WORLD BANK DEFINES POVERTY

Poverty thresholds

The definition of poverty depends on a country’s income classification. The World Bank applies different daily poverty thresholds according to income level:

• $2.15/day – for low-income countries
• $3.65/day – for lower-middle-income countries
• $6.85/day – for upper-middle-income countries

Upper-middle-income countries like Indonesia are nations with a gross national annual income (GNI) per capita between US$4,046 and US$12,535.

The latest figures are for 2024 and are used in the chart. But the full report, which I’ve read, still uses the lower, out-of-date, threshold of $3.65/day that applied before Indonesia was moved into the upper-middle-income bracket in 2023.

So the chart is saying that 60% of the population live on less than $6.85 a day. That’s approximately 171.9 million Indonesians living on less than US$6.85 per day.

That is the World Bank's official national poverty rate for Indonesia (at the upper-middle-income level).

My Conclusions

1. Whoever produced that chart has updated it with the correct figures. (The full report on which it is based uses the older, out-of-date threshold.)
   
   
2. But really, the main conclusion from that chart is that although Indonesia has moved into the upper-middle-income bracket, 60% of its population lives below the World Bank's definition of poverty. This says in ordinary-speak that Indonesia is a very corrupt country, or at least strongly unequal, with a very uneven spread of the benefits of the economic growth it’s been enjoying since globalisation.

3. She Was Poor But She Was Honest

   "It's the same the whole world over
   It's the poor what gets the blame
   It's the rich what gets the pleasure.
   Ain't it a blooming shame?
   
   ...No matter where you look, the top few percent own almost everything, and the bottom half have only debts.
   
   
4. In summary, the chart speaks to the WEF prediction for 2030 that “you will own nothing and you will be happy.” (Incidentally, it was a prediction — not a policy statement!)

 

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FLOURISHING IN INDONESIA

5 May 2025

https://fortune.com/2025/05/02/indonesia-flourish-study/

1. Reflections on Flourishing: What Makes a Life Truly Good?

1.1. A Fresh Perspective from the Global Study

A new five-year study by Harvard and Baylor finds that Indonesia tops the global chart for “flourishing”.

That’s not about wealth — it’s about a full, good life: purpose, health, social ties, meaning.

In fact, countries with strong religious and community life beat wealthier, secular nations.

1.2. The UK: Wealth Without Warmth?

Yes, rich nations rank well for financial security.

But the UK example hits home:

Middle class, with income — yet stressed, anxious, cramped, often isolated.

High mobility means people live far from their roots.

Public spaces can feel hostile.

A lack of spirituality or shared cultural rituals leaves people adrift.

Many young people, struggling to find accommodation and start a family, feel the pressure — financial strain is real, even when incomes look decent on paper.

1.3. Indonesia’s Secret: Faith and Fellowship

Indonesia’s top score wasn’t due to GDP — but because three-quarters of people attend religious services weekly.

That’s a stunning level of regular, community-based meaning.

Faith gives rhythm, connection, and purpose — something missing in many Western societies.

1.4. The Age Factor in Flourishing

The study also found that happiness follows a kind of age curve:

Young adults and older people report more flourishing.

Middle-aged working adults often report less.

Makes sense:

Long hours.

Family pressures.

Moving away from your roots for work.

Not much time or space to reflect or connect.

1.5. Faith-Filled Nations Flourish

The top-ranking countries were all high in religiosity.

That may be the real driver behind the numbers:

Faith brings structure, meaning, community.

It also helps people find dignity in hardship — not just comfort in wealth.

2. Final Thought

This study reminds us to ask: what really matters in life?

If the goal is not just to live, but to flourish, then wealth alone won’t get us there.

Perhaps it’s time we in the West rediscovered a bit more faith — in each other, in community, and connect with something higher.

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HYPER-FINANCIALISATION OF THE AMERICAN ECONOMY - SYMPTOMS, CAUSES, CONSEQUENCES, KEY ISSUES

Preparation

Worth reading "the balancing mechanism" first to make sense of this article. 

This article gives the symptoms, causes and consequences; and explains why hyper-financialisation is important in the lives of people, rich and poor. It doesn't suggest any remedies, other than recommending we all take to the streets in protest - what better time for a Revolution?. That will be for a future article.

Meanwhile, we will finish on a lively discussion and recap of this article.

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Hyperfinancialisation of the American Economy

This post summarises the above Youtube video.

1. The symptoms

This post explores the hyperfinancialisation of the American economy, a condition in which Wall Street's gains have vastly outstripped Main Street's wages. Here are the symptoms - what "hyper-financialisation" means in practical terms.

1. Several metrics are used to illustrate this divergence between Wall St and Main St:

• The hours of labour required to buy one share of the S&P 500 has increased from 25 hours in the 1960s–1990s to a peak of 200 hours after 2008.

• A comparison of the S&P 500 to personal income shows capital (the stock market) pulling away from labour (wages), a reversal of the mid-20th century trend.

• The Buffett Indicator (S&P 500 vs GDP) reflects the same imbalance: GDP has grown 970% since 1980, while the stock market has risen over 5,000%.

• Meanwhile, wages relative to GDP show that the average worker’s income has stagnated or declined in real terms.

• The S&P 500 has grown by 6,876% versus 800% for hourly wages over the same timeframe.

• The Price-to-Earnings ratio has surged, indicating people are paying more for the same future returns.

  
  
  

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2. The causes

• Post-2008 monetary policy: QE, ZIRP, and fiscal deficits inflated asset prices. QE alone involved trillions of dollars created to buy treasuries, corporate debt, and mortgage-backed securities.

• Trade policy and globalisation: Agreements like NAFTA hollowed out domestic manufacturing and led to persistent trade deficits.

• International finance mechanics: The trade deficit must be matched by capital inflows — currently ~$130 billion/month — into U.S. assets, pushing up valuations and creating artificial demand.

  
  
  

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3. The Consequences

• A stark wealth divide: The top 1% own 50% of equities; the top 10% own 93%.

• Labour’s shrinking share of income and declining wage power.

• Asset unaffordability: Housing has become increasingly out of reach, especially single-family homes.

• Government dependency on market performance: Capital gains tax (now 9% of revenue) ties fiscal health to asset bubbles.

• The rise of populism, which stems from this capital–labour divide and contributes to political and social polarisation.

  
  
  

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4. Why this is important

These economic imbalances are the “core issues” in U.S. society, driving everything from rising suicide rates and antidepressant use to deepening political dysfunction.

What to do? The bottom 95% of Americans to unite around economic reform — to reject partisan distractions and tackle the deeper forces of hyperfinancialisation, overvalued currency, and hyperglobalism.

The real divide is not left versus right, but the top 1% versus the bottom 95%.

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5. Listen to a lively discussion 

Aimed at raising awareness of the crisis and human suffering facing ordinary people due to hyper financialisation:

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ACCOUNTING FOR AMERICA'S TWIN DEFICITS

Why the U.S. Trade Deficit Must Always Be Balanced - And What Happens When It Isn’t

"The balancing principle". Not everyone will be able to stay awake till the end of this article, but everyone is capable of understanding this simple double-entry bookkeeping principle, as applied to international finance, called "the structural mechanism". It is fundamental to understanding "hyper-financialisation", that we shall look at in the next post....

03 May 2025

At the heart of international finance lies a simple accounting principle:

The current account and the capital account must balance.

It’s not ideology. It’s not economic theory. It’s just double-entry bookkeeping on a global scale. You cannot get away from the fact that differences between your income and expenditure are stored away on your balance sheet - your net worth. Same for countries' accounts.

If a country runs a trade deficit (it's called a current account deficit, it means the country is importing more than it exports), it must run a capital account surplus. Why? Because the money that flows out to pay for imports must flow back in somehow to balance the books. That "somehow" is when foreigners invest back into the exconomy they soild to, or when the importer country borrows from the rest-of-the-world ie lending, or the importer country dips into its balance sheet reserves, or, if necessary, meaning if noone wants to lend to it or if interest rates are more than it can afford, by recourse to the printing press - creating new money out of thin air, expanding the money supply.

This is why the U.S. trade deficit is always matched by strong capital inflows (or printing). For decades, the rest of the world was happy to sell the goods it manufactures to the U.S. and then recycle those dollars back into U.S. assets: government bonds (treasuries), corporate debt (lending to private corporations), equities (eg the S&P 500), property (buying up real estate in foreign capitols, but above all into U.S. Treasuries.

This process has often been described, rather vaguely, as a “structural mechanism” of global finance. But let’s call it what it is: a global settlement cycle anchored in the U.S. dollar.

The U.S. runs a current account deficit. Foreigners receive dollars. They return those dollars to the U.S. by buying dollar assets. The loop closes. The books balance.

Diagram showing
trade deficit →
balance of payments deficit→
capital inflow to balance the capital account

But what happens when the world no longer wants to hold U.S. assets? This is where the Federal Reserve steps in.

If foreign central banks or institutions stop recycling their dollars back into U.S. debt — or if they even start selling the US debt they hold — then someone has to plug the gap. That someone is the Fed. It buys the debt via Quantitative Easing (QE), creating dollars out of thin air. In effect, the U.S. borrows from itself (the government borrows from the Fed). The balance still holds, but confidence in the system gives way to fears of inflation and currency debasement.

Foreigners don't want US debt - Fed QE cycle filling gap left by foreign capital

This pressure is amplified by a deeper fiscal dilemma. The U.S. government faces mounting obligations — welfare, pensions, and defence — that it cannot politically cut. As debt rises, so do fears of inflation and currency debasement. Foreign investors begin to demand higher yields to compensate for the risk of holding dollar-denominated assets.

But the U.S. government cannot afford high interest rates. A rising cost of debt would crowd out spending and destabilise public finances. The solution? The Fed prints the money — buying Treasuries to suppress yields and keep government borrowing costs down.

Fiscal loop - overspending → market doubt → Fed printing

This creates a circular dependency: the government spends, the market doubts, the Fed prints. Byspending, the Fed creates demand for US bonds. Result: Bond prices rise. As prices rise, yields fall, but confidence in and demand for the dollar weakens and in this way, the system edges just a little bit closer to a crisis of confidence.

This is the danger Brent Johnson highlights in the Dollar Milkshake Theory - and that Ray Dalio uses to explain why the U.S.-led global order is in its late cycle....fewer and fewer want US debt.

The accounting identity works, but the participants are changing. The Fed is buyer of last resort. And if trust in U.S. assets continues to weaken, we may find that the world's capital account surplus returns not to US Treasuries, but to gold, commodities, and hard assets. It's happening, perhaps provoked by Trump's Tariffs, but that could be just a surface explanation....we have to wait and see, there is so much uncertainty! (Wait on the sidelines?)

If confidene is lost, the books will still balance, but the system will not look the same.

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ARE MIDDLE EAST POLITICS DRIVEN BY ANCIENT APOCALYPTIC NARRATIVES

2 May 2025

The idea that Netanyahu's vision of a Greater Israel is driven by ancient Jewish apocalyptic texts promising death and destruction before salvation seems a bit mad... is there any evidence? Netanyahu seems bent on creating WW3, but is there any evidence that this threat has roots in eschatological beliefs?

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Ancient Roots: Apocalyptic Texts and the Vision of a Greater Israel

The concept of a "Greater Israel" has its origins in biblical promises made to the patriarchs. In Genesis 15:18, God promises Abraham land stretching "from the river of Egypt to the great river, the Euphrates", a chant we often hear these days. This expansive vision encompasses territories beyond the (undefined) borders of modern Israel, including parts of modern-day Egypt, Jordan, Lebanon, Syria, and Iraq.

While mainstream Jewish thought often views these passages as symbolic or future-oriented, certain religious Zionist groups have taken them more literally, advancing policies that align with this vision of a vastly expanded territory, giving Israel dominance over the entire West Asia.

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Netanyahu's Political Alliances and Messianic Influences

Prime Minister Netanyahu's political trajectory these last thirty years has seen alliances with parties that espouse religious nationalist ideologies. Notably, his coalition includes factions like the Religious Zionist Party and Otzma Yehudit, which have roots in movements advocating for Jewish sovereignty over all biblically promised lands. So, a political environment where ancient religious visions decide contemporary policy decisions.

Moreover, Netanyahu's rhetoric is often intertwined with themes in Christian Zionist circles, emphasising Israel's role in fulfilling biblical prophecies. This alignment has bolstered support from evangelical groups, particularly in the United States, who view modern Israel as central to eschatological narratives.

A moot point - is the Israeli tail wagging the American foreign policy dog? Is the Israel lobby and this vision of a Greater Israel controlling America's foreign policy? Or is the American foreign policy establishment instrumentalising Israel to control oil and trade routes in the Middle East (as it has done with Ukraine in its not-so-proxy war with Russia)?

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Eschatological Beliefs and Modern Governance

There is evidence for the integration of eschatological beliefs into modern state policy:

• Settlement Expansion: policies promoting settlements in the West Bank are often justified by religious claims to the land of Judea and Sumeria - this is  Netanyahu's name for the West Bank.

• Legislative Initiatives: laws and discriminatory practices that prioritise Jewish religious education and values, and exclude Palestinian, reflect a governance model coming out of religious ideology.

• Judicial Reforms: Moves to alter the judiciary, where Ashkenazi Jews, largely from Europe, hold all but one of the seats, have been interpreted by some as attempts to align state laws more closely with religious principles supported by the strongly idelogical Miserati Jews of Middle Eastern and North African origin. This pushes israel to civil war: deep state in the military and judiciary and civil service v. Miserati, who are the populists.

Conclusion

These policy directions shape contemporary political visions and decisions. This is evidence of an approach to governance where ancient religious narratives and eschatological expectations play the dominant role.

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References

• Inside 'Greater Israel': myths and truths behind the long-time Zionist fantasy

• Netanyahu's “messianic vision” – be careful what you wish for

• How Messianic Radicals Came to Control Israel – and Netanyahu

• Alastair Crooke Netanyahu's Trap

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Bizarre as it may seem to modern minds, that tend to seek truth in logic and data, we have seen that ancient apocalyptic visions are being used to justify modern political strategies in Israel. We are told that Israeli interests dominate America's foreign policy establishment, but it could be that Israel is being used to further American interests in just the same way as Ukraine is being used in a war against russia

So this extremely cynical interpretation of American foreign policy has to be included in making sense of all the complexities of Middle Eastern geopolitics today.

It's an interesting topic and one of that is explored in some earlier posts:

http://www.livingintheair.org/2025/03/from-earthquake-to-armageddon-how.html

The Middle East is primed for war. This post shows how we got here, what’s coming, and what you can do about it.

http://www.livingintheair.org/2025/03/the-four-horseman-of-apocalypse.html

The Four Horsemen are riding again bringing war, collapse, chaos and climate change.

http://www.livingintheair.org/2025/03/the-danger-of-apocalyptic-governance.html

How political ideologies, taken to extremes, can lead to planet-wide destructive outcomes. This post argues for a balanced and rational governance based on national interests and human rights. 

[End]

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DOLLAR MILKSHAKE PART III

 1 May 2025

 

 

 The business cycle for traders

The business cycle for investors

TA, Gold, and the Last Man Standing

Technical analysis (TA) cannot predict the future, and doesn’t pretend to understand the economy. All it does is track price action, look for repeating patterns and try to spot momentum. You might say it is as useful as astrology. It correlates with the economy, but investors are always ahead, on a parallel wave.

Worth listeing to Chris Vermeulen of TechnicalTraders, who does a short daily market recap. His style is relaxed tailor’s dummy more than showman. He reads the runes in technical charts. While TA has its limits, what Chris does well is to spot the rotations between asset classes. Money seems to be flowing out of stocks, but where is it flow to? Treasuries? Gold? Defensive safe ETFs like XLP (consumer staples) or XLU (utilities)?

His point right now is that money is quietly flowing out of equities. The pro.s are selling into every rally, the smart money is getting out and rotating onto safer ground.

Why into TLT? That’s where the Dollar Milkshake Theory comes in.

Generally speaking, if you expect interest rates to rise, it is best to avoid long-term bonds like those tracked by the TLT, because if that happens, you're locking in a lower interest rate. If you believe interest rates will fall, it makes sense to invest in a long-term bond fund like TLT. TLT tracks the Barclays U.S. 20+ Year Treasury Bond Index.

Most commentators expect the dollar to weaken under the weight of US debt. There will be less and less demand for the dollar as there is more and more dollar-printing. Makes sense, but Brent Johnson disagrees. His theory is that years of global monetary expansion have created a “milkshake” of liquidity. So first of all. let us examine how all this liquidity is created and where it is held.

The "milkshake" in the Dollar Milkshake Theory refers to the vast pool of global dollar liquidity, the dollars that have flooded the world economy since 2008, although not held exclusively in Europe, this pile of US dollars outside the US is called the Eurodollar market.

 

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How the milkshake forms (monetary expansion):

1. Quantitative Easing (QE):
   The Fed created trillions of dollars to buy US Treasury bonds and mortgage-backed securities — injecting USD into the banking system.

2. Low interest rates:
   Cheap borrowing made USD attractive to global investors, corporations, and governments.

3. Global demand for USD:
   The US dollar is the world’s reserve currency. Most international trade, lending, and commodities (like oil) are priced in USD.

4. Eurodollar system:
   Non-US banks create "dollar credit" outside US regulatory oversight — more dollar-like assets circulate globally than exist inside the US.

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Where the milkshake “sits”:

The dollar liquidity is held across:

• Foreign central banks’ reserves

• Sovereign wealth funds and pension funds

• Global trade finance (e.g., letters of credit in USD)

• Foreign dollar-denominated debt

• Offshore (Eurodollar) banking systems

• Dollar-based assets (e.g., US Treasuries held abroad)

The milkshake is not just inside the US — it’s a vast global ocean of dollar obligations and instruments, mostly outside US borders.

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Flow diagram showing how the Fed creates liquidity
and how it flows offshore to become the “milkshake”

  - . When the Fed tightens, it draws that liquidity back in. Investors crowd into the dollar. That strengthens the dollar, sucks capital into the US, and causes immense pressure on foreign economies with dollar-denominated debt as repayments must be made in the now-more-expensive dollar.

In time, the dollar breaks too. Too much demand becomes unsustainable. The US buckles under its own interest burden, foreign trust in fiat evaporates, and the last man standing is gold.

 

Dollar Milkshake Theory schematic – capital flows

Brent Johnson says gold will rise when everything else fails. That’s the idea. It's not just about price movement. It's about trust. Fiat currency is not a promise in which one can have confidence. Gold is.

Chris Vermeulen thinks we could see a 20–30% drop in markets after the next bounce. He’s watching the rotations. Gold might be going retail now. Maybe even bubble territory. Maybe gold will collapse with the main indices. Or he says wait for a correction, maybe to 3145, and could buy in then.

David Lin, meanwhile, is the brisk counterpart. He interviews big names in economics, sometimes sharply. He and Chris recently sat down for a good discussion: negative growth, volatility, distrust in banks, everyone seeking a hedge.

Gold is the refuge. For now.

Gold price trend vs VIX vs SPY

Eventually, though, even gold may sell off in a global fire sale. But you will have sold and will be in mountains of cash, possibly a new currency. The trick then will be to buy the surviving companies from out of the ashes.

If we live that long.

Interview with Chris Vermeulen and David Lin
Dollar Milkshake Theory primer

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THE DOLLAR MILKSHAKE THEORY - PART II

Dollar Milkshake – The Theory

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1. INTRODUCTION: A NEW MONETARY WORLD ORDER?

• Where are we with markets and the US dollar?
• Currencies are under pressure, debt is mounting, and monetary orthodoxy is breaking down
• Brent Johnson’s Dollar Milkshake Theory offers a good if contested framework to understand what is happening and what may come next
• This piece examines the mechanics, the risks, and the long-term investor implications of a global system that appears to be slowly unravelling
• The Dollar Milkshake Theory is not the only framework for understanding the macroeconomics of where we are - we will finish with a reference section.

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2. HOW THE CURRENT SYSTEM WORKS: THE DOLLAR AT THE CORE

• Most global trade and finance still flows through the US dollar. It is the world’s reserve currency
• Many countries borrow in dollars, but only the US can print US dollars
• Example, look at the Asian Financial Crisis, the Tom Yum Gung crisis of 1997
• In times of global crisis, liquidity (which is the ability to buy and sell an asset without changing its price) dries up, and everyone scrambles for dollars
• The US Federal Reserve, the Fed, the US central bank, has the unique power to “unclog” the system by creating and distributing dollars via swap lines (agreements between central banks to exchange currencies temporarily, to provide its local banks with foreign currency, usually dollars) to ease liquidity shortages during financial stress, ie international lending.

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3. WHY THIS CREATES A STRUCTURAL IMBALANCE

• When the Fed prints to support the system, non-US countries receive short-term relief but accumulate long-term dollar-denominated debt
• Over time, this debt becomes unpayable, especially if their own currencies weaken
• The irony is that the Fed solves today’s crisis, but seeds tomorrow’s debt trap
• And only the US, not China, not the IMF, nor any other body, can inject true base-money (real dollars) liquidity into the dollar system.

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4. WHY GOLD AND ALTERNATIVE CURRENCIES ARE BACK IN FOCUS

• Countries like China, Russia and BRICS allies are quietly building gold reserves
• Why? Because a gold-backed or commodity-linked currency would offer insulation from the dollar
• But creating such a system requires trust, convertibility, and scale
• It also comes with a trade-off: less ability to manipulate monetary policy - Gold-backing constrains monetary expansion because of the promise to repay in gold, and limits fiscal over-spendng.

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5. WHAT HAPPENS WHEN DEBTS CAN’T BE REPAID?

• If emerging economies default on dollar debts, they may face capital flight, inflation, or a currency crisis
• The Fed and IMF can intervene, but only if there is the political will, and only if all the players remains cooperative
• Defaults or restructurings harm US banks, bondholders, and the Fed itself, so there's a limit to indifference
• But each bailout weakens confidence in the dollar as a neutral global asset.

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6. WHAT HAPPENS IF THE SYSTEM BREAKS FOR GOOD?

• A terminal crisis would see countries move away from the dollar system altogether, as might be happening at the moment
• China could offer loans in yuan, gold, or in dollars from its own holding of dollars (it cannot really leverage them, it relies on reserves and swap lines) or a new synthetic currency backed by commodities, which seems unlikely
• But this transition would be slow, fragmented, and fraught with geopolitical tension – even war
• A breakdown of US dollar dominance could disrupt trade routes, supply chains, and global capital flows.

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7. WHAT TO WATCH FOR: SIGNALS OF AN APPROACHING SHIFT

• Rising gold purchases by central banks, especially BRICS
• Growth in bilateral trade bypassing the dollar
• Use of gold or oil to settle trade (e.g. Russia, Iran, China deals)
• Expansion of CBDCs (Central Bank Digital Currencies) outside the Western system
• US sanctions being countered with alternative financial payment systems & infrastructure (e.g. China’s CIPS, Russia's MIR vs SWIFT).

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8. LONG-TERM INVESTOR STRATEGIES

A. Core Protection:

• Hard Assets: Physical gold (better than silver ), precious metal ETFs like SGLN or GDX
• Resilient currencies: Swiss franc, Singapore dollar, Norwegian krone
• TIPS and other inflation-linked bonds in developed markets.

B. Asymmetric Bets:

• Exposure to gold miners g GJGB and commodity producers
• Selective exposure to emerging markets with commodity surpluses and stable monetary regimes (currency weakening would halt), such as:
• Chile (copper, lithium)
• Indonesia (nickel) - currency continually weakening
• UAE (petrodollars)
• Brazil (soy, iron ore)
• Singapore (financial services hub, sound monetary base).

C. Diversify Across Jurisdictions:

• Reduce reliance on any single currency or country
• Use multi-currency bank accounts, and if feasible, store wealth across legal jurisdictions.

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9. CAVEATS AND RISKS

• Moving away from the dollar is not easy. Dollar liquidity is still essential.
• Gold-backed currencies offer stability but limit monetary and fiscal flexibility – which can be fatal in downturns
• The transition, if it happens, will be disorderly
• War, capital controls, sanctions / tariffs, or expropriations will likely accompany the change.

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10. CONCLUSION: THE ROAD AHEAD

• The Dollar Milkshake Theory is not prophecy, but it exposes real fault lines in the global financial system
• As the dollar pulls in liquidity during crises, other countries are left increasingly vulnerable each time
• Eventually, the world may tire of this asymmetry, but replacing it will take a great deal of trust, time, and great coordination
• A smart investor watches the signs – and diversifies away, building their choices.

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REFERENCES & MACROECONOMISTS:

• Brent Johnson (Dollar Milkshake Theory)
• Luke Gromen (forestfortrees.substack.com)
• Zoltan Pozsar (Ex-Credit Suisse strategist on post-dollar systems)
• Joseph Wang (Fed Guy – liquidity dynamics and Treasury markets)
• James Rickards (Currency wars, gold and geopolitical finance)
• Lyn Alden (Macro strategy and monetary policy)
• Russell Napier (Financial repression and capital controls)

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CRISIS IN THE FRENCH WINE INDUSTRY

29 April 2025

Looking at the crisis in the French wineries industry. A representative case is that of a now-elderly gentleman - we shall call him Luc Raisinsec - who, about 20 or 30 years ago, combined his land with a neighbour's, making a splendid vineyard of some 60 hectaires of contiguous cultivated vine.

Many factors have combined to force viticulteurs into liquidation, the banks recover their loans of course, and some people must be getting marvellous chateaux in one of the best corners of France for a song.

Since the time of M. Raisinsec, his family has been obliged to halve the land under their cultivation.

The family receives aid from the local municipality to remove vines, or they sell the land to green washing companies who plant trees to set against greenhouse gas quotas.

Now they are looking to sell another 10 hectaires.

What is going on here? And what efforts are being made to save one of France's finest industries? What can viticulteurs expect for their futures and the futures of their children?

The French Wine Crisis: Causes, Impacts, and Responses

1. Introduction

French wineries face an unprecedented crisis, notably in regions like southwest France, exemplified by forced liquidations such as that experienced by a 60-hectare estate. This article explores economic, environmental, regulatory, and generational factors driving this industry turmoil.

2. Economic Pressures and Market Shifts

• French wine consumption nearly halved from 46 million hectolitres (1970s) to 24 million (2023).

• Structural surplus of 4–5 million hectolitres, especially in Bordeaux and southwest France.

• Decline in global demand, notably from China, has severely impacted exports.

• Collapse of bulk wine prices (from €800/barrel in early 2000s to €650–€700 today, far below production costs).

• Wine liquidations in Bordeaux resulted in sales as low as €0.05 per bottle, highlighting desperation.

3. Environmental Challenges

• Climate change causing severe droughts, heatwaves, and damaging spring frosts.

• Increased disease pressures (e.g., downy mildew), reducing yields and increasing costs.

• Climate adaptation expensive and limited by strict AOC regulations.

4. Regulatory and EU Constraints

• EU policies like planting rights and crisis distillation partially manage surpluses but impose bureaucratic delays.

• Strict French appellation (AOC) regulations restrict vineyard flexibility and adaptation.

• High labour and environmental compliance costs further strain growers.

5. Generational and Social Changes

• Aging vineyard owners without successors leading to farm abandonment.

• Younger generations less interested in viticulture due to poor financial outlook and lifestyle demands.

• Changing consumer preferences: younger people drinking less wine, favouring beer and non-alcoholic beverages.

6. Regional Impacts: Focus on Southwest France

• Bordeaux experiencing severe oversupply: 1,371 growers struggling, covering 35,000 hectares.

• Forced uprooting schemes (around 10,000 hectares) to balance market supply.

• Lesser-known southwestern appellations like Bergerac, Gaillac, and Cahors also face financial distress and surplus stocks.

7. Overproduction and the Red Wine Glut

• Excessive wine production creating massive inventories of unsold red wine.

• Dramatic drop in red wine demand domestically and internationally.

• Generic wines suffer most; distinct, quality-driven products remain more resilient.

8. Wave of Closures and Liquidations

• Sharp increase in insolvencies: Bordeaux alone saw 265 vineyard insolvencies in 2024 (up 58% year-on-year).

• Auctioning of wines at negligible prices becoming increasingly common.

• Cooperative cellars and wine négociants also under severe financial pressure.

9. Government and Industry Responses

• Crisis distillation fund (€170 million EU/French initiative) converting surplus wine to ethanol.

• Vine uprooting compensation scheme implemented to permanently reduce vineyard area.

• Emergency financial aid: debt relief, tax deferments, bridging loans to struggling producers.

• Increased industry promotion, market diversification, and tourism initiatives.

10. Paths to Transformation and Recovery

• Shift towards premiumisation: producing less wine of higher quality (organic, niche markets).

• Diversification into wine-adjacent products (non-alcoholic wines, grape juice, craft beverages).

• Growing importance of wine tourism, direct sales, and consumer engagement.

• Adoption of climate-resistant grape varieties and innovative vineyard management techniques.

• Potential market stabilisation by 2025–26 through ongoing interventions and adaptive strategies.

11. Conclusion

French wineries, particularly in the southwest, face a critical transformation. Short-term measures are providing emergency relief, while long-term strategies aim at creating a leaner, more resilient industry. Despite severe challenges, optimism persists around building a smaller, sustainable, and adaptive wine sector fit for future demands.

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References & Sources:

• Laurence Girard, Le Monde (2023, 2024)

• Jacques Dupont, Le Point (2024)

• BFMTV / Sud Ouest (2024)

• Alexandre Abellan, Vitisphere (2025)
  

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