Satellites versus Palate
Satellites versus Palate
The curious case of Bordeaux 2022
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Hello wine lovers,
Few subjects can spark as much debate and controversy as the role of wine critics.
Wine enthusiasts and investors often find themselves torn between reverence and disdain for these experts. While some regard wine critics as trusted guides to the complex and nuanced world of wine, others view them with scepticism, questioning their influence, biases, and the subjectivity of their assessments.
If you are also part of the Reddit WineEP, you will know that every month someone posts something along these lines: Surely, there’s a way to score wines ‘scientifically’, objectively that is, to know the true quality of a certain wine — without the unnecessary overlay of known and unknown biases, personal taste, conflict of interests etc…
Whenever that question arises, my name gets called in because I collaborate, as many of you know, with a start-up called Saturnalia. What if there were a way to augment traditional wine evaluations with cutting-edge technology from an unexpected source— the aerospace industry? In an intriguing fusion of seemingly unrelated fields, Ticinum Aerospace built a platform, Saturnalia, which aims to bring clarity and data-driven insights to the world of fine wines.
Saturnalia leverages Earth Observation technology gathered by ESA (European Space Agency) satellites, using advanced machine learning to analyse this data for various applications. In the context of the wine industry, Saturnalia offers tools to assess wine quality, vineyard conditions, market dynamics, and fair pricing. These tools include climate data analysis, detailed maps of vineyard regions, proprietary indices (SEI & SVI) for assessing vine health, fair price estimation, and comparables.
What’s most interesting about their tools is that their data is available immediately after the harvest is finished — that is six months before any critic can taste the wine.
The question is: is the data useful? Well, if you are a longtime reader of this column, you may remember that I published the 2023 Fine Wine Market Predictions in which I presented some Bordeaux 2022 En Primeur campaign predictions based on Saturnalia data. In this article, I review those predictions.
When evaluating a wine, there are two essential aspects to consider. The foremost and most critical element is the inherent quality and genuine worth of the wine itself.
Factors such as the conditions during the growing season, the quality of the harvest, the level of intervention or minimalism in the winemaking process, and the specific tools employed in both the vineyard and the cellar play a pivotal role in determining a wine's quality. However, there is a significant information asymmetry in this regard. Winemakers possess comprehensive knowledge of these factors, while buyers often lack access to such information.
This information asymmetry can pose challenges for wine collectors when trying to assess the true quality and value of a wine. George Akerlof was awarded the 2001 Nobel Memorial Prize in Economic Sciences for explaining this concept when looking at the used car market in “The Market for 'Lemons': Quality Uncertainty and the Market Mechanism”.
How can we mitigate this information gap?
Enter wine critics.
Much like stockbrokers in the equity market, the wine industry has its professionals dedicated to sitting down with winemakers and evaluating wine quality, all in an effort to level the playing field between sellers and buyers, helping distinguish the gems from the lemons. Consequently, the assessments made by these wine critics can influence the prices of wines, either driving them up or down. And it’s because of this that wine critics often face inherent conflicts of interest, which can inadvertently exacerbate the information asymmetry rather than resolve it.
This dilemma has prompted many wine collectors to seek a more objective, scientific approach.
Enter Saturnalia.
While the use of satellites for monitoring purposes, including crop health in agriculture, is a well-established practice, Ticinum Aerospace brings innovation through its unique application of this technology. They combine Earth Observation data with machine learning in their Saturnalia platform for fine wines, providing specialised tools and indices for the wine industry.
This approach offers data-driven insights for wine collectors. To address the utility of this data, let's consider it in two dimensions: assessing the intrinsic quality and value of the wine itself and complementing wine critics' scores.
Now, let's delve into Bordeaux 2022.
The SVI maps, a key component of our analysis, are crafted from satellite imagery, providing an objective depiction of vine water content. When overlaid with Saturnalia's proprietary mathematical model, these maps offer an intuitive representation. Yellow and brown areas on the map signify potential water-stressed vines, while lush greens indicate healthy ones. This analysis can be conducted at various levels, from appellations (as seen above in the comparison of Margaux AOC 2022 vs. 2021) down to individual producers, exemplified by the chart for Château Margaux 2022 below.
Examining the Château Margaux 2022 chart, it might appear that a significant portion of the crop experienced stress. However, this insight alone does not unveil the complete story, as the intricate details of winemaking remain concealed.
Questions abound: What strategies were employed to prevent sunburn? How was the harvest executed, and which vineyard plots contributed to the first wine versus the second (Ch. Margaux reportedly used 40% of its crop for its first wine…)? What cellar techniques were applied, and were any additives used? Regrettably, these questions remain unanswered, perpetuating the information asymmetry.
Nonetheless, the conditions during the harvest offer us a valuable fragment of the puzzle. It's worth noting that despite the average temperature being higher than the last ten vintages (see chart above), the substantial diurnal temperature fluctuations (see chart below) likely contributed to the wine's reasonable level of acidity (pH of 3.61). This acidity in turn plays a pivotal role in preserving the wine's freshness, elevating its aromatic and flavour profiles, and supporting its potential for graceful aging. (For context, Bordeaux Grand Cru Classé wines typically exhibit pH levels ranging from 3.4 to 3.8, depending on the vintage and wine characteristics)
Then, there is the second aspect of this investment puzzle, which revolves around wine critics. In this realm, Saturnalia creates a predictive scoring system immediately after the harvest using AI.
This scoring model draws upon:
Data collected from satellite observations of individual vineyards.
Weather-related data.
Ratings from wine critics for previous vintages.
The model is specifically tailored to each château, taking into account their historical performance, brand recognition, and the current vintage conditions. It utilises these inputs to generate a predicted score.
Below are the top 10 scores for the 2022 Bordeaux vintage:
Interestingly, in this Bordeaux 2022 vintage, the Saturnalia scoring model consistently provided scores that were, on average, one point lower (than the average critic score). The reason behind this discrepancy lies in the fact that the vines, as previously discussed, exhibited signs of stress and the model doesn't factor in the missing piece of the puzzle—the winemaking processes in the cellar.
In conclusion, the fine wine market, like many others, grapples with the inherent challenge of information asymmetry, a concept famously expounded upon by Akerlof. This imbalance of information between sellers (winemakers) and buyers (collectors and investors) has long been a characteristic of the wine trade.
In the fine wine investment landscape, Saturnalia's innovative approach, harnessing Earth Observation technology and AI, contributes to reducing the information gap by providing objective data-driven insights. Through SVI maps and predictive scoring models, they offer a more transparent view of vineyard conditions and wine quality, bringing some clarity to the intricate Bordeaux market.
While the insights for Bordeaux 2022 didn't grasp the entire picture, the platform represents a significant stride forward. Saturnalia stands as the only company offering objective data for decision-making in the fine wine world. This data-driven approach, while not infallible, offers a valuable tool for assessing Bordeaux wines and serves as a commendable effort to navigate the complex dynamics of a market where information asymmetry persists. In this evolving landscape, the interplay between objective data and subjective assessments continues to shape the fine wine investment realm.
This is my personal view, after collaborating with them for over one year. And now, you can ask all the questions you have and more on the webinar that Saturnalia is hosting on Thursday 9th November at 10 am (London time). You can register here: Uncorking Success: Wine Industry Insights and Strategies with Saturnalia.
I know some of you already signed up for this webinar, but for those who didn’t, this is a great chance to speak directly to the founders of Saturnalia and see all they can offer for wine collectors, merchants, etc…
Thanks for tuning in this week! This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.
👋 Sara Danese
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Disclaimer
My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.