The subprime crisis was a hot topic at school as well. Of course, among the students in the Department of Viticulture & Enology, there was still more talk about Warren Winiarski’s moves, but the real estate problem shaking all of America was no less serious.
And if you were the child of a family that ran a winery or farm, you couldn’t help but pay even more attention to the matter. As it happened, all three of my friends, myself included, ran farms.
“It’s going to get pretty serious, isn’t it? At least the vinegar’s selling well. If not, whew...”
Armando shook his head.
We were sitting in the glass-walled conference room on the second floor of the student union—our little hideout—having lunch with two large pizzas spread out before us. By now, I was sick to death of pizza, but there wasn’t much else to eat, so I picked at a slice with a sullen expression.
“You must be fine, since your liquor’s selling well?”
At Armando’s question, Jacob gave an awkward smile.
“Thankfully, yeah... but I think I just got lucky. Brian makes good liquor, and since it isn’t expensive, it doesn’t seem to be affected by the economy much.”
The profit per bottle was smaller for that very reason, but considering the scale of the distillery, it had already far exceeded its projected earnings. The dividends I’d earned from Jacob’s distillery alone had already surpassed five hundred thousand dollars. Since that was profit after paying back the initial investment, it showed just how much money Jacob’s distillery had been making from the end of last year to now.
“I’m jealous...”
At that level of earnings, it wasn’t strange for Armando to be envious.
“You’re making quite a bit from vinegar too, though.”
“If I weren’t, things would’ve been really hard.”
If it had been wine, he would almost certainly have had a tough time in this subprime crisis. Wine had to be aged for at least a year, so the earliest he could recover his funds would be November, and at worst it would spill over into the next year. But because it was vinegar, sales had started in May, and by August there was hardly any vinegar left in the warehouse.
Armando, who was busy being envious, had also made a considerable amount of money and used it to pay off quite a bit of debt, so he would be able to get through a crisis like this without too much difficulty.
“What about you?”
This time, Armando asked Chloe. Chloe, who had been eating her pizza prettily, blinked her large eyes and shrugged.
“Me? Well...”
“Oh, right. Cherries start bringing in money in May too, don’t they?”
Chloe chewed, swallowed the pizza in her mouth, then said,
“Still, it’s not like there’s no damage at all. Especially since I took over the tomato farm from Dad and turned it into a pear farm. Some of the loans are fixed-rate, but part of them are variable-rate, so the interest has gone up a lot. What’s ridiculous is that diesel and fertilizer prices have gone up too, so our costs are rising sharply. It’s only bearable because our cherries taste better than other cherries and look good too, so they fetch a good price. Otherwise, it would’ve been really tough.”
“Really? Other cherries aren’t selling?”
Chloe sighed, put down her pizza, and began to explain.
“Don’t even get me started. The wholesale market is completely falling apart right now. It feels like wholesalers and processors have dried up on cash. You can really tell the volume of transactions has dropped compared to last year. Looking at the cherries other farm owners bring in, it seems like they’re taking a third of them back unsold.”
“Wow... that’s serious.”
“Even the ones that do sell, a lot of buyers ask to push payment back three months and things like that. Most of your vinegar goes to big marts and department stores, right?”
“Yeah, that’s true.”
“That’s probably why you haven’t really felt it yet.”
Thinking back to Chloe from a few years ago, it was clear she had become a completely different person. The way she discussed wholesale cherry prices, diesel, and fertilizer prices made her look like a farmer through and through.
“I do feel the diesel and fertilizer price increases too, but... the wholesale market’s that bad?”
“Yeah. At least I’m not operating on a small scale, and I have steady sales routes, so I’m fortunate. But I hear small farms without much capital are really in a major crisis. There are more than a few farms borrowing money because their credit lines got cut off. Three or four people have already come to our farm looking for Dad.”
“Ah... that’s serious. Thinking about it now, I really did the right thing listening to you and making vinegar.”
Armando, looking relieved, patted me on the shoulder.
“If you’re grateful, can we eat something other than pizza next time?”
“Instead of saying that, why don’t you open a restaurant? I’m sick of pizza too, but this is the only thing that’s even edible.”
“... Haah. The food here is salty, sweet, and way too heavy. Everyone gets fat because they only eat stuff like this.”
“True. Korean food is really delicious and nice.”
Armando teased Chloe, who had suddenly cut in.
“Ooh, looks like you’ve been eating Korean food a lot these days?”
“Not all the time... but when I go to Brian’s house sometimes, his mother makes it for me.”
“At this rate, you’ll be cooking Korean food soon too, won’t you?”
“Why not? I have a good sense for cooking.”
“Mm-hmm~ At this rate, you two will be living together soon.”
Just as Chloe and I quietly turned our gazes away, someone knocked on the conference room door. Since the walls were glass, I looked outside and saw a cute female student with short hair standing there. Jacob, who was closest to the door, opened it for her, and she shyly stepped in and spoke to Armando.
“I’m sorry. My mom asked me to, so... I was wondering if I could get some vinegar.”
“Vinegar? A lot? Ah, hold on... let me talk to you for a second...”
Armando gave a greasy smile, put down the pizza he had been eating, wiped his hands briskly with a napkin, and led the female student out.
“The pizza was already bad enough, and now I really can’t eat it.”
“Armando sure has a talent. I’m jealous of him when he’s like that. I’m done, so I’ll get going. I need to get back quickly.”
Jacob, who had nearly eaten an entire pizza by himself with his huge frame, rose from his seat. Since the distillery was busy, it was only natural he had to move as soon as class ended.
“Yeah, hurry on back.”
After Jacob left too, I stared blankly at the remaining pizza before speaking to Chloe.
“When’s your class?”
“In an hour.”
“Then should we go out and eat?”
“What are we eating? Buy me something delicious.”
Chloe looked at me with bright, expectant eyes.
“Mm... steak? You know Mason’s Chophouse, right?”
“Sounds good! Let’s go!”
To be honest, I wasn’t that hungry, nor was I craving steak, but I left school with Chloe. As we drove with the top down, feeling the warm breeze, I found myself grateful to the girl who had come looking for Armando.
---
At that same moment, Silveroak Hills Vineyards.
Elowen Pike sat in his office, looking down at a single document. His face was so grimly hardened that one could tell at a glance the document was causing him a major problem.
【European Distributor — Contract Termination Notice】
It was an official notice terminating the contract for thirty thousand cases of exports. Just a month ago, the European distributor had been discussing a contract extension, but as soon as the subprime mortgage crisis broke out, they were the first to cut off contact. Taking into account the additional cancellations that had come in up to today, sixty percent of the total export volume had been terminated.
Elowen bit his lip.
“... It’s this bad?”
He had braced himself to some extent, since it was only natural that when the market was bad, sales of high-end luxury alcoholic beverages like wine would suffer. But wasn’t this too much?
The problem, however, was that this was only the beginning.
“Elowen! The bank... things are getting out of control.”
Tom, his partner-manager, opened the door and came in, holding out a blue file. Tom, in his early forties, was both a partner who had helped build Silveroak for a long time and a winemaker.
【Loan Rate Adjustment → New Effective Rate: 10.25%】
After checking the file, Elowen’s eyebrows trembled.
“Are they insane? How does something that was 4.8% last year become...?”
Tom spoke hollowly, his expression hopeless.
“The banks are terrified. The capital market itself has frozen over, so forget new loans—they’re even reexamining existing borrowers.”
At the increasingly despairing news, Elowen slowly drew in a breath. The true weakness of the wine industry was not flashy labels or premium brands.
Its true weakness was the structure in which money was tied up for at least a year, from growing grapes to winemaking, aging, and shipment. The money needed to circulate in the meantime ultimately came from loans, and a surge in interest rates meant the very heart of the winery was being squeezed.
He absentmindedly placed his hand on the California map lying on the desk. On the map, his farm was marked with a triangle—ironically, it was forecasting a historic-quality Cabernet Sauvignon this year.
“How ironic... that we might collapse in the year the wine will be at its best.”
Tom hesitated before speaking.
“Elowen... Isabella and Bolton, two of our employees, left. They said they found positions elsewhere. And with wages being delayed, uglier rumors are spreading.”
“Haah...”
He held his head. This place was thirty years of history, inherited from his father and built up with his own hands. A place that had insisted on serious, classic Napa-style Cabernet. But now, all of that tradition was shaking before a single phrase: a liquidity crisis.
“How many cases do we have in inventory?”
“Altogether, over forty thousand.”
“This is insane...”
It was the moment inventory stopped being an asset and became a liability. If it didn’t sell, every last case would become a weapon choking the farm with storage costs, insurance, and interest.
Tom cautiously continued.
“Maybe...”
“Yes?”
“I’m not saying we absolutely have to, but there are rumors that a few other farms will be coming onto the market. Farms probably worse off than us.”
“So? Don’t tell me you’re saying we should hand over the farm and the winery.”
Tom stepped closer to Elowen Pike and spoke seriously.
“You have to think this through. Right now, the long-term debt alone is over a million dollars, and the short-term liquidity debt is close to a million too.”
“Haah. Going on that Judgment of Paris TV show last year turned out to be poison.”
That TV show had made Elaina famous, and by clearing out the wines piled up in storage, their struggling farm had improved greatly. The problem was that with the money they earned that way, they had only paid back urgent loans, then used the remaining funds to buy grapes.
“Exactly. Just because another farm was doing it, we shouldn’t have bought grapes and made wine too... But who could have known it would turn out like this?”
Elowen clenched his teeth. Redwood... After seeing the wine they made from grapes bought in places like Sonoma become a huge hit, he had done the same, buying grapes and making wine.
He had been certain that if the wine had Elaina’s popularity added to it, they would be able to sell it all. He had never imagined a global financial crisis would strike.
“The debt comes to two million dollars altogether. If the bank seizes the winery and sends it to auction, it’ll go for a pittance.”
“Damn it...”
“Wouldn’t it be wiser to sell it now, before that happens?”
Elowen couldn’t believe that thirty years of effort could disappear so emptily.
“Do we really have to do this?”
“While the grapes are still on the vines may actually be the best time. If harvest season ends and the wines we’ve been aging are ready to ship, but no sales come in, then from the moment we have to start turning the tanks again, the debt will snowball.”
Elowen, feeling faint, leaned back and closed his eyes.
“Ah...”
“Maybe... we should be praying the farm sells at all. If it doesn’t... the place we end up going may not be the auction house, but the courthouse.”
Tom’s realistic yet despairing words dragged Elowen’s spirit down to the floor.