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Wine economics and economical wine

Hard research on a soft topic shows that terroir doesn’t matter (except for the price) and the opinions of wine ‘experts’ don’t help predict a wine’s long-term value.

Why do economists have to take the fun out of everything?

Wine lovers worldwide enjoy discussing the finer points of terroir; Saint-Estèphe is harder than Pauillac, as every connoisseur recognises. It’s the heavier, thicker soils, don’t you know?

All bunk, according to recent research by Olivier Gergaud and Victor Ginsburgh. Using a database on terroir characteristics such as land characteristics (exposures of vineyards) and techniques (grape varieties, picking method, bottling, etc.) in 100 vineyards combined with data on measures of quality (ratings and auction prices), they show that endowments don’t matter. It’s technology. The French marketing myth of terroir won’t die easily, but the smart money should ignore it.

Publishing in the same issue of The Economic Journal, the dean of terroir debunkers – Orley Ashenfelter – studies the prices of Bordeaux vintages. Older Bordeaux taste better so the same wine is sold twice; when it’s young en primeur and when it’s ready for decanting.

In a sober market, the wine’s en-primeur price should be an unbiased predictor of its ready-to-drink price. Not so. The quality and prices of vintage Bordeaux is predicted by the weather that created the grapes, but this easily measured determinant is ignored by purchasers at the en primeur auctions. Instead, the prices paid by early buyers are influenced by tasting results, especially the ratings of Robert Parker.

Smart money ignores Parker. Get a weather report for the vintage year and a copy of Ashenfelter’s ‘Predicting the Quality and Prices of Bordeaux Wine'.

Fine advice if you’re aiming for value-for-money in your cellar. Making money requires a different approach. Predicting a beauty contest winner is not, as Keynes famously opined, a matter of judging beauty but rather judging the judges judgment on beauty. When it comes to Bordeaux, the judge-in-chief is Robert Parker.

Michael Visser and colleagues estimated the Parker effect on en primeur prices using a clever quirk. For years, Parker has come to Bordeaux to taste and grade the wine when it is extremely young. Statistically, his grades have a huge impact on prices. But in 2003, it didn’t work. Fearing war in Iraq, Robert stayed home in the Spring of 2003 and his grades were published only after the determination of the en primeur prices. Using the 2002 and 2003 en primeur prices for approximately 250 wines from a large Bordeaux wine broker, they estimate the Parker effect. About 2.80 euros per bottle.

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