May 3, 2008, by  Karl Storchmann (Journal of Wine Economics)

The American Association of Wine Economists (AAWE) will hold its Second Annual Meeting from August 14 to 16, 2008, in Portland, Oregon. Two weeks ago our “Call for Papers” expired. Since then we have been working on an overwhelming amount of submissions and we accepted a total of 62 of them.

We will have wine economics papers related to the environment, biodynamics, marketing, finance, direct shipments, political economy, tastings and many more.  Wine appears to be a topic that can be looked at from many directions. Today and in the following blogs I want to present some abstracts that fascinated me the most.

 
I am intrigued by the topic “wine and climate change.”  We all know that global warming will produce winners and losers. In the European wine world, the winners are in the north (e.g., Germany) while the losers are in the south (e.g., Spain). It is not likely that global warming will have any negative impact on overall wine production or quality. Rather, the likely scenario is that professional viticulture slowly moves north. In fact, we already see vineyards as far north as Denmark. Sure, the northward shift would cause some adjustment cost when wheat fields will be replaced with vines (in the north) or vineyards turned into date groves or golf courses in the south. But the slower the climatic change progresses the lower these additional costs will be.  In an extreme case the new plantings may not cause any additional costs; vineyards need to be replanted every 30-50 years anyway. Certainly, the regional distribution of land values will change. Since at current prices grapes are more precious than wheat the north will win, whereas the south will lose. But will overall income or welfare change? Why should it?

But, in Europe, there is one problem. You cannot plant a vineyard wherever you want. In order to “stabilize” wine prices the European Union has regulated the wine market and imposes strict limitations on new plantings. In the context of global warming, this may seriously restrict the market’s ability to adjust and can impose enormous cost on consumers and producers. This is where Luigi Galetto’s (University of Padua, Italy) paper “The Market of Vineyard Planting Rights” comes into play. He investigates the market for vineyard planting right in the European Union. Here is the abstract:

 “Within the European Union (EU) long-term control of wine supply has been pursued since the Eighties by mean of the tool of planting rights. This means that who wants to plant a new vineyard or replace an old one with a new one needs to own the planting rights corresponding to the amount of the surface he intends to invest with wine grapes. Likewise, for production quotas the aim of this tool is to constrain production but indirectly, i.e. by managing the main input: the vineyard. Moreover, similarly to a market of quotas a market of vineyard plant rights has been made possible within the EU.

However while the market of production quotas has received significant attention in the economic literature, very few studies have been interested on the market of vineyard planting rights. In order to fill this gap, the following paper is a first attempt to describe the theoretical framework of this market.

A brief discussion on the notion of vineyard planting right, its economic value and its transferability within the context of the EU agricultural legislation introduce the theoretical analysis, which is carried on through the following steps:

a) Analytical and graphical identification of the demand and supply curves of planting rights at the farm level;

b) Description of the planting rights trade between two farms, focusing on the advantage generated by the exchange in term of surplus for both the buyer and the seller;

c) Analytical and graphical identification of the aggregate demand and supply curves of planting rights;

d) Dynamic aspects: review of the main factors which can affect the equilibrium in the vineyard planting right market, including some policy interventions like a planting right buyback program (already applied in the EU) and the phasing out of the prohibition to plant new vineyards (as it is stated by EU wine market reform, recently enacted).”