Allegrini 2018

Wine and the market: “blockage of planting and reduction of yields are not effective measures”

To WineNews, the point of view of Davide Gaeta, professor of Business Economics and Wine Policy at the University of Verona
Between implant blockage and yield reduction, the vision of Professor Davide Gaeta

Manage the supply, especially in an attempt to maintain the price levels of the raw material, or even better to make them grow, so as not to put the first link in the wine chain, the winemaker (who, in many cases, but not always, is also a producer of wine), in particular, into risk: this is the reason behind the choice of a blockade of new plants, for the next three years, that important consortia, from Valpolicella to Lugana, to that of the Doc Delle Venezie (Pinot Grigio), to mention only the most recent examples. And, in the same direction, goes the decision, quite common, for example, to reduce the maximum yield per hectare, depending on the weather conditions, but also those of the market, from harvest to harvest. However, according to Davide Gaeta, professor of Economics at the University of Verona, these measures are not very effective and fair.
“First of all, the “supply control model” is one of the most complex, thorny and fascinating issues for economists, and it must be handled with great respect and rigor. When I was working on the Chianti Classico Consortium, we studied the issue of the impact of reducing yields and vineyards, we called an important professor from Stanford, Jo Swinenn, who studied the issue and came to this conclusion: basically, the effects of interventions on the control of supply, or rather the elasticity of supply, are recorded only in the period in which the measure is applied.
As soon as the lever of control is removed, in a few years, we will be in the same situation, even more, amplified.
It's like putting a dam in a flooded river: it stops the flood for a moment, but how you take it off it takes everything back with the same force.”
According to Gaeta, “the problem must be managed upstream, and it is called elasticity of demand, not control of supply. Reducing yields and shutting down plants, in my opinion, is technically an ineffective operation. Of course, it is an instrument that for consortia is an easier decision, for example, rather than asking for an increase in membership fees to invest in demand, provided that you can stimulate it. However, I doubt the effectiveness of these instruments.”
However, according to Gaeta, there is another aspect to take into consideration: from an ethical point of view it is a transversal measure, and it affects so much the small company, which perhaps sells all its wine without problems, as well as those who make millions and millions of bottles. But this is what happens when you make reductions in yields or plant blocks.These measures are not effective: we could talk about identifying areas where yields could be reduced, or areas that are planted with vines in less suitable areas. Clearly, they are complex decisions to be taken in the consortium, and that often the players who are the major decision-makers would be dissatisfied, and therefore these measures are chosen which are however unfair, and consequently ineffective”.
Of course, the management of the volumes of wine production concerning the market, is complicated, because if planting a vineyard and bring it into production takes a very long time, with a minimum of 3-4 years, the market trends can change in a few months. A difference in speed that inevitably complicates, and even more so, things for producers and consortia.

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