Monday, June 02, 2008

Economics of Wine

As the UK does not have a comparative advantage in the production of wine we tend to import (and then consume) vast quantities of this grape based beverage.

Wine production and marketing is therefore subject to the whims of globalisation, trade barriers, consumer fashions and climate and hence makes it into this blog on numerous grounds. There are indeed academic papers on the impact of climate change on wine production - it is likely to be positive for the UK wine industry as you might expect.

The well respected Economic Journal celebrates the economics of wine with a special issue.

If you are wondering why now the introduction explains:

To coincide with the 150th anniversary of the famous Bordeaux Wine Classification of 1855, the Centre for Policy Evaluation at the University of Nottingham sponsored a special session at the 2005 RES Annual Conference on the economics of wine. The 1855 classification was completed as part of the Paris Exhibition of the same year as a temporary means to determine which Bordeaux wines would be exhibited. The classification took hold, and is still in use today. In celebration, this Feature explores how economics can add to an understanding of wine production and wine markets.


The Economic Journal
Volume 118, Issue 529, June 2008


The Economics of Wine Introduction
Alan Duncan and David Greenaway
pages F137–F141

Natural Endowments, Production Technologies and the Quality of Wines in Bordeaux. Does Terroir Matter?*
Olivier Gergaud and Victor Ginsburgh
pages F142–F157

We study whether quality assessments made by wine experts and by consumers (based on prices obtained at auction between 1980 and 1992) can be explained by variables describing endowments (land characteristics, exposures of vineyards) and technologies (from grape varieties and picking, to bottled wines). However, since technological choices are likely to depend on endowments, the effects can only be identified using an instrumental variables approach. We show that technological choices affect quality much more than natural endowments, the effect of which is negligible.

The Impact of Gurus: Parker Grades and En Primeur Wine Prices*
Héla Hadj Ali, Sébastien Lecocq and Michael Visser
pages F158–F173

This article looks at the impact of Robert Parker's oenological grades on the so-called en primeur prices of young Bordeaux wines. The Parker grades are usually published in the spring of each year, before the wine prices are established. However, the wine grades for 2003 were published much later, in the autumn, after the determination of prices. This unusual reversal is exploited to estimate a Parker effect which we find to be, on average, worth 2.80 euros per bottle of wine. We also use grade-specific effects to predict what prices would have been had Parker attended the 2003 spring tasting.

Predicting the Quality and Prices of Bordeaux Wine*
Orley Ashenfelter
pages F174–F184

Bordeaux wines have been made in much the same way for centuries. This article shows that the variability in the quality and prices of Bordeaux vintages is predicted by the weather that created the grapes. The price equation provides a measure of the real rate of return to holding wines (about 2–3% per annum) and implies far greater variability in the early or ‘en primeur’ wine prices than is observed. The analysis provides a useful basis for assessing market inefficiency, the effect of climate change on the wine industry and the role of expert opinion in determining wine prices.


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