This article offers a retrospective from the 16th conference of the American Association of Wine Economists (AAWE) and explores wine economics and the essential questions shaping the industry in 2024.
The AAWE is the biggest academic association dedicated to wine economics in the world. Every year, it organizes a conference in a region where wine has a substantial cultural and economic impact. This year, the conference was held for the first time in Switzerland during the first week of July. After Cape Town in 2023, the EHL Hospitality Business School (Lausanne) had the honor of hosting this prestigious event. It brings together academics as well as journalists and industry professionals. Over 130 participants contributed to a program chock full of presentations, roundtables, winery tours, tastings, and, more importantly, passionate conversations—because wine is a tremendous vehicle for social exchanges.
Wine plays a major role in the economy of many countries, yet it’s only been in the last 50 years that it has drawn interest from researchers in the field of economics. Numerous studies were published in the 1990s and the first decade of this century.
In his watershed study, Storchmann penned a comprehensive overview of research on the topic of wine economics. Orley Ashenfelter, an emeritus faculty member at Princeton, is often considered the founding father of this area of study. A wine connoisseur himself, he developed a modelization of the price of wine in order to identify inexpensive wines people should consider buying and the pricier ones they should steer clear of. Determining a ‘fair price’ for wine is a tricky endeavor. Unlike most other asset classes, wine doesn’t generate cash flow. Traditional asset valuation methods are therefore irrelevant. To keep it brief, the price of wine at a given point in time depends on two things: 1) the conditions on the wine market (supply/demand equilibrium) that set the general price levels of wine, and 2) the characteristics of the wine and the way in which the market attributes value to those qualities.
Besides the question of prices and more generally the ‘finance of wine’, Storchmann identified two other key themes: the experts and their ratings; and climate change and its impact. These two themes are closely linked to the question of quality, which is obviously a major factor in wine prices.
However, how can most wine drinkers judge the quality of wine before purchasing it? It is usually next to impossible to taste the wine before making the purchase and many wines must be aged for several years before they reach their peak. That is why it is said that wine is an ‘experience good’. The role of experts is to provide information to consumers in order to help them in their decisions. Certain experts, such as the recently-retired Robert Parker, enjoy so much visibility that their recommendations (or lack thereof) can influence demand and send the price of a wine either rocketing or tumbling. A bevy of experts is currently battling it out to gain as much visibility as possible, to the point that there is talk of an ‘expertise market’. These experts are, in turn, feeling pressure from social media and specialized websites such as Vivino and CellarTracker.
Climate change is reshuffling the deck: certain regions are suffering from drought and have seen their production (and quality in some instances) fall, while highly reputable wineries are struggling to maintain the style of wine that made their fortune. So where does that leave us? With a lot of questions about 1) how to adapt to a warming planet (swapping varietals, changing production techniques) and 2) what the geographic distribution of wine production will look like in 2050.
One quick look at the program of the AAWE’s Lausanne conference made it clear that, while the three themes identified by Storchmann are still relevant, research has diversified substantially in recent years. Current themes include issues related to the market for organic and natural wine, the role of controlled designation of origin (AOC), the development of niche markets, the effects of regulations and import tariff policies, the impact of the war in Ukraine on the wine market, etc.
However, perhaps the most defining feature of wine economics in 2024 is the fact that it has expanded to other types of alcoholic beverages (e.g., spirits, cider, beer and even more exotic brews like Baijiu) and multidisciplinary issues. Wine, it should be said, offers an ideal laboratory for conducting experiments to better understand the perception and behavior of consumers. Some have gone so far to say that “wine psychology” exists.
We’re living in times of great technological advances and are currently witnessing the advent of artificial intelligence, which obviously was a topic of discussion during the conference. In particular, a roundtable with five experts was held where we saw how wine industry players are already making use of these tools to optimize work in the vineyard, wine cellar cave and the cash register. For instance, meteorological resources, satellites and AI are being combined to monitor the quality of the grapes in real time with a view to improving treatment methods.
Given that the conference was taking place in Switzerland, local wines were given the spotlight. A roundtable discussed indigenous varietals and the characteristics that make Swiss wines and the Swiss wine market unique. Participants tasted a representative sample of Pinot Noirs from across Switzerland, local whites and reds (Petite Arvine, Completer, Cornalin, etc.), as well as Chasselas from the Canton of Vaud with vintages ranging from 2000 to 2023. Participants learned about Swiss wines and wine making during spectacular tours of wineries in the Vaud and Valais cantons as well as an evening event, which was held at the Olympic Museum, that featured wines from the Italian-speaking Ticino region. They were thus able to draw comparisons and parallels with other wine producing regions.
As one of the event’s speakers, José Vouillamoz, said at the end of his presentation: “Be smart, drink Swiss wine” a catchphrase that was picked up by many participants and repeated on their social media posts.
This conference was a unique opportunity to exchange ideas based on high-quality academic articles on wine economics for the first time in Switzerland. The diversity of the articles was as varied as the vineyards and the tastings themselves.
The conference also proved that research is not just about presenting current and novel research but that it is also a way of socializing and expanding knowledge, both with fellow researchers and with wine professionals, through tastings, roundtables and shared meals. Indeed, the conference went beyond a strictly academic framework and offered a very holistic vision of wine, thus providing a synergy between the various players in the wine market. This vision will undoubtedly inform and strengthen future discussions on wine and research.