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This article describes a new empirical model of the world’s markets for alcoholic beverages and, to illustrate its usefulness, reports results from projections of those markets from 2016– 2018 to 2025 under various scenarios. It not only revises and updates a model of the world’s wine markets (Wittwer, Berger, and Anderson, 2003), but also adds beer and spirits so as to capture the substitutability of those beverages among consumers. The model has some of the features of an economy-wide computable general equilibrium model, with inter- national trade linking the markets of its 44 countries and seven residual regions. It is used to simulate prospects for these markets by 2025 (business-as-usual), which points to Asia’s rise. Then two alternative scenarios to 2025 are explored: one simulates the withdrawal of the United Kingdom from the European Union (EU); the other simulates the effects of the recent imposition of additional 25% tariffs on selected beverages imported by the United States from several EU member countries. Future applications of the model are discussed in the concluding section.

American Viticultural Areas (AVAs) are descriptors of where wine grapes are grown that are designed to capture qualities unique to the wine and to influence its price. Sub-AVAs are sub- divisions of well-known AVAs designed to have the same effect. In this paper, I study the impact of the Napa Valley Sub-AVA system on the pricing and rating of Napa Valley wines. The analysis utilizes a primary hedonic pricing model to isolate both the individual Sub-AVA’s price effect and the system’s cumulative price effect. This study uses a unique dataset of 5,017 Napa Valley wines reviewed by the Connoisseurs’ Guide to California Wine over the 10-year period from 2004–2013. Estimated price effects persist even after controlling for rating differences, implying that consumers value the wines of sub-AVA’s independently of critics’ ratings. These results indicate that Sub-AVAs deliver a more substantial price effect than previous literature has suggested.

This article examines whether there are different hedonic price models for different German wines by grape variety, and identifies influential factors that focus on weather variables and direct and indirect quality measures for wine prices. A log linear regression model is first applied only for Riesling, and then machine learning is used to find hedonic price models for Riesling, Silvaner, Pinot Blanc, and Pinot Noir. Machine learning exhibits slightly greater explanatory power, suggests adding additional variables, and allows for a more detailed interpretation of results. Gault&Millau points are shown to have a significant positive impact on German wine prices. The log linear approach suggests a huge effect of different quality categories on the wine prices for Riesling with the highest price premiums for Auslese and “Beerenauslese/Trockenbeerenauslese/Eiswein (Batbaice),” while the machine learning model shows, that additionally the alcohol level has a positive effect on wines in the quality categories “QbA,” “Kabinett,” and “Spätlese,” and a mostly negative one in the categories “Auslese” and “Batbaice.” Weather variables exert different affects per grape variety, but all grape varieties have problems coping with rising maximum temperatures in the winter and with rising minimum and maximum temperatures in the harvest season.

The objective of this article is to analyze the determinants of world wine exports in the first globalization, taking into account the principal exporting countries and using an extended version of the gravity model. The article distinguishes between ordinary- and high-quality wines. Our econometric results show that wine exports were not affected by the increase in the size of the markets of consuming countries, since in most of them wine was an alcoholic beverage consumed by a very small minority of the population. The harvests of the producing countries, particularly in preceding years, significantly and positively affected their exports. Conversely, the harvests of importers hurt exports as there was a home bias in consumption due to cultural, price, or tariff protection reasons. In the interwar period, the wine trade was severely affected by a series of shocks such as WWI, the Soviet revolution, the Prohibition, and the 1930s depression. As was the case with trade as a whole, the fall in trans- action costs, favored exports, at least those of lower-priced and lower-quality wine. However, the liberalization of trade had a lesser impact on wine than on other products.

This issue of the Journal of Wine Economics opens with “Explaining World Wine Exports in the First Wave of Globalization, 1848–1938” (Ayuda, Ferrer-Pérez, and Pinilla, 2020). María-Isabel Ayuda, Hugo Ferrer-Pérez, and Vicente Pinilla analyze the determinants of world wine exports during the century preceding WWII. Employing an extended gravity model, the authors find that much of the trade volume is determined by external shocks (e.g., Russian Revolution, WWI, Prohibition) and by (lagged) grape yields. As expected, they find a positive effect of exporting countries’ yields and a negative effect of importing countries’ yields. The results also suggest the existence of a significant home bias. In addition, “as was the case with trade as a whole, the fall in transaction costs favored exports, at least those of lower-priced and lower-quality wine. However, the liberalization of trade had a lesser impact on wine than on other products” (p. 263). In the following paper, entitled “Pricing Models for German Wine: Hedonic Regression vs. Machine Learning,” Britta Niklas and Wolfram Rinke present various hedonic and machine learning models in order to explain retail prices of German Riesling wine (Niklas and Rinke, 2020). The study suggests that machine learning exhibits slightly greater explanatory power than the hedonic approach and allows for a more detailed interpretation of the results. The machine learning model is then applied to other varieties such as Silvaner, Pinot Blanc, and Pinot Noir. The analysis suggests that the influence of an independent variable on the wine price cannot be estimated by a single coefficient, since the marginal effects vary among quality categories, as well as by price points and critical scores. Regarding temperature variables, the authors find that “during the harvest season, especially higher minimum and maximum temperatures lead to a negative price effect for wines of all grape varieties and quality categories, so that earlier harvest is recommended for all grape varieties in cases of warmer harvest seasons, such as was the case in 2018” (p. 306) In “An Empirical Analysis of the Effect of Sub-Divisions of American Viticultural Areas on Wine Prices: A Hedonic Study of Napa Valley,” Grant Keating analyzes the economic value of sub-AVAs within the Napa Valley appellation (Keating, 2020). Drawing on a dataset of 5,017 Napa Valley wines reviewed by The Connoisseurs’ Guide to California Wine between 2004 and 2013, he runs various hedonic pricing models. The reduced form and rating-based models suggest that the majority of the sub-AVA effects stem from pure sub-AVA influences as opposed to indirect effects through critics’ ratings. That is, consumers value sub-AVA wines independently of critical scores. “These results indicate that Sub- AVAs deliver a more substantial price effect than previous literature has suggested” (p. 312) The last paper in this issue, entitled “A Model of Global Beverage Markets,” is by Glyn Wittwer and Kym Anderson. The article describes a new general equilibrium model of the world’s markets for alcoholic beverages, differentiated by wine, beer, and spirits; the model distinguishes 44 countries and 7 residual regions. Employing their model, the authors report results from various projections to 2025 under different scenarios. Two alternative scenarios are explored and compared to the business-as-usual benchmark. One scenario simulates the withdrawal of the United Kingdom from the European Union (EU); the other simulates the effects of the recent imposition of additional 25% tariffs on selected beverages imported by the United States from several EU member countries. Future model applications may include simulations of COVID effects on wine consumption and trade.

Karl Storchmann
New York University

In this paper, we use copula-GARCH models applied to daily data from March 2010 to March 2018 to test the time-varying dependence of the Liv-ex 50, a secondary market fine wine index comprised of the ten most recent vintages of the five Bordeaux First Growths, with a portfolio composed of the six main stock markets (S&P 500, CAC 40, DAX 30, FTSE 100, and Hang Seng). Our results suggest that the Liv-ex 50 underperforms the six stock indexes, but provides diversification benefits in terms of volatility, asymmetry, and extreme events.

This paper examines the impact of exports and its main determinants on the financial perfor- mance of the Romanian wine industry. We draw on a dataset consisting of mixed firm-level (i.e., 207 companies) data, Google Trends data, and regional variables covering the period from 2009 to 2017. We show that Romanian wine exports, at the firm level, are positively affected by regional wine yields (especially in the case of red wine varieties), temperature, and firm agglomeration, and negatively impacted by firm size. We also find a close positive correlation between financial performance and exports.

Assuming horizontal differentiation and using an expanded gravity model, the main objective of this article is to assess the determinants of Portuguese wine exports. Horizontal differenti- ation is considered, with still and fortified wines being distinguished, as well as three distinct designations of origin: Vinho Verde, Douro, and Port wines. The results from the period between 2006 and 2016 suggest that wineries and private and public agencies should focus their commercial and policy efforts on countries with high purchasing power and/or with great potential for growth, regardless of whether the customs costs are higher. Moreover, it is concluded that horizontal differentiation influences the export determinants, suggesting there should exist different internationalization strategies for distinct types of wine.

While France leads the way in the Chinese import market of wine, China is France’s third largest wine export market by value. In this article, I analyze the determinants of France’s wine exports to China, differentiated by French wine growing regions. I estimate a simple demand using a dataset on wine shipments of 100 different types of French bottled wines to China between 1998 and 2015. I find a wide range of income and price effects across French regions—a range not unlike those found by studies spanning multiple countries. Bordeaux wines exhibit the largest Chinese income elasticity. However, other French regions appear to catch up. Price elasticity, meanwhile, is particularly low for highly reputable wines, but quite high for wines targeting middle-class customers and wines from regions tra- ditionally known for white wines.

This special issue of the Journal of Wine Economics is based on a workshop entitled “Wine, Macroeconomics, and Finance” jointly organized by INSEEC U., INFER, and LAREFI (University of Bordeaux), and sets out to contribute to various macroeconomic aspects of two domains of wine economics, the international wine trade, and the role of wine as a financial asset. The rapidly growing body of literature has examined wine predominantly from a microeconomic angle, with the hedonic pricing model as its most commonly employed work horse. While hedonic analyses indirectly consider demand but do not explicitly take into account macroeconomic variables, various authors have shown that wine prices and the wine trade follow the same macroeconomic determi- nants, such as exchange rates, incomes, or economic cycles, as do traditional financial assets (e.g., Cevik and Sedik, 2014; Jiao, 2017; Cardebat and Jiao, 2018). Economic analyses of the international wine trade are mainly based on works by Anderson (e.g., Anderson, Norman, and Wittwer, 2003; Anderson and Pinilla, 2018). Relevant questions include the understanding of trade’s determinants (Bargain et al., 2018), analyzing trade barriers (Anderson and Wittwer, 2017; Mariani and Pomarici, 2019), or predicting the evolution of export flows in an uncer- tain world with fluctuating exchange rates (Cardebat and Figuet, 2019). The interna- tional wine trade has been subject to rapid changes, such as an increase in volumes traded, rising competition and product diversity, and growing protectionism. In this special issue, three papers highlight various trade-relevant issues. Olivier Bargain analyzes French wine exports to China, France’s third largest wine export market by value (Bargain, 2020). Bargain draws on a dataset of 100 dif- ferent types of bottled wines shipped to China between 1998 and 2015. Disaggregating French wine exports by color and growing region shipped to China between 1998 and 2015. He finds a wide range of income and price effects across French regions—a range of values similar to those found by studies examin- ing multiple countries. Bordeaux wines, particularly at the high end, exhibit the largest Chinese income elasticity. Price elasticities are generally significantly lower than income elasticities and appear to be particularly low for reputable premium wines.
Similarly, Anthony Macedo, Sofia Gouveia, and João Rebelo examine “Horizontal Differentiation and Determinants of Wine Exports: Evidence from Portugal” (Macedo, Gouveia, and Rebelo, 2020). The authors draw on data of Portuguese wine export to 89 countries for the time from 2006 to 2016. They estimate various gravity models distinguishing between fortified and still table wines, as well as the designations Douro, Vinho Verde, and Port. The results suggest that exports of fortified wine are more affected by the importing country’s income and by tariffs than are still table wines. On the other hand, fortified wine exports are more sensitive to real exchange rate changes. In the following paper, Albert Lessoua, Mihai Mutascu, and Camélia Turcu examine “Firm Performance and Exports: Evidence from the Romanian Wine Industry” (Lessoua, Mutascu, and Turcu, 2020). Drawing on various firm-level data- sets for 207 wine producers from 2009 to 2017, the authors show that winery exports are positively affected by regional wine productivity, the share of red wine produced, growing season temperatures, vineyard size, as well as by firm agglomeration. In a next step, they find evidence of a significant positive correlation between exports and financial performance. The last two papers of this special issue are devoted to wine as a financial asset. Whether or not wine outperforms common stock has been discussed controversially in the literature. Recent analyses have agreed that wine returns may have become less favorable to those of traditional assets such as stocks or bonds since around 2010. In addition, the correlation with traditional financial markets may be increasing, thus reducing possible diversification benefits (see, e.g., Fogarty and Sadler, 2014; Le Fur and Outreville, 2019). Philippe Masset, Jean-Philippe Weisskopf, and Clémentine Fauchery employ the classic CAPM method and analyze “Last Frontier Investments: The Case of Alpine Wines” (Masset, Weisskopf, and Fauchery, 2020). Drawing on a 2002–2017 auction price sample of wines from Austria, Germany, Switzerland, Northern Italy, and the Rhône Valley, which are all situated within the perimeter of the Alps or along Alpine rivers and lakes, the authors find that the trade fre- quency and value of these frontier investments have significantly increased over recent years resulting in above-inflation secondary market prices. Their analysis suggests that Alpine wines have been a favorable investment, particularly in terms of risk-adjusted returns and volatility. The last paper of this issue, entitled “Looking Beyond the Wine Risk-Adjusted Performance,” co-authors Frantz Maurer, Jean-Marie Cardebat, and Linda Jiao examine secondary market prices of the most liquid wines, that is, the top five clas- sified growths of the Médoc (Maurer, Cardebat, and Jiao, 2020). They employ a Copula-GARCH model on daily data and, compared to common stock, find subpar returns on these wines for the time period from March 2010 to March 2018. Nevertheless, wine may still serve as an interesting diversification instrument, particularly in view of its lower risk in terms of volatility, extreme events, and asymmetry.

Jean-Marie Cardebat
University of Bordeaux and INSEEC U.

This article presents a new experimental protocol for estimating consumers’ willingness-to-pay (WTP) for products involved in a reshuffle of geographical indications (GIs), e.g., a change of hierarchical levels within a restricted area. Although the collective reputation of a given GI depends on its temporal stability, reshuffling a GI area could make it better aligned with product quality or consumers’ perception. We first provide a simple theoretical model in which consumers put a negative value on within-GI quality variance, thereby showing that reshuffling the GI designation scheme may increase WTP without any change in product quality. Using the experimental protocol, we evaluate consumer perceptions of different reshuffling scenarios for the vineyards of Marsannay, Burgundy, France. The results reveal a significant increase in WTP for the current distribution of products’ quality. Elicited WTP values are then used to simulate the optimal GI reshuffle.

I use a computational linguistic algorithm to measure the topics covered in textual descriptions of wine. I ask whether there is information in the text that consumers value. Wine is a prom- inent example of an experience good. There is substantial product differentiation in the market, and consumers only have limited information on the utility they will receive when con- sumed. Thus, information is expected to be valuable. Evaluating descriptions of wine produced across the United States, I use a hedonic price regression to explore whether the descriptions provide any new information not already available to the consumer. Initial results suggest that text descriptions are shown to lose their explanatory value when varietal and numerical ratings are included as controls. I then show that once the varietal, region, and numerical ratings are adequately controlled for, there is information in the descriptions that consumers value.

Rates of alcohol taxation, and the types of tax instruments used, vary enormously between countries and have tended to rise in recent times. Within each country, they also vary between beverages and often between qualities and styles of each beverage. This article com- putes consumer tax equivalents in U.S. dollars per litre of alcohol and as percentages of whole- sale prices of representative beverages for 42 high- and middle-income countries. That allows comparisons across countries of taxes not just for each product on its own, but also relative to those for other alcoholic beverages. The wide dispersion of rates and differences in tax instru- ments across countries and products suggest differing strengths of health and welfare lobbyists and industry groups in influencing government decision-making.

some conver- gence in per capita consumption among nations as traditionally beer-drinking nations increase their consumption of wine and, conversely, wine-consuming nations shift towards beer. This article explores regional patterns of alcoholic beverage consumption within the United States. One purpose is to see if similar patterns of spatial convergence in consumption patterns can be observed within countries as have been documented in international comparisons. A more fundamental purpose is to explore the converse ques- tion and seek to better understand the persistent differences in alcoholic beverage con- sumption among groups. These issues are addressed using annual U.S. national and state-level data over four decades and, for the more recent period, supermarket scanner data at finer scales of geopolitical aggregation. Socioeconomic and other demo- graphic variables appear to play significant roles in accounting for the spatial differences in consumption patterns, although the details vary across different models and data sets. The analysis of demand using less-aggregative data for a shorter time period reveals some shortcomings in the corresponding analysis based on state-level data over a longer time period, but with poorly measured prices. These findings might extrapolate to studies making international comparisons using national aggregate data.

The American Association of Wine Economists (AAWE) and the wine economics community were saddened to learn of the passing of Dr. Domenic Cicchetti, on June 30, 2019. He was 82 years old.

Domenic Cicchetti was born on August 22, 1937. He earned his B.A., M.A., and Ph.D. in social psychology and biostatistics from the University of Connecticut (1965). He was a Senior Research Scientist at the Yale School of Medicine in the Child Study Center and the Department of Psychiatry and the School of Public Health in the Department of Epidemiology. He was an adjunct professor in the Department of Psychology at the University of Windsor, in Windsor, Ontario, Canada.

Dr. Cicchetti (Dom) was a renowned biostatistics scholar. Together with his late wife, Sara Sparrow, he developed the Vineland Adaptive Behavior Scales, which became the world’s leading instrument for supporting the diagnosis of intellectual and developmental disabilities. He authored and/or co-authored more than 200 research publications in behavioral and biomedical research, computer science, and biostatistics and wine statistics. For the Journal of Wine Economics, Dom authored five research articles and three book reviews. His works have been cited more than 40,000 times.

This issue of the Journal of Wine Economics opens with “Evolving Consumption Patterns in the U.S. Alcohol Market: Disaggregated Spatial Analysis” by Jarrett Hart and Julian M. Alston. The authors explore regional patterns of alcoholic bev- erage consumption, beer, wine, and spirits, within the United States by drawing on prices, incomes, and various demographic population characteristics. They analyze annual U.S. national and state-level data over four decades and, more recently, supermarket scanner data at finer geopolitical aggregation levels. Overall, socioeco- nomic and other demographic variables appear to play a significant role in explain- ing the spatial differences in consumption patterns. In particular, the authors find “strong and compelling evidence that ancestral alcohol consumption patterns, urbanization, and political affiliations are associated with differing consumer prefer- ences for types of beer and wine. Considering beer and wine together, areas with pop- ulations having stronger ancestral links to beer-drinking nations demand relatively more macro and craft beer compared to other beverages, and less imported beer and low- and high-priced wine. Areas with populations with high ancestral wine con- sumption demand relatively more craft and imported beer and low-priced wine, and less macro beer and high-priced wine. An increase in the Hispanic share of the popu- lation is associated with an increase in demand for imported beer and low-priced wine relative to all other beverages. Areas with more Trump supporters demand more macro beer, but less craft and imported beer and less low- and high-priced wine. We do not claim causality in any of these findings (Hart and Alston, 2020, pp. 38–39).” In “Consumer Taxes on Alcohol: An International Comparison over Time,” Kym Anderson computes consumer tax equivalents in U.S. dollars per liter of alcohol and as percentages of wholesale prices for still wine, sparkling wine, beer, and spirits in 42 high- and middle-income countries (Anderson, 2020). The wide dispersion of rates among countries and beverages, and differences in tax instruments suggests differing strengths of health and welfare lobbyists and industry groups in influencing government decision-making. Anderson discusses the effects of ad valorem taxes on wine, as imposed by Australia, Chile, Korea, and Mexico, com- pared to those of specific taxes on the volume of alcohol, against the background of policy goals such as health, welfare, income redistribution, and revenue generation. In the following paper, entitled “Wine Descriptions Provide Information: A Text Analysis,” Bryan C. McCannon employs a computational linguistic Dirichlet algorithm to measure the topics covered in textual descriptions of wine (McCannon, 2020). Drawing on three U.S. wine samples, 121 New York State wines, 237 Oregon Pinot Noirs, and 259 California Cabernet Sauvignons, he employs hedonic price regres- sions to analyze whether wine descriptions contain valuable information. After control- ling for varietal, region, and numerical ratings, McCannon finds that there is price explaining information in wine descriptions. “I find that the text correlates with the prices charged. The effect cannot be explained away by the other information consum- ers may know at the time of sale. Thus, wine descriptions do indeed convey some infor- mation to consumers that affect their demand and, ultimately, price (p. 91).” The last paper in this issue, entitled “Willingness-to-Pay for Reshuffling Geographical Indications,” is by Monia Saïdi, Jean-Sauveur Ay, Stéphan Marette, and Christophe Martin. Exploiting the fact that the classifications of certain vine- yards within a geographical indication (GI) sometimes change, the authors present an experimental protocol for estimating consumers’ willingness-to-pay (WTP) for wine. While producers within an IG generally benefit from the promotion of a mid-level vineyard to a higher-level, consumers may look at this differently. On the one hand, the promotion of the best wines from the medium level to a higher level facilitates the identification of high-quality wines from this area. This may, in turn, increase WTP. On the other hand, the removal of these high-quality wines from the medium level lowers the average quality at this level, and thus reduce the WTP for it. The question arises whether reshuffling a GI’s designation scheme may increase the WTP without any overall change in product quality. At an exper- imental setting involving 125 participants, five scenarios, and three levels of GI for each scenario, for the vineyards of Marsannay and Burgundy, the authors gathered 1,825 declared WTP values. They found “a significant increase in WTP for the current distribution of products’ quality (Säidi et al., 2020, p. 95).”

Karl Storchmann
New York University