Winemaking is really quite a simple business; only the first 200 years are difficult.
This book has a dual purpose: as a study to help those associated with the wine industry understand evolving market opportunities and challenges in the wake of globalization, and as a single industry case study to help society understand some of globalization’s myriad impacts on businesses, consumers and governments.
Globalization is inherently disruptive, whether due to technological changes in transportation and communication services or to governmental regulatory or trade policy reforms. A lowering of the cost of goods, services, capital, labour, tourists, information or ideas moving across geographic borders raises average incomes, alters producer technologies and consumer preferences, and changes relative prices of products and primary inputs, exchange rates, and comparative advantages of nations. Societies and their governments wish to know not only about benefits from change but also whether such disruptions lead to losses for significant groups. Indeed, the latter is one of the motivating forces behind much research on globalization’s various impacts.
Why Focus on Wine?
Globalization is especially disruptive to markets for goods based on capital-intensive perennial crop production and processing, because both investments and disinvestments in such activities adjust rather sluggishly to altered incentives (Dixit and Pindyck Reference Dixit and Pindyck1994). That is one reason why this is an ideal industry case study, because modern winegrape growing and winemaking are among the most capital intensive of all primary production, processing and marketing activities – especially at the premium end of the quality spectrum. Even traditional winegrowing by small farm businesses using labour-intensive methods cannot easily switch in and out of production as profits change.
Another reason for focusing on wine is that global production and consumption were concentrated in a very small number of just European countries at the start of the first globalization wave: in 1860, the top five countries accounted for 81 percent of global wine production, and the next three also were European and added another 7 percent. That concentration meant there was great potential for the growth in high-income countries’ incomes, as a result of globalization, to lead to wine consumption growth in new or underdeveloped markets.
Yet the first globalization wave that ended at the outbreak of World War I seemed to affect global wine markets very little except in one important respect, namely, the transfer of the tiny phylloxera insect from the United States to Europe. That insect devastated the majority of Europe’s vineyards. It led to French vignerons investing hugely in nearby Algeria, whose share of global wine markets rose from 0.1 percent in 1870 to 8 percent of production and more than 40 percent of exports by 1910. But if colonial Algeria is thought of as part of France (as the French government did prior to 1962), then the share of global wine production that was exported was no higher at the end of the first globalization wave – nor indeed in 1960 – than it was in 1860, at around 5 percent.
By contrast, exports as a share of global wine production grew from 5 percent to 15 percent between 1960 and 1990, and then to 40 percent by 2012. In the past half-century of globalization, wine has switched from being one of the world’s least-traded agricultural products to one of the most traded internationally. This has been an unprecedented boom for consumers everywhere. There have been huge improvements in the quality and diversity of wines available to middle-income consumers in an ever-expanding number of countries, at very affordable prices.
Not all winegrowers have benefitted, though. The rapid expansion in wine exports from the Southern Hemisphere since 1990 has put additional pressure on European producers, who, since the early 1960s, have been facing declining demand in their domestic markets. More recently, winegrowers in some newly exporting countries have been struggling to retain competitiveness too, while others (e.g., in New Zealand and the United States) have been enjoying high wine and hence grape prices. Meanwhile, all exporters are examining demand developments in Asia, especially China, in the hope of benefitting from that region’s emerging import growth while also noting China’s rapid expansion in domestic vineyards and wine production since the late 1990s.
Boom–slump cycles are normal in the wine industry. The latest national production cycles clearly did not all coincide, suggesting that unique national features contribute to those cycles in addition to common developments in markets abroad. To what extent was that the case in earlier periods? What lessons can be learnt from the past about why the wine industry in some countries grew while it stagnated or took off later in others? How does the extent of wine’s globalization in recent decades compare/contrast with that in the first globalization wave?Footnote 1 And what happened to wine markets in those intervening decades of slow global output and trade growth that were punctuated by two world wars and the Great Depression?
More specifically, why did it take until quite recently for temperate New World countries with ideal winegrape growing conditions to develop a comparative advantage in wine? Most were net importers of wine prior to 1900, even though ocean transport costs were falling rapidly and Europe’s vineyards were devastated by phylloxera from the 1870s.Footnote 2 What about producers in formerly planned economies of Eastern Europe and the CIS, and those in Islamic North Africa: to what extent might some of them rebuild their former competitiveness?
With these types of questions in mind, the purpose of this present study is to report on a comparative research project aimed at providing a series of empirically based analytical narratives for key countries and regions that shed light on why each national wine market developed as it did in the lead-up to and during the first and second globalization waves and in the decades between them; how the timing, length and amplitude of its wine cycles compared with those in other countries; and how it affected wine market developments elsewhere.
For most of the past two millennia, grape wine has been a European product. Most production was for home consumption and sale in local markets, with very little crossing national borders. Europe’s imperial expansionism from 1500 led to the emergence of winegrape production in some colonies, but again mostly for local consumption by European emigrants or, in the case of South Africa’s Western Cape, to resupply crews of passing European ships. The first wave of globalization, from the 1830s to World War I, might have stimulated intercontinental trade in wine as it did for so many other goods, but it did so only slightly: apart from vineyard expansion in North Africa, the product remained almost exclusively European, plus minor exports to European colonies.Footnote 3 Even within Europe, wine remained a luxury product in the nonproducing countries, where it accounted for only a tiny fraction of alcohol consumption. It took until the second globalization wave, which accelerated from 1990, before intercontinental trade in wine expanded – which it then did so spectacularly, albeit unevenly, and which led to the democratization of wine consumption in many more countries.Footnote 4
Aim of This Book
The present study seeks to explain why wine’s geographic spread was so delayed, why its belated takeoff has been so dramatic in a few producing countries and why consumption of wine is spreading to a far larger set of countries and to far more than just their most-affluent consumers. Lessons from those varying experiences provide a basis for looking forward and anticipating future developments. The book therefore finishes with a chapter that employs a model of global wine markets to project them to 2025 for nonpremium, commercial premium and super-premium wines. It begins in Chapter 2, though, with an overview of global wine market developments over the past 150+ years, of the contributions of major wine countries to those developments, and of the impacts they have had on numerous other wine-producing and -consuming countries.
Improving our understanding of these trends is of obvious interest to producers of wine and of competing and complementary consumer goods and services, but its value is much broader. True, winegrapes are grown on less than 0.2 percent of the world’s cropland, and wine accounts for well under 1 percent of global retail expenditure. Nor is wine a rapid-growth industry: the volume of global wine production is no higher now than it was in the early 1960s, and wine’s share of global alcohol consumption has more than halved over that half-century, to just 15 percent by volume and 21 percent by (tax-inclusive retail) value. But to millions of investors and hundreds of millions of consumers, wine provides a far more fascinating product than its shares of global production or expenditure might suggest.
Wine also provides an intriguing case study of globalization at work. In addition to the rapid rise in the share of wine production that is traded internationally, there has been a surge also of foreign investment in and mergers and takeovers of wineries large and small. The extremely wide ranges of prices at which vineyards and wines are sold makes winegrapes and wineries leaders in the agricultural and agribusiness sectors in terms of finding market niches through product differentiation, quality upgrading and sophisticated marketing. And the fact that even small winegrowers have been able to move beyond producing a standardized commodity over which they have no market power intrigues producers of other farm products seeking to graduate from being just a price-taking primary producer to becoming a value-adding actor in up to three sectors (by adding processing and possibly on-premise retailing and tourism services).
Wine’s globalization has brought major economic gains to participants and regions in the countries where production is expanding, although – as noted at the outset – not without some pain to those traditional European producers whose competiveness has been threatened by declining domestic demand and rising New World competition. In the past six decades, winegrowers have seen the volume of domestic per capita consumption fall by two-fifths in Portugal, two- thirds in France, and by a whopping three-quarters in Italy and Spain. The associated fall in winegrape prices has led to a three-fifths decline in these countries’ combined grapevine bearing area, from 6.5 million ha in the late 1960s to just above 2.5 million today. For those countries’ growers, it added insult to injury to see wines from New World upstarts suddenly invading what they perceived as ‘their’ export markets. Meanwhile, for Eastern European producers, that New World onslaught came at the same time as they were struggling to adjust to their transition from communism’s central planning.
Those less able or unwilling to adjust understandably were upset by the emergence of New World exporters. For example, at the beginning of the new millennium, Maurice Large, a winemaker and president of the Union Interprofessionelle des Vins du Beaujolais, likened Australian wine to Coca-Cola and called the consumers who purchased it ‘philistines’; and a report commissioned by the French Ministry of Agriculture in 2001 concluded, ‘Until recent years wine was with us, we were the centre, the unavoidable reference point. Today, the barbarians are at our gates: Australia, New Zealand, the United States, Chile, Argentina, South Africa.’
Traditional consumers of fine wines are concerned too. They worry that what for centuries has been characterized as a largely cottage industry – with colourful, passionate personalities and a wide variety of wines that differ across regions from year to year because of the vagaries of weather or the vigneron’s experimentation – will soon be difficult to distinguish from any other globalized industry producing for the masses. Similar concerns are expressed for ancillary industries associated with wine tourism, since boutique wineries are the lifeblood of such regional tourism.
New World winegrowers also are not immune to hardship. On the contrary, they too have faced severe downturns in the past, and some have felt such pain once again during the current globalization wave. What is different this time is that, with wine now traded internationally so much more than ever before, each country’s adjustments impact far more on other countries’ wine markets, and far faster, than previously. Indeed, with 40 percent of global wine exports now shipped in bulk containers, prices can adjust within minutes of new information on supplies or demands becoming available. These dramatic developments raise a raft of questions, answers to many of which are empirical.
What Differentiates This Book from Others?
A unique feature of the present study is that its contributors have assembled the world’s first comprehensive annual database of national and global wine markets back to the start of the first globalization wave (Anderson and Pinilla Reference Anderson, Pinilla and Holmes2017). Data for forty-seven individual countries and for five regional groups of remaining countries allow regional and global totals to be estimated for each variable. Those forty-seven countries have accounted for 96 percent of global wine production and exports and more than 90 percent of global consumption and imports since 1860.Footnote 5 With this new empirical resource, contributors have been able to complement and add value to the many national and global wine histories currently available.Footnote 6 They have also been able to not only add analysis of an extra fifteen years of developments since an earlier study to which several of them contributed (Anderson Reference Anderson2004), but also extend their empirically based insights back an extra hundred-plus years.
The academic economists and historians contributing national studies to this volume have adopted a common methodology to describe and seek to explain long-run trends and cycles in national wine markets in the context of what is happening in the rest of the world. Their analyses are comparative across long time periods, across regions within their country of focus and relative to what is affecting other sectors and hence macroeconomic variables in their country. Among the topics they explore are the roles of new technologies, and of policies, institutions, real exchange rate movements and international market developments. Other topics are wine’s evolving share of total alcohol consumption and evolutions in winegrape varieties, wine styles and wine qualities.
The fifteen country or regional chapters are preceded by a global overview (Chapter 2), and the study concludes with model projections of global wine markets to 2025 based on various assumptions about population and income growth, real exchange rate developments, changes in trade policies, and trends in production technologies and consumer preferences (Chapter 18).
We aimed to go back to at least 1835, when the first wave of globalization began (O’Rourke and Williamson Reference O’Rourke and Williamson2002, Reference O’Rourke and Williamson2004). That is also just before California, South Australia, Victoria and New Zealand began commercial winegrape production. A few chapters had access to data allowing them to go back further (Portugal to 1750, South Africa to the 1660s and Britain to the 1320s), but for many of the other countries the data are only sporadic until late in the nineteenth century. We therefore interpolated to fill gaps in the most important series (volumes of wine production, exports and imports) so as to be able to estimate global totals for those key variables back to 1860. We chose that time because that was when globalization accelerated, thanks to Gladstone’s tariff cuts, the treaty between Britain and France and the subsequent freeing of trade in other parts of Europe.
Of course, over such a long time frame, national borders were changing. We follow the convention of other comparative historians in using current boundaries. For example, Alsace and Lorraine are counted as part of France even though they were folded into Germany from 1871 to 1918. We also count European colonies as separate countries during the imperial period. Importantly, Algeria is considered as a separate trading entity preindependence. It also means the colonies that came together to form the Federation of Australia in 1901 are treated as if the Federation also existed in the nineteenth century.Footnote 7
What Have We Learnt?
Even though each nation’s experiences involved unique features that affected their globalization, it is possible to highlight some general findings. Almost all of today’s wine-focused countries experienced a mixture of positive and negative effects on various groups of wine producers, traders and/or consumers. The selection of influences summarized in the following relate to the international transmission of insect pests, technological improvements and their international transfer, trade costs, commercial policies operating at the border of customs territories, excise taxes and other domestic (behind-the-border) regulations plus promotional campaigns affecting domestic wine and other alcoholic beverage consumption, real exchange rate movements and institutional changes. This section also points to the multiple convergences that have occurred in the world’s wine markets during the first and/or second globalization waves. The final section of the chapter draws out some of the implications of these findings.
International Transmission of Insect Pests
Perhaps the biggest disrupter to global wine markets over the past 150 years was the infestation of the phylloxera insect into Europe.Footnote 8 It also appeared in other continents, but later and hence was less damaging because France had by that time found a solution to the problem. France was hit first, in the mid-1860s. Being by far the world’s biggest consumer and producer of wine (accounting for two-fifths of both), other countries were immediately impacted through the sudden increase in France’s demand for imports. Especially affected were low-quality wines, since it was the south of France that was impacted first and most in volume terms. That created a boom for countries most competitive in that segment of the market, especially Spain but also Italy and (in the form of raisins for rehydrating) Greece. It also stimulated a boom in vineyard and winery investment in nearby North Africa, most notably Algeria, which subsequently led to seven decades of sustained exports from that region back to France. That boom, however, had major adverse effects on those countries that initially expanded to supply exports to pest-ridden France, as mentioned later in the section on trade policies.
Technological Improvements and Their International Transfer
The international transfer of vine cuttings and grape and wine production know-how has been going on for millennia. It served as a substitute for trade in wine itself, including in the New World, where wines produced from local plantings gradually substituted for imports in domestic markets following European settlement.
Once a solution to phylloxera was found and successfully adopted toward the end of the nineteenth century in France (using resistant American rootstocks in place of European ones), that technology was quickly taken up in other countries as they became infected. In some cases, American rootstocks were used as a preventative method, along with strict quarantine protocols, to insure against infestation.
There is always potential to improve on traditional production, processing, entrepreneurship and marketing, be that by trial and error of practitioners over the generations or via formal investment in private and public research and development (R&D). New World wine-producing countries have been more dependent on developing new technologies and less on terroir than have producers in Europe, although both sets of countries have made major R&D investments – and expanded complementary tertiary education in viticulture, oenology and wine business and marketing – over the past half-century (Giuliana, Morrison and Rabellotti Reference Giuliana, Morrison and Rabellotti2011).
The capacity to transfer such new technologies to other countries has been greatly accelerated over recent decades, through two mechanisms. One is the emergence of fly-in, fly-out viticulturalist and winemaker consultants from both Old World and New World wine-producing countries (Williams Reference Williams1995). The decline in airfares has made it far more affordable for young professionals to work in both hemispheres each year, doubling their vintage experiences and learning and spreading new technologies quickly. The other mechanism is via foreign direct investment, including joint ventures: by combining two firms’ technical and marketing knowledge, the latest technologies can be diffused to new regions more rapidly.
How important modern technologies are relative to terroir in determining wine comparative advantage is a moot point. One study suggests terroir is not as dominant as is commonly assumed – even in regions as established as Bordeaux (Gerguad and Ginsburg Reference Gerguad and Ginsburg2008). A recent book by Lewin (Reference Lewin2010) begins its section on wine regions with the New World rather than the Old World, to emphasize the point that wines almost everywhere are manipulated by winemakers as they endeavour to make use of available knowledge to produce the products most desired by their customers. What they choose to produce is increasingly being affected by how they can maximize profits through satisfying consumer demand, rather than by what they prefer to make with their available resources.
New technologies in agriculture have long tended to be biased in favour of saving the scarcest factor of production, as reflected in relative factor prices. Hayami and Ruttan (Reference Hayami and Ruttan1985) emphasize that the focus of R&D investments thus has been driven in part by changes in factor prices, and in particular by the rise in real wages. That has resulted in the development and/or adoption of labour-saving technologies such as mechanical harvesters and pruners for vineyards and superfast bottling/labelling equipment for wineries in viticultural land-abundant, labour-scarce countries such as Australia. The adoption of labour-saving technologies has helped countries with the highest and fastest-rising real wages retain their comparative advantage in what traditionally had been (at least at the primary stage) a labour-intensive industry. This in turn means labour-intensive producers in poorer countries need to find sources of comparative advantage other than just low wages in order to remain internationally competitive.
Trade Costs
Despite declining transport and communication costs during the nineteenth century, trade costs – both domestic and international – continued to matter a lot throughout the first globalization wave for all but the most expensive wines. In Europe, those costs began to fall as railways were built, so that regions such as the south of France could profitably ship some of their wines to Paris. But exports to Britain and Northwest Europe continued to be confined mainly to premium wines.
In the case of the settler economies of the New World, trade costs mattered so much that the majority of export earnings of each of them came from just two primary products throughout most of the decades to World War I. In none of those countries was their wine of sufficient value per litre or per tonne to make it profitable to export very much. In the case of Argentina, it wasn’t even profitable to ship wine from Mendoza to Buenos Aires until the transnational railway came into operation in 1885, before which most of the wine consumed in that country had to be imported from Europe.
High trade costs explain why New World wine producers didn’t benefit from the phylloxera devastation in Europe during the first globalization wave. Even before Algerian production came on stream, they were unable to compete with France’s neighbours in supplying the desired low-priced, nonpremium wines needed to replace the temporary loss in production capability in the south of France – let alone afterwards once France erected barriers to imports from all but North Africa. The European and Algerian supply responses were so rapid that wine prices in France rose for only a few years in the 1870s before steadily falling over the three decades to World War I (Simpson Reference Simpson2004, figure 6).
By contrast, as ocean transport, air travel and communication costs fell further during recent decades, trade costs eased greatly as a constraint on wine exports, especially for producers in the Southern Hemisphere. They fell further as the technology for storing wine in 24,000 litre bladders improved enough to allow safe, long-distance bulk shipping of wine in twenty-foot containers. As a result, around 40 percent of wine is so exported now, up from 30 percent early this century. This is a return to what was done in the nineteenth century, when all but fine wine was exported in large barrels rather than bottlesFootnote 9 – except the transport cost per litre and time involved are far less now than during that first globalization wave.
Commercial Policies Operating at the Border
A milestone in wine’s globalization was Gladstone’s cuts to tariffs on Britain’s wine imports in 1860–1862. Britain and Russia were the two largest wine-importing countries in the 1840s, each spending an average of US$4.3 million per year. By the 1860s, when the value of Russia’s wine imports was 10 percent higher, Britain’s was almost eight times higher. The growth in imports from France was at the expense of imports of fortified wines from Spain, Portugal and South Africa, which for many decades had enjoyed preferential access to the British market.
Wine trade surged again following the infestation of phylloxera in France. The main supplier was Spain, from the late 1860s, followed by Italy from the late 1870s, and then Portugal and (in the form of raisins for rehydrating) Greece in the 1880s. However, that trade shrank when France imposed during the 1890s a series of ever-higher tariffs on those imports and introduced labelling regulations that required wine made from raisins to be so labelled (which reduced greatly its saleability). The volume of global exports did not fall, though, as France allowed investors in Algeria duty-free access to the French market for the next six-plus decades until Algeria became independent in 1962. If those shipments across the Mediterranean are considered internal French trade, the rest of the world’s exports amounted to just 5 percent of global production over the 100 years to 1960.
Protectionist tariffs also were important in reversing the nineteenth-century growth in wine imports from Europe by Argentina: they allowed Mendoza to subsequently supply most of the wine consumed in Buenos Aires thanks to the new transnational railway that opened in 1885.
Tariff protection in the Australian colonies inhibited nineteenth-century wine imports not only from Europe but also from neighbouring colonies, until those colonies joined to form a federation of Australian states in 1901. From that time, trade was made free between states, but protectionist barriers remained against foreign imports, as they did in New Zealand when it too became an independent country at that time. As in Argentina, such protection assisted the local industry but shielded it from the cool winds of competition that would have stimulated more innovation and quality improvement.
Following World War I, Australia provided an export bounty on fortified wines, and Britain provided preferential access to its market for such wine. Together those measures assisted returning soldiers who took up grape growing in warm irrigated regions. Those trade policies were abandoned following World War II, however, and Australia’s wine exports shrunk to a trickle for the next four decades. In other words, those support policies had done nothing to make Australian producers more internationally competitive. On the contrary, they eroded the country’s reputation as a supplier of still wine exports that had been evolving over the quarter-century prior to World War I.
When Russia took over neighbouring countries and formed the Union of Soviet Socialist Republics (USSR) in 1922, the wine trade of countries such as Georgia, Moldova, Ukraine and Uzbekistan switched from being international to internal. COMECON, a trading arrangement between the USSR and Eastern European countries, former Yugoslavia and others from 1949 to 1991, also played an important role: it gave preferential access to Soviet markets for exporters of wine from such countries as Bulgaria, Hungary, Macedonia and Romania. Once the Soviet Union dissolved in 1991, however, exports from those countries shrunk.
In Asia, trade policies have long inhibited wine imports, as a way of protecting not local vignerons (there are very few) but rather local beer and spirits producers. When Hong Kong decided to eliminate its tariffs on wine in 1996, imports surged. So too have China’s imports since it agreed to a lower its wine tariffs as part of its accession to the World Trade Organization at the end of 2001. Subsequent bilateral free trade agreements (FTAs) between China and Chile (2005), New Zealand (2008) and Australia (2015) have provided producers in those countries with even greater access to the burgeoning Chinese market. Similar bilateral FTAs also have been signed between those wine-exporting countries and Japan and Korea over the past decade or so.
Excise Taxes and Other Domestic Influences on Wine Consumption
Wine and other alcohol consumption per capita tends to increase as incomes rise, but only up to a point. In a study of patterns across all countries from 1961 to 2015, Holmes and Anderson (Reference Holmes and Anderson2017a) find that the national average volume of wine and other alcohol consumed peaks at about the real per capita income level of Western Europe in 1990. They also find that expenditure on wine peaks but at a slightly higher average income level as consumers raise the quality of their purchases, and it declines at a slower rate as incomes rise further than does the volume consumed. Furthermore, that study shows there is a wide range across countries in both the average volume of alcohol consumed and the shares of wine and other beverages in the alcohol mix. Clearly there are other influences on consumption per capita than just income levels.
One of those other influences is excise taxes (plus the import taxes discussed previously). They vary hugely across countries and are frequently adjusted by governments over time. The rates tend to favour consumption of the most-common beverage produced locally, and so are relatively low or zero on wine in wine-producing countries and high in wine-importing countries that are focused on beer or spirits production locally (Anderson Reference Anderson2010, Reference Anderson2014). That necessarily inhibits convergence in national alcohol mixes that a lowering of trade costs would otherwise encourage.
Governments influence wine and other alcohol consumption also through numerous other means besides altering consumer prices with taxes. In Britain in 1860, Gladstone was keen to encourage wine consumption, as he perceived it to be more civilizing than spirits or beer consumption. So while lowering tariffs on wine imports, he also reformed retail licencing regulations to reduce the competitive strength of ale and gin providers. Annual wine consumption per capita in Britain rose from 1.1 litres in the 1860s to 2.3 litres in the 1870s. But it fell back to 1.1 litres by 1913 and stayed well below 2 litres through to the mid-1960s. Then in the 1970s the British government stimulated wine consumption once again when it allowed retailing of wine through food supermarkets. Consumption per capita climbed to 11 litres by 1990 and to 21 litres by 2004. Similar dramatic rises in wine sales have occurred in Ireland and other Northwest European wine-importing countries over the past four decades. But the opposite occurred in the Soviet Union, where, in an attempt to curb excessive drinking, the government limited wine and other alcohol production and imports. That included pulling out a large minority of USSR vines in the latter 1980s, just before the Union dissolved in 1991.
In France, the government actively promoted domestic wine consumption from 1931, when wine prices were at an historic low. By 1934, consumption in France peaked at 170 litres per capita. Today it is now less than one-quarter of that – another reminder that the influence of such disrupters are not permanent.
Lobby groups seeking to influence governments, as well as consumers directly, have had major influences on alcohol consumption from time to time. Prohibition in the United States is the best-known example (1920–1934), but partial prohibitions in many other jurisdictions also resulted from very concerted lobbying by temperance movements from the mid-nineteenth century (Briggs Reference Briggs1986; Phillips Reference Phillips2014). Recently there have been active anti-alcohol lobbies in most high-income countries, seeking temperance on health and road-safety grounds. The World Health Organization also has been active, supporting that movement with information and analysis on alcohol trends worldwide. Undoubtedly this has been contributing to the decline over recent decades in high-income countries’ per capita consumption of alcohol, and hence of wine, at least in traditional wine-consuming countries.
Of course, which wines consumers choose is affected by advertising, critics’ ratings, consumer reviews and the like. Occasionally, a publicity stunt can have an influence too, perhaps the most famous being the so-called Judgement of Paris. In 1976, an English wine merchant, Stephen Spurrier, organized a blind tasting for French wine judges of top Californian and French red and white wines. The result caused a sensation because the Californian wines were ranked higher (Taber Reference Taber2005). This was a major milestone in raising consumer perceptions in favour of New World wines. Likewise, a broadcast of the CBS 60 Minutes television progam in 1991 publicized a so-called ‘French Paradox’, suggesting the French people have a relatively low incidence of coronary heart disease because of their diet, in which wine is integral. And the Chinese boom in wine consumption was catalyzed by Premier Li Peng affirming in 1997 the health virtues of red wine.
Real Exchange Rate Movements
Being blessed with a climate and abundant land suitable for wine production is a necessary but not sufficient condition for a country to be competitive in national and global wine markets. Especially in the presence of high international transport costs, it has been common for natural resource–abundant New World countries to be competitive in only a handful of primary products, and wine was rarely one of them prior to 1990. This was especially so during eras of boom in other industries. Such booms could be supply-driven (e.g., a domestic discovery of minerals) or demand-driven (a rise in the price of another exportable). Both types of economic booms strengthen the country’s real exchange rate, which weakens the competitiveness of that country’s producers of other tradable goods (Corden Reference Corden1984; Freebairn Reference Freebairn2015).
For countries subject to cycles in the value of their currency, and in the absence of sufficient offsetting government intervention (e.g., through a sovereign wealth fund), its wine (and any other tradable) industry is likely to be subject to cycles in profitability too. This has been one of the contributors to fluctuating fortunes in wine and other agricultural industries in Australia over the past 180 years, for example (Anderson Reference Anderson2017). This destabilizing macroeconomic influence on the wine industry has increased in importance since the moves by numerous countries in the 1980s to more flexible exchange rate regimes. Countries in the Eurozone, however, have instead been subject to movements not in their national currency but rather in the value of the Euro since its creation in 2000.
Institutional Changes
Perhaps the most important institutional innovation following the first globalization wave was the progressive introduction in France of regulations aimed at reducing grape and wine fraud and thereby boosting consumer confidence in wine. A by-product of the myriad restrictions on grape growing and winemaking that have accumulated is that producer flexibility and innovativeness are reduced. Cross-regional blending also is disallowed. With the formation of the European Economic Community (EEC) and now the European Union (EU), these French regulations have largely become EU-wide regulations (Meloni and Swinnen Reference Meloni and Swinnen2013). One consequence is that there is very little wine firm concentration in Western Europe, the main exceptions being in Champagne (where major brands developed, even if they depend on many small grape-growers), in Bordeaux (where negotiants have traditionally served as middlemen between the chateaux and the importer abroad) and in Portugal (where English firms have managed the export trade in port).
This predominance of small firms in Europe contrasts markedly with the high degree of firm concentration in much-less-regulated New World countries. The four largest firms in terms of domestic sales in Europe is in the 10 to 20 percent range whereas in the New World it is in the 50 to 80 percent range (Anderson Nelgen and Pinilla Reference Anderson and Nelgen2017, table 42). The latter’s large firms can exploit economies of huge scale in viticulture, oenology and wine marketing. They naturally have become multinational, using not just their production expertise but also their knowledge of market niches globally to deliver to those markets at lowest cost from anywhere in the world. They are thereby well suited to selling into the supermarket retailing system, which is why it was New World firms that initially dominated the burgeoning sales of commercial premium wine in Britain, Ireland and other wine-importing countries of Northwest Europe during the current globalization wave.
Summary of Convergences
Convergence is a theme that comes up frequently in the chapters that follow, as in many comparative economic history projects. They are highlighted in the next chapter, but can be summarized as convergences in the following:
EU and New World aggregate shares of global (excluding intra-EU) wine exports
Per capita wine production in the EU and New World
Per capita wine consumption, and wine’s share of alcohol consumption, in Europe’s wine-exporting countries (and Argentina) on the one hand and both Northwest Europe and the New World on the other hand
Technologies for grape-growing, winemaking and, somewhat less rapidly, wine business and marketing
Implications for Producers, Consumers and Researchers
One of the strongest themes that emerges from comparing the nature and timing of national histories of wine industry developments is that there is at least one silver lining for almost every cloud that comes across part of the world’s wine markets. Perhaps the most striking example from the first globalization wave is the fact that Spain (and to a lesser extent Italy and Greece) was a beneficiary of the damage done to France’s vineyards by phylloxera in the 1870s and 1880s (Pinilla and Ayuda Reference Pinilla and Ayuda2002). In the current globalization wave, a clear example is the downturn in Australian wineries’ international competitiveness over the past decade because of the real exchange rate appreciation associated with that country’s massive mining boom: it enabled wine exporters in several other countries to expand their sales in third countries at Australia’s expense (Anderson and Wittwer Reference Anderson and Wittwer2013).
As for consumers, the point was made earlier that the globalization of wine over recent decades has been an unprecedented boom for consumers everywhere, with huge improvements in the quality and diversity of wines available and at very affordable prices. The fear of some that increasing globalization of the wine trade would result in the homogenization of the world’s wines has not materialized. Firm concentration within the global wine market started from a very low base, and is still very low compared with even beer and spirits let alone the world’s soft drink industry. True, the New World’s large-volume, low-end commercial premium wines sold in supermarkets are not sophisticated, but these days they are free of serious technical faults and are a low-cost way for new wine consumers to begin to explore the world of wine.
With increasing affluence comes an increasing demand for many things, including product variety. Over time, new consumers will gradually differentiate more between grape varieties, wine styles and not just countries of origin but regions within them. With the help of wine critics, these new consumers will increasingly discriminate between brand names and labels within brands. The preference for differentiated products, and the infinite scope for experimentation by vignerons, will ensure that there will always be small- and medium-sized wineries alongside the few large corporate labels.
The forces of globalization, together with the expansion in premium wine-grape supplies as winegrowers upgrade, will spur more mergers, acquisitions or alliances among wineries across national borders. The success of their corporate wine labels in the global marketplace will in turn provide a slipstream within which astute smaller operators can also thrive. The popularity of cult wines shows that small and medium enterprises can do well in the age of mass marketing and consolidated winemaking and retailing giants, provided small wineries work hard on marketing and distribution to ensure their differentiated product is in demand.
A final word on future research areas. Despite our best efforts at compiling pertinent data, our global database still has important gaps, especially pre-1961, when United Nations data began to be collected more systematically. There are more gaps on consumption than production data, and on competing beverages than on wine itself. A supplementary effort to also assemble consumer expenditure and price data, to match the consumer volume data, has been made by Holmes and Anderson (Reference Holmes and Anderson2017b). However, for econometric analysis it would be helpful to have longer historical time series on beverage expenditures. That would enable the reestimation of price and income elasticities of demand for wine and other beverages, extending the work of, for example, Selvanathan and Selvanathan (Reference Selvanathan and Selvanathan2007) to include also soft drinks. It would also enable econometricians to better explain changes in the volumes and values of consumer spending on the various alcoholic beverages, thus going beyond the work of, for example, Colen and Swinnen (Reference Colen and Swinnen2016) on beer. Producer price data also would be very helpful, as would comparable firm-level producer performance data. Then it would be possible to estimate the relative importance of determinants of export growth, as has been done increasingly over the past decade for other industries (Bernard et al. Reference Bernard, Jensen, Redding and Schott2012).
Clearly plenty of scope remains for future research in this space, but at least this volume lays down much more solid empirical foundations than have hitherto been available as a springboard for such cliometric research.
