Market Power

Musings by an academic economist on the power of markets and the power over markets.

Wednesday, March 02, 2005

The Wines of France

"Who's killing the great wines of France?" asks the headline of this LA Times article.

Answer (according to this Wall Street Journal article (subscription req'd) and according to the LA Times article): consumer demand. Consumers are not buying the French wines because (in no particular order) 1. the falling value of the dollar makes these wines more expensive relative to domestic wines; 2. California, New Zealand, Australia, Spain, and Italy (among other countries) are providing a lot of good competition 3. the labels of the French wines are very complex.

I'm a beer snob, not a wine connoisseur. But I do like a bottle now and then (not in one sitting - generally!) when it comes to spending $40 on a bottle of wine. I know what I'm getting when I buy a Cab, or a Merlot, or a Shiraz. But I find the labels of many french wines to be difficult to read, and being a casual wine drinker, I usually buy what I can understand.

The LA Times article has this quip:

But the real problem is there's too much French wine. Hoping for a quick fix in the region that appears to be hardest hit, the government is paying grape growers in Bordeaux to rip up marginal vineyards and turn surplus wine into industrial alcohol. So far, however, only 475 acres of a targeted 25,000 acres of vineyards have been plowed under. The government plans to distill a whopping 250 million liters of wine from the abundant 2004 vintage into alcohol, 10 times as much wine as would be distilled in a typical year; most of it is labeled Appellation d'Origine Contrôlée (AOC). Still, it won't be enough to sop up all of the surplus.
It's an odd quip because most of the rest of the article focuses on the demand challenges faced by the French winemakers. In any cases, market forces can be very unforgiving. That's why they work so well.