Journal of Wine Economics Volume 8 | 2013 | No. 3

What begins as a documentary about the production of premium red wine in Bordeaux evolves into a treatise on the global economics of the industry. For readers of this journal, the lovingly photographed history of wine production in Red Obsession will be entertaining, if not enlightening; but the assessment of the global economics of wine production and consumption will be trivial and quite possibly annoying. So, even if not a feast for the mind, the film is a treat for the senses, with credit going to cinematographers Steve Arnold and Lee Pulbrook and composer Burkhard von Dallwitz.

The first half of the film is filled with lovely panoramas of the five Premiers Crus estates of Bordeaux—Haut-Brion, Lafite-Rothschild, Latour, Margaux, and Mouton Rothschild—plus interviews with some of the towering figures of contemporary Bordeaux. The scenes will be familiar to oenophiles but welcome for their beauty. Likewise, the interviews provide little new information for wine aficionados, but it’s a treat nonetheless to hear directly from winemakers such as Christian Moueix (who oversees production at Château Pétrus, among other estates) and proprietors such as Corinne Mentzelopoulos (now the sole shareholder of Château Margaux). Soon, natural scenes of vineyards are interspersed with scenes of the key commerce that occurs during “en primeur” week in Bordeaux.

One can only be impressed that the writers/directors David Roach and Warwick Ross were able to gain access to the region’s key players. Apparently, Roach and Ross had to spend six months just convincing some of them to talk, after they felt they had been burned by the 2004 documentary Mondovino, which portrayed the Bordeaux elite as villains.

Without explanation for the general audiences for whom the film is intended, the film focuses almost exclusively on a single, very special segment of the world of red wine: the Premiers Crus of Bordeaux. These same audiences may be pleased that the film is narrated by actor Russell Crowe, despite the fact that somewhat ironically he recently portrayed a London financial trader who is aggressively disdainful of French wine culture in the (very loose) film adaptation of Peter Mayle’s novel A Good Year.

Halfway through the film, we learn that traditional Bordeaux markets in the United States and the United Kingdom are weakening, and that a robust new market for premium Bordeaux is developing in China. Much of the second half of the film is essentially an examination of contemporary Chinese character, ambition, and taste. The focus is on the richest of the rich. With an estimated 600 (US dollar) billionaires in the new, post-Mao China (and presumably many thousands of millionaires), a market has exploded for the greatest wines of Bordeaux. One wealthy Chinese industrialist, who has made his fortune manufacturing sex toys, has a collection worth $60 million, with bottles of Lafite-Rothschild scattered throughout his house.

Interviews with wine critics, journalists, and winemakers reveal the way the industry works, how demand exceeds supply, how the weather determines yield and quality, and how the prices of the likes of Margaux and Lafite-Rothschild are set. Of course, all of this is a textbook example of what all budding economics students learn in their first year—the laws of supply and demand. Supply of the first growths of Bordeaux is limited. Even with a season of ideal rainfall and perfect temperatures, there is only so much wine that can be produced. Higher prices may cause Louis Vuitton to make more purses and Maserati more GranTurismi, but Latour will not expand its output. Supply of these brands is infinitely inelastic.

As for demand for the best of Bordeaux, it is rapidly increasing. As China’s economy has grown at breathtaking rates in recent years, so too has demand for luxury goods. China is now the world’s largest importer of fine wine from Bordeaux. Robust and rising demand, combined with inelastic supply: an obvious recipe for price escalation. If only the film had explained that clearly and simply.

However, the film does provide a hint—although no more than a hint—of why the prices of the first growths have increased so dramatically relative to the prices of other classified Bordeaux. This comes from the film’s extended discussion of Chinese character, ambition, and taste. One observer after another comments on the Chinese fascination with labels and brands. Combine this with the emergence of China’s billionaire and millionaire nouveaux riches, and the result is dramatically increased demand for the top tier of luxury-good brands, in particular, for collectibles—whether paintings by French Impressionists or classic wines by Lafite Rothschild.

The film reminds us that a Chinese proverb says, “Remember to dig the well before you are thirsty.” So, in addition to being important and growing Bordeaux consumers, Chinese entrepreneurs are now trying to become meaningful competi- tors, as they seriously invest in their own wine-making efforts, with wineries that may not produce the best wines but are built to resemble the great châteaux of Bordeaux.

Robert N. Stavins
John F. Kennedy School of Government, Harvard University
robert_stavins@harvard.edu
doi:10.1017/jwe.2013.037

I read a good chunk of American Wine Economics while sipping a decidedly un- American Spätburgunder produced in the Ahr Valley of Germany. And, despite the title, much of the content is as applicable to wines produced there as it is to wines produced in Walla Walla, Washington, or Vineland, New Jersey.

The stated purpose of American Wine Economics is “to provide a unified and systematic treatment of the wine industry from an economic perspective” with the objectives of “giv[ing] a detailed description of the economic organization of the U.S. wine industry,” to “use economic principles to shed light on the behavior of wine producers and consumers,” and to “summarize findings and present insights from the growing body of studies related to the economics of the wine industry” (p. xiii).

To achieve a “unified and systematic treatment,” the first chapter of American Wine Economics provides a brief introductory microeconomics course with wine production and consumption used as illustrations. The standard theories of the firm and consumer are reviewed, but there is nothing here that is truly specific to wine, and anyone who has taken and passed an intro economics class can skip this chapter.

The subsequent chapters of the book discuss wine as a product and its characteristics and then take us from vine to consumption. While much of the material will be familiar to readers of this Journal and fellow travelers, it is largely concerned with the technology and business of producing wine, not necessarily with wine economics. Although much of the discussion is not specific to American wine, there is quite a bit of useful material here for the wine naïf.

There is more discussion that is specific to the U.S. wine market in Chapter 8 on wine distribution and regulation. While much of the chapter discusses, in general, why governments might want to regulate the market for alcoholic beverages, it also presents the specifics of the three-tier system of distribution in the United States and sketches some of the differences between states in how wine distribution is regulated. I felt, however, that the chapter could have covered the U.S. regulatory environment more completely. For example, as a reference for researchers, a table listing each state’s regime on wine selling and wine “importing” (from other states) would have been very welcome in this chapter.

It is not until chapters 11 (“The Wine Consumer and Demand”) and 12 (“The Wine Consumer, Quality, and Price”) that the books turns to what I would think of as “wine economics.” Here the book seems more focused and grounded in the literature, and it is perhaps no surprise that there is more tabular material here as well. Chapter 11 discusses the various determinants of wine demand (price, income, substitutes), presenting results from the literature. Chapter 12 presents results on the hedonic determinants of prices as well as environmental determinants (location, weather) of prices, again including discussion some of the main papers in the literature. These chapters are a good introduction to research on the determinants of wine prices, and the author, James Thornton, pays thorough attention to the work of his fellow members of the AAWE.

Chapters 12 and 13 discuss the globalization of the wine market and recap the basic economic approach and results.

It is sometimes hard to discern the intended audience for American Wine Economics. There is little technical material in the book, and the discussions of economic principles are clearly aimed at a general, but educated, audience. On the other hand, the little bit of technical material (e.g., two discussions of the meaning of p-values and several discussions of the meaning of elasticity) is likely to leave most popular audiences a little baffled. The dry “professorial” style of the writing might lead some readers to put the book down and reach for another glass of California Chardonnay and the latest issue of Wine Spectator. For the readers of this Journal, the lack, or very limited, discussion of topics like the effect of global warming or wine as investment will surely be seen as lacunae.

For a book that focuses on the “American Wine Industry,” there is also a surprising lack of specifics. For example, why does figure 5 (p. 78) not show actual grape production? Or why does the chapter on grape growing not show the distribution of varietals produced in the United States? Why are the figures on annual U.S. wine sales (p. 211) not shown in a graph rather than a table? There are a host of similar questions that either the author or an attentive editor should have addressed to make the book more specific to the United States.

Overall, there are parts of American Wine Economics that will appeal to an educated wine drinker and parts that will appeal to readers of the Journal of Wine Economics. Neither will find the emphasis to be especially American, however, and the book as a whole will leave both groups wanting more.

David A. Jaeger
City University of New York Graduate Center and University of Cologne
djaeger@gc.cuny.edu
doi:10.1017/jwe.2013.38

This classic reference book has sold more than four million copies since Hugh Johnson first put it out in 1971, and it is now published in 13 languages. It tells us where winegrapes are grown and is a natural companion to the seminal Robinson/ Harding/Vouillamoz 2012 book on which winegrape varieties are grown around the world (Wine Grapes, reviewed in the previous issue of JWE, Vol. 8(2), 2013), as well as to Robinson’s Oxford Companion to Wine (the fourth edition of which will appear in 2014).

The Atlas has been revised every six or so years since it first appeared, with Jancis Robinson joining the project beginning in 2001. If you already have an earlier edition, should you indulge in this new one? For anyone who refers at least occasionally to it, the answer is almost certainly “yes.” It is worth its modest price for the new set of spectacular photos alone, but, of course, its unique maps are the book’s greatest strength.

So much has changed in the industry even since the sixth edition appeared in 2007. Key trends include the expansion of vineyards in new or reforming regions, the striving to raise the quality of wines by paying more attention in the vineyard and intervening less in the winery, and the beginning of a diversification away from well-known international winegrape varieties to less-familiar local ones.

Among the regions getting expanded treatment or new maps are Tasmania in Australia, the Okanagan Valley in Canada, Ningxia province in China, coastal Croatia, Ahr in Germany, Khaketi in Georgia, Peloponnese in Greece, Canterbury in New Zealand, Etna and northwest Spain, Swartland in South Africa and northern Virginia in the United States. To keep the volume to 400 pages, some other regions were dropped, including North Africa, where the wine industry has been in the doldrums for decades (in contrast to the first half of the twentieth century (see Meloni and Swinnen, 2014).

These changes in coverage invite speculation as to which regions might change before the next edition of the Atlas appears. Might the Arab Spring lead to a resurgence in winegrape production in countries bordering the southern and eastern Mediterranean? Certainly, Turkey has been striving to do so, such that it deserves its own new page in the seventh edition—even though barely 3 percent of its vast vineyard (fourth largest in the world) is directed toward wine at present. One reason that growth is hampered there is Turkey’s poorly developed wine laws and heavy taxes (Ozdemir, 2013). Might the dramatic growth in the middle class in India see its embryonic wine industry boom? Heavy import taxes and promotion by the Maharashtra state government have encouraged domestic production, but currently India has only 0.1 percent of the world’s winegrape area, making its wine industry about 1/100th—yes, one one-hundredth—the size of China’s. Brazil or Uruguay? Both face viticultural challenges, having a far wetter climate than that of their Southern Cone neighbors, but both are striving to improve the quality of their winegrapes, as indeed are other tropical countries (Bolivia, Peru, Thailand, and even Myanmar). The Third International Symposium on Tropical Wine was held in Chiang Mai, Thailand, in 2011, and the fourth one is scheduled for August 2014 in Brisbane, Australia.

A better understanding of the geography and terroir of each region helps the consumer know where tonight’s bottle came from. Just as important, it helps producers assess their place in the ever-evolving wine world. For them, and for those just wishing to keep up to date with where the wine industry is globally, the latest edition of this book will appeal, as it continues to be an essential and unrivalled part of every wine lover’s library.

Kym Anderson
University of Adelaide and Australian National University
kym.anderson@adelaide.edu.au
doi:10.1017/jwe.2013.39

References

Meloni, G., and Swinnen, J. (2014). The rise and fall of the world’s largest wine exporter (and its institutional legacy). Journal of Wine Economics, 9(1), forthcoming, February 2013.

Ozdemir, D. (2013). Turkey’s arduous journey from vine to wine: Why can a country, with the fourth-largest vineyard in the world, not make wine from its grapes? AAWE Working Paper 143, October.

Robinson, J., Harding, J., and Vouillamoz, J. (2012). Wine Grapes: A Complete Guide to 1,368 Vine Varieties, Including their Origins and Flavours. London: Allen Lane.