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Important News From Wine Economists

By Charles Olken

If you have been paying attention, you know by now that I am a professional economist by academic training and also in my early career. That I managed to escape that calling some ten years after I helped to start this august wine journal is one of the fortunate turns in life. Writing about wine is infinitely more enjoyable than writing about economics. I kid you not.

But I have never given up my economist’s chops, and while I try very hard not to burden you, my dear readers, with comments about wine prices, supply and demand, the impact of the changing Euro on the cost and use of new French oak in California wine marketing, et al, I have not given up thinking about and observing the economic side of the wine business.

For example, I eagerly read the writings that appear periodically under the aegis of the American Association of Wine Economists (AAWE). I will spare you most of the gory details because only an economics geek could get through topics like: Examination of the Capital Structure in the Hungarian and French Wine Industry or Wine Historical Statistics: A Quantitative Approach to its Consumption, Production and Trade, 1840-1938.

Still, a title in the most recently issued report of the AAWE caught my eye and it is worth considering its content to understand the role of the wine industry in the California economy—particularly given the new secessionist movement gripping parts of the State in view of the President’s threat to cut us off if we do not follow his edicts re certain topics like immigration. Not only is agriculture incredibly dependent on workers from beyond our borders but so too is Silicon Valley.

But, politics aside because all of us here expect that smart people will find solutions to keep our major industries going, the size of the wine industry is no small matter, because it might be considerably larger in dollar terms than old methods of measure seem to indicate, or even if it is not, that size and its impact do keep some economists up at night.

Here in laymen’s terms is the gist of the findings in a paper entitled: Estimating the Value of California Wine Grapes.

Let’s start with some basic facts: 2016 grape crush totaled 4,227,110 tons and the 2016 average price per ton of all grape varieties was $762.84. Together these estimates imply a total crush value of $3.22 billion in 2016.

So far, so good. But everyone involved with the industry knows that both of the base numbers, total crush and average price, are somewhat underreported for a variety of reasons, including the fact that owner-growers do not have a purchase price for their grapes nor do some of them necessarily report crush tonnage accurately. Thus an undercount of some sort.

It will not surprise you, therefore, that learned economists, employing a somewhat more complex formula for determining the value of the grape harvest do estimate an undercount is some 14-20%. Now, I am no longer a functioning economist. You might even call me an economic kibitzer. So my estimate of a 30% or higher undercount in acreage and value is certainly suspect. And it becomes more suspect when I tell you that I have no scientific formula to suggest or that I may perhaps have a better methodology. I don’t. Just some common sense, I hope.

I am going to leave you with a bit of philosophy. When I was majoring in economics in college, I took a class called Business Cycles and Forecasting. Those topics were, up until that point, the things that interested me most about becoming an economist. But halfway through the year, I reached the point at which I tired of the equation being constructed by the professor that he said represented the economy and its varied inputs. All we needed to do was to input the data and out would come the forecast. I was obsoleted before I even graduated. IBM was ahead of me.

And, how did the learned economists who determined that the undercount of 14-20% was a fact and not just some wild-assed guess? You know it, and here it is:

The real bottom line is this: wine grapes remain the biggest agricultural crop in California, not almonds. And that means we can cut back the almond orchards and their prodigious, and some would say outrageous, thirst for our limited supplies of water. Now that is an economic finding for which any economist could be proud.

It’s a good thing for me that wine reviews are not done by formula.

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Water-thirsty products
by Bob Henry
Posted on:4/6/2017 1:07:24 AM

Excerpts from The Wall Street Journal “Main News” Section

(February 17, 2009, Page A11):

“Yet Another ‘Footprint’ to Worry About: Water;

Taking a Cue From Carbon Tracking, Companies and Conservationists Tally Hidden Sources of Consumption”

By Alexandra Alter

Staff Reporter

It takes roughly 20 gallons of water to make a pint of beer, as much as 132 gallons of water to make a 2-liter bottle of soda, and about 500 gallons, including water used to grow, dye and process the cotton, to make a pair of Levi's stonewashed jeans.

. . .

. . . A cup of coffee takes roughly 35 gallons. A cotton T-shirt typically takes some 700 gallons of water to produce. A typical hamburger takes 630 gallons of water to produce -- more than three times the amount the average American uses every day for drinking, bathing, washing dishes and flushing toilets. The bulk is used to grow grain for cattle feed.

. . .


And see this article . . .


From The Wall Street Journal “Main News” Section

(June 21, 2015, Page A2):

“The Numbers Behind Agricultural Water Use”


By Jo Craven McGinty

“The Numbers” Column

Biggest agricultural crop in California
by Dick Winter
Posted on:4/11/2017 1:22:29 AM

Sit down grapes and almonds. If your measure of 'biggest crop' (as opposed to agricultural product, ie milk) in California is dollar value, marijuana far outstrips anything else, according to this

To Bob Henry's point, all of these crops are water-thirsty, especially when the end product is considered (processing, packaging, transportation) but marijuana may end up being the least so when it emerges from the shadows. See also this New Yorker article on 'vertical farming,' which could well fit with marijuana cultivation

Meanwhile, be sure to avoid riesling in particular and most other white wines in general.

by gabe
Posted on:4/20/2017 3:54:12 PM

If we are just discussing grapes as an agricultural product, I can assure you that many vineyards are "dry-farmed", meaning they use literally zero water.  

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