I exclude the “fine and rare wine” forgeries in secondary market so beloved by investors. Experts like Maureen Downey of Chai Consulting have forensic levels of knowledge about the Grand Cons of the Grand Cru. She is working with Ethereum Blockchain technology in this area. I’m interested in the vast majority of wines, those that are accessible to us mere mortals. The damage that scandals cause affects consumers, producers, appellations, merchants, shippers, retailers and even entire countries.

Without further ado, here are ten scandals.

1. • New Zealand, August 2017

     Southern Boundary Wines in Waipara face 156 charges of alleged fraud. The accusation is that SBW exported thousands of bottles with false information about vintage, grape variety and origin. It relates to Sauvignon Blanc and Pinot Noir in 2012 and 2013. SBW allegedly also passed off blended wines as single vineyard wines and destroyed winemaking records. If these allegations are true, then New Zealand’s enviable quality reputation is on the line. Whatever the eventual outcome, this undermines years of hard work by honest wineries in export markets that include the UK.

1. • France, June 2017

     Guillaume Ryckwaert, Chairman and CEO of the giant bulk-bottler Raphaël Michel allegedly sourced 36 million bottles of cheap table wine. Over three years they resold it as expensive premium wines like Côtes du Rhône and Châteauneuf-du-Pape. So far, the French supermarket chain Carrefour has cancelled its supply contracts. Ryckwaert is now on bail at €1 million. The scale threatens the livelihood of 3,000 growers and 15 co-ops. It undermines the reputation of two world-famous appellations and doesn’t do much for Carrefour either. As Raphaël Michel is stock market listed, its share price fell. I bet its investors aren’t happy with that.

     Update September 2018: While Ryckwaert is still awaiting trial, the company has been acquired by the Burgundian business LDI (Labruyère Développement & Industries), and renamed “Anagram”. This ensures a new start with all creditors are repaid in full and all contracts maintained.

1. • France, 2012

     The French fraud office was alerted to perfect production figures at the large Burgundy négociant Labouré-Roi, between 2006-2008. It suggested the blending of cheap wine from other regions with 500,000 bottles of Grand Cru, Premier Cru and Village Burgundy. Furthermore, 1.1m bottles also had fraudulent labelling. The owners admitted to equipment and computer errors. As far as I am aware, there were no charges. Regardless, the global media headlines tainted the reputation of one of the world’s most prestigious appellations. It called into question whether this was practice was widespread.

1. • California, 2010

     Pinotgate. The giant E&J Gallo procured what it thought was French Pinot Noir for its Red Bicyclette label. Demand for pricey Pinot had risen sharply following the success of the film “Sideways”. 18 million bottles came from Sieur d’Arques, a large bottling plant in the Languedoc. Gallo never asked why this was one-third more Pinot Noir that was produced in the entire Languedoc region. Or why it cost half the going rate. Mostly it was cheap Merlot and Syrah. Sieur d’Arques got the wine from Ducasse, a broker. In turn, Ducasse had bought it from eight wine co-ops.

     Apparently, Ducasse made around €7m from this scam. Twelve people from Ducasse, Sieur d’Arques and some of the co-ops were convicted. The head of Ducasse got six months as a suspended sentence, and a €45,000 fine. Sieur d’Arques paid a €180,000 fine. Gallo was innocent, but this bicycle ride left them with a PR disaster.

1. • Italy, 2008

     Brunellopoli. By law, Brunello di Montalcino must be 100% Sangiovese. It’s one of Italy’s finest and most expensive wines. In 2008, rumours circulated that some winemakers were including Cabernet Sauvignon and Merlot. When the story broke, police impounded thousands of bottles. A global media storm ensued, with a mix of conflicting and controversial “facts”. Some were arguing that Brunello should allow other grapes. Some wines were declassified and sold off. Meanwhile, the USA blocked Brunello imports that were not accompanied by laboratory tests.

     The Brunello Consorzio came under tremendous pressure from the media, the legal system, importers and its members. A year later the police investigation closed and the newspapers faced defamation claims. The point here was that rumours became conflated and the truth muddled. Was it fake news? While Brunello has risen to new heights since the situation strained famous producers and the Consorzio.

1. • Beaujolais, 2005

     The King of Beaujolais, Georges Duboeuf, was accused of blending lower-grade Beaujolais-Villages in with premium Cru Beaujolais from Brouilly, Côte de Brouilly, and Moulin à Vent. The firm paid a €30,000 fine, with the wine declassified. Duboeuf blamed human error. While none of the wine got to consumers, the court verdict was fraud.

1. • South Africa, 2004

     The huge KWV became caught up in an additives scandal. Two of their winemakers added green pepper powder and pyrazine to 67,000 litres of  Sauvignon Blanc. These are both natural, harmless substances. Indeed, grape pyrazine is responsible for desirable green notes in Sauvignon Blanc. Nevertheless, the addition was illegal, done to lower costs and improve flavour. One of the KWV Sauvignons had received a double-Gold award the previous year. KWV undertook internal tests because rumours of adding flavourings were rife.  The scandal damaged the reputations of KWV and the entire South African wine industry. In the end, 25% of all South African Sauvignon Blanc underwent random tests.

1. • Australia, 2000

     Kingston Estate in Riverland added silver nitrate, a prohibited substance in Australia, to its export wines. It was to kill off sulphide odours in the wine. The amount was below the threshold hazardous to health. Silver nitrate is even allowable in some other countries. Nevertheless, UK retailers including Waitrose and Tesco suspended sales. The Australian Wine and Spirits Board audited every wine producer to restore damaged reputations and public confidence. Meanwhile, the winery paid an A$4,000 fine and had its exports suspended. It raises concerns about what can be put into wine safely. As we’ve seen, legality varies by country and practice.

1. • Italy, 1986

     Adding highly toxic methanol, however, is unquestionably evil. In this case, 90 people needed hospital treatment. 23 people died, 19 went blind, and others left with neurological injuries. It started with a wine called Odore Barbera. Adulteration with methanol was at a level of 5.7%, (the maximum allowed limit is 0.3%). The initial culprit was Ciravegna, a Piemonte distributor who added methanol to mediocre wines to boost alcohol content cheaply. Neither was it their first adulteration offence! The perpetrator got 14 years in jail.

     Meanwhile, the situation was widespread, thanks to reselling and blending wines at multiple producers. Israel, Switzerland, France, Belgium and Germany seized and destroyed Italian wines. Denmark banned all Italian-made drinks. Tracing the wine was a major difficulty as often records were not kept. Italian rivers were reported to have run red with dumped wine. It forced the Italian government to become involved. Wine exports froze because of the backlog of wines that required laboratory testing. 274 out of 12,585 brands contained methanol, some 600,000 litres. People stopped drinking Italian wines, at home and abroad. It wasn’t a scandal; it was a national tragedy. While Italy cleaned up its act, mass methanol poisoning from contaminated drinks remains prevalent around the world. Just take a look at this paper from the World Health Organisation.

1. • Austria, 1985

     The Antifreeze scandal. Some Austrian bulk-wineries added cheap Diethylene Glycol (DEG) to their wines. It was to boost sweetness and viscosity for supermarket contracts in Germany. In Germany, sweeter wines command higher prices and one of these won a gold medal. DEG is usually in antifreeze and was discovered by German testing. DEG levels weren’t lethal, but it can cause brain, liver and kidney damage in larger doses. Germany issued a health warning and destroyed 36m bottles. As this news went global, many countries withdrew unaffected Austrian wines. Austrian wine exports crashed from 45m litres per year to 4.4m. Some countries banned imports, contract disputes became rife, and the reputation of Austrian wine was in the gutter. It took them fifteen years to recover, needing the tightening of Austrian wine laws and government subsidies.

Coda

These scandals are all a matter of public record. It isn’t an exhaustive list, and the scale is often massive. Are they the tip of the iceberg?

In Ancient Rome, Pliny the Elder said, “truth comes out in wine”, (in vino veritas). But then again he complained that “not even our nobility ever enjoys wine that is genuine”. (Neque unquam tantam nobilitatem vino genuinis). To that, I say, in vino duplicitas.

Scandals? Bring on Blockchain.

If you want to see how D.I.G is setting up a Blockchain for importing and distributing wine into the Chinese market, which is now the biggest in the world, then click here.