AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 204 – Economics

Everything You Know About Wine is Wrong

Lee Hannah & Terra Alpaugh


verything you know about wine is right — for now. But by mid-century, global changes will have upended conventional wisdom in the wine industry: climate change, shifting global demand, new vinification techniques, and marketing innovations will transform the industry. Climate change will expand the areas now suitable for grape growing into northern latitudes and higher altitudes, while also changing the climates, and thus suitability, of current growing regions. More advanced and intensive manipulations during the vinification process will facilitate winemaking in new areas and allow adaptation in old ones. The desire for European-style wine by China’s middle class will skyrocket, fueling global demand that will fund the adaptation needed in both viti- and vinicultural sides of winemaking.

This transformation has profound implications for the environmental footprint of the industry and conservation, both in traditional wine regions and in emerging wine- producing areas. The large expansions of vine impinge upon areas of high habitat importance for iconic wildlife, and adaptation to warming and heat stress may mean more water use in current growing regions. Solutions – like those proposed in the Yellowstone to Yukon program and China’s Eco-Compensation program—must balance the needs of the wine industry with those of wildlife, and will therefore require extensive and collaborative land use planning.

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1 comment:

Elliott MorssAugust 27, 2016 at 11:04 amReply

Lee and Terra:

I just read your AAWE working paper. Congratulations! It adds needed perspective on wine futures. I have a couple of additional points to add.

1. Wine Preferences – At several points in the paper, you distinguish between “great” wines and others. And you say that technologies definitely “impact” wine quality”. Such distinctions might have made sense in the ’70s, but more recent research raises questions about such assertions.

It is well-documented in AAWE papers that blind tastings, price does not matter. That is, people are just as likely to prefer an inexpensive wine as an expensive one. It is also notable that in the better known blind tastings where so-called “experts” are judges, the most notable statistical finding is the lack of agreement among the judges. I conclude from this that all wines are now “good enough” so individual preferences now dominate blind tastings. In short, the notion that certain wines are inherently superior is somewhat dubious.

In fact, I just ran a series of blind tastings – http://www.morssglobalfinance.com/the-ultimate-wine-tasting-event-distinguishing-reds-from-whites/. In each of the ten tastings, five wines from the same varietals with a large price range were tasted. What was striking was the performance of box wines – they were rated #1 in 7 of the 10 tastings.

I conclude from this that tasters have preferences but they are not reflected in past “quality” rankings. Now, I would hasten to add that marketing can add value: some people (the Chinese) like wines from the famous French regions just as others enjoy drinking wines recommended to them by their favorite wine merchant.

And one other point comes from this.

2. Bulk wine futures – Back in 2011, George Taber wrote a great book on wine innovators – “A Toast to Bargain Wines: How Innovators, Iconoclasts, and Winemaking Revolutionaries Are Changing the Way the World Drinks”. He featured Fred Franzia (Two-Buck Chuck) and John Casella of Yellowtail. Franzia grows lots of grapes – some he uses, some he sells; he also buys grapes from others. Casella is not a grape farmer. He buys (and mixes) all his grapes. I have recently done more work on the bulk wine business (ever heard of “Shiners”? – http://www.morssglobalfinance.com/your-favorite-wine-where-does-it-really-come-from/.

In short, the bulk wine industry is huge and growing. And regarding the highly touted French vineyards, it is notable that France imports large amounts of inexpensive bulk wines from Spain – one might wonder if any of the Spanish bulk gets “blended into” wines from these vineyards.

Back to your paper – I think the growing importance of bulk wines will have an impact on your scenarios. And if climate effects are as significant as you think they will be, I am sure the role of bulk wines will become even more important.