This article is the first of its kind to estimate econometrically the supply elasticity of California wine grapes. Wine grapes constitute the single largest crop in the state of California in terms of total receipts. Allowing for the dynamic adjustments of quasi-fixed inputs, we estimate simultaneous systems of equations for California’s four major wine grape growing regions and eight of the most widely grown varieties. We find that California wine grape production is, on the whole, inelastic with respect to prices received. The variety showing the most price responsiveness is Chardonnay. There appears to be no significant difference in price responsiveness between the coastal and inland growing regions, or between red and white grape varieties.
The Texas wine industry of the United States has experienced substantial growth in recent years and yet is constrained by a significant lack of supply of Texas grown grapes. Using a real options framework we examine the role that wine grape price uncertainty plays on the financial decision to invest in vineyard operations in the state of Texas. Given reasonable estimates of required rates of returns, investment and operating costs for typical Texas vineyards, it is found that grape price uncertainty results in a delay in investment and subsequently a lack of grape supply. This delay in investment, known as hysteresis, is often found in situations involving large fixed investments combined with uncertain returns. In general the results indicate that average prices for Texas grapes would have to increase by 30 to 40 percent in order for a significant expansion in Texas vineyards to take place.
As competition for water resources increases and water availability in arid regions declines, agricultural producers are encouraged to adopt water-conserving strategies. This study examines the economic feasibility of implementing wine grapes in northwest Nevada as a diversification and water conservation strategy. Results show profit potential when vitis interspecific wine grape varieties are produced in the region. Net returns based upon point estimates from two separate analyses show per-acre net returns at $1,065 and $3,022, respectively. However, the large variation in potential net returns shown in the risk analysis, combined with a high capital investment cost of more than $17,000 per acre, may preclude producers from exercising their option to adopt wine grape production. Also, including wine grapes in the on-farm crop portfolio will affect its risk and return characteristics, likely impacting producer preferred level of wine grape adoption.
This paper examines empirically two distinguishing aspects of the world’s wine regions: their degree of specialization in certain varieties, as measured by a varietal intensity index; and their similarity with the varietal mix of other regions, as measured by a varietal-based regional similarity index. Twelve of the most important wine-producing countries, that together account for all but one-eighth of the world’s winegrapes, are included in the analysis. The data refer to circa 2000 (or 1999 for EU member countries, since that is their most recent census data). These indexes provide a baseline against which to compare more recent and future vintages. They will be especially useful as producers and regulators respond at varying speeds to the impacts of climate changes, in addition to market developments, on the optimal location of production of different varieties around the world.
There are two main players in the Champagne wine industry; grape growers and Champagne houses. The former grow grapes and either produce their own Champagne wine or sell their fruit to Champagne houses. The latter only produce Champagne wine and do not grow grapes. However, Champagne houses invest heavily in advertisements to establish and maintain their brand’s reputation. The grape market is characterized by the dominance of long-term supply contracts over spot contracts. Drawing on various theoretical models we suggest that the Champagne houses’ advertising strategy and its associated positive externalities (spillover effects) on grape growers is a way of stabilizing vertical relations, i.e., keeping grape growers from producing Champagne wine themselves and thus maintaining a certain degree of monopoly power.
This paper analyzes the position of wine in the Danish alcohol market from 1978 to 2008. During this time period the market share of wine has doubled, assumingly due to a tax-induced change in relative prices as well as behavioral changes. This paper models the yearly observed market share of wine by unobserved component models which allow for adaptive trends including regressions with time varying coefficients. I find that the market share of wine has a steady upward trend even if it was temporarily broken by a tax reduction for liquor in 2001.
Prohibition, that period between 1920 and 1933 when the manufacture, sale, import or export of “intoxicating liquors” was forbidden in the U.S., has produced a remarkable set of historical myths. Daniel Okrent’s inspiring new book reveals many of them. Here are some examples:
Myth 1—“Eliot Ness and the Untouchables put Al Capone out of business.” Well, actually, Capone’s bootlegging operation in Chicago was never shut down. Moreover, Ness, who died as a semi-drunken mess, had nothing to do with Capone’s final conviction, which was for income tax evasion.
One of the most interesting facts about Prohibition is that alcoholic beverage consumption and production continued during the entire period of its existence. Although Okrent refers to the work of Miron and Zweibel on alcoholic beverage consumption during Prohibition, his quite exhaustive research seems to have missed the main basis for their work: a truly remarkable book, The Economic Results of Prohibition, by Clark Warburton. This book, published in 1932, was Warburton’s doctoral dissertation at Columbia University. His advisors Arthur Burns, Wesley Claire Mitchell, Harold Hotelling, and Joseph Dorfman make up an all star economic team if ever there was one. The primary finding of the book, which is based on a careful examination of indirect indicators of production and consumption, is that alcohol consumption by the late 1920s was only about one-third below its pre-World War I high. From my reading of Warburton’s work, it is not even clear that consumption of alcohol was any lower by the late 1920s than it would have been absent Prohibition. For example, alcoholic beverage consumption declined by 40% in England and Wales and by 20% in Denmark in the same period, but there was no Prohibition in those countries. The use of modern methods of program evaluation might usefully be applied to reconsider this issue.
Myth 2—“It was illegal to drink alcohol during Prohibition.” Well, actually, it was never illegal to drink alcoholic beverages; it was only illegal to sell them. One of the most fascinating aspects of Prohibition that Okrent explains with care is that it was most successful when it was not enforced too rigorously, nor taken too seriously. To that end the framers of the 18th Amendment made it clear that penalties would be for the saloons, not their customers. Indeed, the Amendment was written so as not to go into effect until one year after its ratification, which permitted the distillers to sell off their stocks and their customers to fill their cellars for the coming dry season.
Myth 3—“The California wine grape industry was destroyed by Prohibition.” Well, actually, the California grape business never had it better than during Prohibition! The Volstead Act, which implemented prohibition, effectively permitted each family to make 100 gallons of wine per year legally. The result was a phenomenal boom in grapes produced to ship to the East coast. In fact, Warburton estimates, based on the dramatic increase in grape production during the 1920s, that the per capita consumption of wine actually increased by 65% as a result of Prohibition.
Despite the boom, Okrent also points out one key fact about grape production that had a very deleterious and long lasting effect on the California wine industry. Because the grapes California growers produced had to be shipped across the entire U.S., they specialized in the production of grapes that satisfied that purpose. Sadly, these grapes, typically the ubiquitous Alicante Bouchet, while suitable for the home wine makers back East, were not quite what wine connoisseurs had in mind. It took many decades, and the constant urging of people like Maynard Amerine, the distinguished University of California at Davis professor of enology, to move production to the quality wine that the state now produces.
There are so many other myths that Okrent reveals that it sometimes seems impossible to believe how bamboozled all of us have been. No, Joe Kennedy was not a bootlegger; Franklin Roosevelt was not a wet hero (as a young senator he sponsored a Prohibition bill for New York!); and Herbert Hoover regularly stopped on his way home from work in Washington for a drink at the Belgian Embassy!
In broad terms, Okrent makes a convincing case that the conjunction of women’s suffrage, the legalization of the income tax, and the U.S. entry into World War I set a congenial political environment for a change with unintended consequences that it took a decade to appreciate. The result was a disaster by nearly every measure possible. The proof of this lies in the evidence that living through the Prohibition ordeal actually changed the minds of voters and of their representatives. Of the 22 senators still in the Congress who had voted for Prohibition, 17 changed their minds and voted for its Repeal 16 years later. It is hard to imagine a more dramatic reversal of political fortunes. This book is an extraordinary accomplishment, both scholarly and readable.
I stumbled over this book in New York’s Strand Book Store, read the first pages while still standing at the bookshelf, bought it, and devoured it in a few days. The author of An Edible History of Humanity is Tom Standage, the business editor of the Economist and author of A History of the World in 6 Glasses. And clear-cut, this is a book written by an economist from the first page to the last.
An Edible History of Humanity covers 150,000 years of cultural history and its relation to food. This is not a “happy foodie book.” Standage does not write about the cultural history of food, cuisines or table manners. Rather, this book is about the role food has played in social and economic development and as the foundation of entire civilizations. In twelve chapters, Standage describes how food and the search for it has shaped our economy and our lives. The book is structured by topics and cruises chronologically through human history. It begins with the invention of farming and the transition from hunter-gatherer to farmer communities (Chapters 1 to 3) and closes with the Green Revolution of the 20th century (Chapters 11 and 12). But not all chapters are on farming. In between we read about the global spice trade (Chapters 5 and 6), food, energy and industrialization (Chapters 7 and 8) and food as a weapon (Chapters 9 and 10).
Here are some of the book’s ideas from the first chapters that, so my hope, should entice the reader.
Why did people switch from hunting and gathering to farming? The common answer is farming is more efficient and exhibits less volatile outcomes than hunting-gathering, and thus gave people more time to devote to artistic and technological pursuits. However, as convincingly laid out by Standage, the opposite is true. In addition to the fact that “being a hunter-gatherer was much more fun” than being a farmer, farming was less productive than hunting (measured in time spent per food produced) and yielded a less varied and less balanced diet. As a result, farmers were shorter in height than hunter-gatherers and enjoyed a lower life expectancy. So why did people switch? Drawing on a rich body of mostly anthropological literature Standage provides several possible explanations for the adoption of farming such as climate change, sedentism and population growth.
In some regions of the world, climate change appears to have played an important role; a warmer and less volatile climate was the necessary condition for farming. In other parts of the world people became more sedentary and spent most of their time at a single camp or even took permanent residency near a source of abundant wild food supplies. Nomadic hunter-gatherers have to carry everything – including children – from camp to camp increasing the cost of having many small children. Mothers in permanent settlements, on the other hand, are freed from this burden. Sedentism allows people to have more children and therefore may spur population growth, which, in turn, encourages supplemental plantings and agriculture.
In any event, the transition from hunting-gathering to farming was gradual. At no point did one person make a conscious decision to make a radical switch. The proto-farmer was rather guided by questions such as “Why be a nomad when you can settle down near a good supply of fish? If wild food sources cannot be relied upon why not plant a few seeds to increase the supply?” (p. 22).
Not only has farming led to greater changes in our natural environment than any other human activity, it has also changed our social lives. Food does not always bring people together, it can also divide them. While people settled down with farming, agricultural food surpluses allowed the social stratification of society and divided people into rich and poor. The concept of personal wealth is foreign to nomadic hunter-gatherers. The need to carry everything around limits the accumulation of personal property. Personal possessions are limited to a few clothes, tools and weapons. In addition, most items are shared among all group members. Bands in which items are shared are more flexible and have an edge over those who amass private wealth and jealously guard their status goods. Food is shared too; since not every hunter can be sure to kill an animal every day, sharing serves as an insurance against food shortages.
The egalitarian structure of hunter-gatherer bands has changed with the advent of sedentary farming. Since people don’t move around anymore the concept of private property and stratified social structures become accepted.
Standage then tackles the international spice trade from the 14th to the 17th century. Spices as “splinters of paradise” were sought after as status symbols. Cinnamon, ginger, white pepper, cardamom all were luxury items affordable to very few people only. “The conspicuous consumption of spices was a way to demonstrate one’s wealth, power and generosity. Spices were presented as gifts, bequeathed in wills along with other valuable item . . .” (p. 66). In this chapter, we learn about the European thirst for spices, the Arab trade cartel, and the need to look for new ways to India, which accidentally lead to the “discovery” of the Americas.
And, as Standage tells us in Chapters 7 and 8, there was new foodstuff coming from the Americas, mainly the potato and maize. Both substantially increased agricultural productivity or, as Adam Smith wrote about the potato, “. . . the same quantity of cultivated land would maintain a much greater number of people and … population would increase.” (p. 123). But the potato was not welcome from the first day on; farmers were reluctant to plant the new tuber. In Prussia, King Frederick II ordered the cultivation of potatoes by royal decree in 1756, when in most countries the potato was only kept as a potted flower. The popularity of the potato increased sluggishly but once accepted, the dependency on it, with all its positive and negative effects, grew rapidly. The Irish potato famine of the 1840s is a dramatic extension of what Vincent van Gogh depicts in his airless, poverty-stricken painting The Potato Eaters. But in the end, Adam Smith was right. The dramatic increase in agricultural productivity was the base for the rising industrialization in the United Kingdom and continental Europe.
Chapters 9 and 10 deal with food and its role in war. Napoleon’s defeat in Russia in 1812, might not have happened had he had more canned food in his supplies. Preserved food, first produced in glass bottles by Frenchman Nicolas Appert in 1795, went on sale as a luxury item in Paris. In 1809, Appert demonstrated his new food to the French army and started the production of tin cans for military supply in subsequent years. Some soldiers on the battlefield of Waterloo in 1815 carried rations of canned food. However, not all of these soldiers were French; the smart businessman Appert also sold his invention to the archenemy England.
In 1948/1949, during the Berlin Blockade, food was used as a weapon against communism. At the height of the airlift, the U.S. Airforce and the British Royal Airforce (supported by aircrews from Australia, Canadian, New Zealand and South Africa) flew more than 10,000 tons of food per day into the isolated city. The Douglas company, whose C-54 airplanes were the backbone of the campaign, accompanied this with a poster headlined “Milk . . . new weapon of democracy.”
The last chapters of the book are devoted to the Green Revolution. When German chemist Fritz Haber demonstrated how to synthesize liquid ammonia from its constituent elements, hydrogen (from coal) and nitrogen (from the air), in 1909, the world of food changed for good. Haber joined forces with BASF chemist Carl Bosch and developed a large-scale ammonia production method that is now known as Haber-Bosch process. Synthetic fertilizer was born and the stage was set for stunning agricultural production increases in the decades to follow.
Each chapter of this book is a fascinating read by itself. Standage puts events into a larger economic context and augments the factual report line with intriguing background information (and a comprehensive reference section).
However, the strength of this book, i.e., the fact that each chapter stands on its own, is also its weakness. The chapters do not directly relate to each other and have little in common except for the word “food.” And in the end, isn’t everything about food? Or maybe food, power and sex?
The choice of a topic-oriented structure that at the same time also follows a chronological order is fairly restrictive. I miss a discussion of contemporary topics such as food safety
and food politics, the advent of processed food or the emergence of restaurants in the early 19th century. I would have liked to learn how past issues link to the present. For instance, “food as status symbol” did not end with the spice trade of the 17th century. Now we are enjoying specialty foods, gourmet temples and 100-Parker point wines.
Although the link to the status function of spices 400 years ago is evident, there is nothing on food and wine critics in this book. Due to the fact that food and wine are “experience goods,” i.e., their quality cannot be evaluated before consumption, people have relied on experts and guides. However, historically, the existence of professional food and wine “experts” is a rather recent phenomenon. The first restaurant guides were sold in the 1920s; professional wine critics entered the scene in the 1970s. Recent research suggests that consumers’ quality perception for food and wine is driven by expert rating and prices (e.g., Plasmann et al., 2008), just like the demand for spices 500 years ago. In fact, as reported by Bohannon et al. (2009), some people are not even able to distinguish between pâté and dog food.
One might think, “one more reason to rely on expert guidance.” Unfortunately, the expertise of experts is often founded on shaky grounds as well. Hodgson (2008) reports that judges at a California Wine Fair assign medals to wine virtually randomly. At blind tastings of identical wines, one pouring received a gold medal while another pouring was rejected as flawed by the same expert. But worse. Sometimes, expert knowledge is not only flawed but utterly made up. For instance, in 2008, after paying the entry fee of $250, a fictitious restaurant won the prestigious “Wine Spectator Award of Excellence” for its outstanding wine list (Goldstein, 2008).
In a similar fashion, traders justified the high prices for exotic spices. Standage cites Herodotus, the Greek writer of the 5th century B.C., who describes the process of collecting cinnamon. “The Arabians say that the dry sticks, which we call kinamomon, are brought to Arabia by large birds, which carry them to their nests, made of mud, on mountain precipices which no man can climb. The method invented to get the sticks is this. People cut up the bodies of dead oxen into very large joints, and leave them on the ground near the nests. They then scatter and the birds fly down and carry off the meat to their nests, which are too weak to bear the weight and fall to the ground. The men come and pick up the cinnamon. Acquired in this way, it is exported to other countries.” (p. 64).
Notwithstanding my wish of having a separate book on each topic, An Edible History of Humanity is an outstanding read. Wanting more after an engaging read is always a great compliment to the author. Standage keeps the reader captivated from the first to the last page. And one learns a lot.
New York University
Bohannon, J., Goldstein, R. and Herschkowitsch, A. (2009). Can people distinguish pâté from dog food? American Association of Wine Economists, Working Paper No. 39.
Goldstein, R. (2008). What does it take to get a Wine Spectator Award? http://blindtaste.com/ 2008/08/15/what-does-it-take-to-get-a-wine-spectator-award-of-excellence/
Hodgson, R.T. (2008). An examination of judge reliability at a major U.S. wine competition. Journal of Wine Economics, 3(2), 105–113.
Plassmann, H., O’Doherty, J., Shiv, B. and Rangel, A. (2008). Marketing actions can modulate neural representations of experienced pleasantness. Proceedings of the National Academy of Sciences, 105, 1050–1054.
Written in disarmingly colloquial but fine, living German, Wein is a comfortable book, loose and casual as a pair of stretch-waist jeans and an extra-large Bundesliga jersey. A collection of 27 humorous short essays and 52 sublimely eccentric illustrations, Wein is about wine, of course, but it’s also a book about getting, and staying, relaxed. If your wine book collection resembles mine – a tannic row of the dutifully historical, aridly technical, ploddingly evaluative, and tediously politicized – it will gain balance from the addition of this juicy, hedonistic, and yet earnest volume.
Wein’s lead author, the much-awarded and much-maligned satirist Wiglaf Droste, has built a fine career from kicking sacred cows. Mostly a social commentator, he also keeps a watchful eye on German gastronomy, editing, with Wein coauthor Klink, a longstanding food and wine quarterly called Häuptling Eigener Herd (roughly, My Stove Is My Castle). Among his roughly 20 books, this is his first on wine. It was reprinted in November 2010 in paperback.
Here Droste aims his cleats at the human pretensions besieging wine and keeping it from flowing more freely in, around, over, and under our lives. Whether sending up bio-freaks, the demonization of alcohol, or a dinner host who wields boredom the way Freddie Krueger wields a bladed glove, Droste makes a consistently pomposity-popping point: there are too many spoilsports out there trying to take the fun out of his favorite drink. He goes about this business with a wicked grin, and for someone known for writing parody with a jackhammer, a surprisingly light touch. A seasoned snob like me comes away admonished, but laughing . . . and eager to test Droste’s adage that “the world looks better seen through a breakfast wine.”
Vincent Klink is a famous and talented chef and, to judge from his Stuttgart restaurant’s menu, a man who values a roasted veal hock over chilled tofu. Droste’s friend, he shares the satirist’s imperative to drink more and care less. He too has a deft feel for writing, mixing, as Droste does, the high with the low, and not shying self-parody, no matter how compromising. I was deliciously entertained by Klink’s deep-frying of his parents’ abysmal kitchen skills, and shamelessly amused by his steamed masturbation fantasy, involving melons, shrimps, a ham-hipped former classmate named Hilde, and a bottle of Giorgio Rivetti Barolo (“Viagra für die Frau”). There are also recipes.
They might have given either writer his own book, I thought, instead of braiding their sections together. But where the danger with Droste is a never-ending rant, with Klink, who rides a Moto Guzzi when he visits vintners, you risk a permanent midlife crisis. So, after all, it’s best to counterpose them this way. What unites the two is their love for wine. At bottom both are connoisseurs. They just don’t care to make a big deal of it. They might miss a chance to get drunk.
How do you illustrate a kitchen bull’s snorting autoeroticism without spoiling the innocent charm of the whole thing? You dig down deep inside your creative footlocker and pull up a painting of a wine bottle that walks on pigeon legs between which sway a pair of spike-haired human testicles. This is the work of graphic artist Nikolaus Heidelbach, Wein’s third contributer. If you were still having doubts, Heidelbach’s paintings will make finally clear how seriously, beautifully demented this book is. Golgotha in a wine bottle. Corks that dance and hump each other like dogs. Bizarre portraits of people, bottles, and animals, singly and sometimes all together. Heidelbach recalls the moods and talents of Maurice Sendak and Wilhelm Busch, often surpassing them. Even if German isn’t your favorite conversational tool, Heidelbach’s pictures are worth having on your coffee table, especially if you are skipping the coffee and pulling another cork. They make the visual joy of a children’s book re-available to grown-ups.
A sharp but loving dig in the ribs, Wein reminds wine lovers to smile as they sip and to adapt Oscar Wilde’s sage quip about art to their vinous concerns: Wine may be the only serious subject in the world, but the true wine fan is the only person who is never serious.