Will There Be a Wine Shortage in 2021?
The story was based on a statement from (deep breath) Director General Pau Roca of the International Organisation of Vine and Wine (OIV). I urge everyone to read the details of his statement. My purpose here is twofold:
- Answer the question, “Will there be a wine shortage?”
- Put together a summary table based on numbers included in M. Roca’s statement.
Will There Be a Wine Shortage in 2021?
No. Next question.
Seriously, economists have a definition of shortage that is very precise. A shortage exists if quantity demanded exceeds quantity supplied at the current price. If the price is free to adjust, a shortage will be temporary. The market price will rise. This has two effects. First, as the price increases, quantity demanded will fall. Second, quantity supplied will rise. The price will stop rising when quantity demanded equals quantity supplied. The market is then in equilibrium and there is no shortage. Here’s a two-minute video that shows how a market where price is free to adjust solves the shortage problem automatically.
M. Roca gave wine production figures for 24 countries. Sixteen are in the European Union, four (including the U.S. and Switzerland) are “Non-EU Northern Hemisphere” and the remaining six are “Non-EU Southern Hemisphere.”
There are more than 24 countries on the planet that have wine industries. I suspect M. Roca has included only countries that are members of his organization. Georgia (the country) produced 16.3 million gallons of wine in 2014 but is not included in the OIV dataset. Wikipedia lists 73 countries that produced wine commercially in 2014. A complete list is at the end of this article.
Regional Analysis: the EU, the Non-EU North, and the South
Here’s the breakdown of 2020 and 2021 wine production in the three major regions using OIV designations.
The decrease in output from the EU is greater than the increases in the other two regions. Global production in OIV countries is forecast to decrease by 4.6%, 292.8 million gallons.
Based on 2014 data, OIV includes 99.88% of EU production, 97.71% of the southern hemisphere, and 52.64% of the northern hemisphere. Northern hemisphere coverage is misleading because China did not submit data to the OIV for 2021. Therefore, they are omitted from the OIV totals, but should be included in northern hemisphere output as defined by Wikipedia. China’s 2014 output was 255 million gallons, fifth largest in the world. Adding China’s output to the OIV total moves northern hemisphere coverage to 70.78%.
Adding it all up, we can say that OIV coverage is excellent for the EU, very good for the southern hemisphere, and OK for the non-EU northern hemisphere.
Intra-Regional Comparisons: 2021 and 2020
A late spring frost damaged the winegrape crop in Italy, Spain, France. Output from those three countries alone in 2021 is forecast to be 600.9 million gallons less than 2020. To give this some perspective total U.S. production for 2020 was 600.6 million gallons. In effect, the lost production in three European countries is comparable to the U.S. producing no wine at all. This is a big hit to global wine output.
Those three countries make up 82% of total EU output. Production is forecast to increase in seven countries. Germany, the fourth largest producer, is projected to have output increase by 4%. Sadly, that’s only 8.9 million gallons.
Non-EU Northern Hemisphere
The elephant missing from this room is China. For reasons known only to Beijing, that country’s data was not available to the OIV. As noted earlier, in 2014 China was the fifth largest wine producer in the world. This is a serious dent in OIV data. But it’s China. There is not much anyone can do to extract data from them. And, even if there were figures, the source is China’s government bureaucracy. At this point, no data is better than misleading figures.
Here’s the comparison of the non-EU northern hemisphere countries.
The U.S. is expected to increase production by 6%, about 36 million gallons. Moldova supplies an entertaining reminder that we should not rely solely on percentage changes.l Output in that country increased by 20% — from 24.2 to 29.1 million gallons. Large percentage change, small absolute quantity. Similarly, Switzerland’s production is forecast to fall by 10% — all of 2.3 million gallons.
Non-EU Southern Hemisphere
This is an interesting group. Take a look at the list of countries.
Three continents represented by six countries (depending on how you count Australia and New Zealand).
Output for this region increased output by 238.2 million gallons, about 19%. Four of the six increased output by double-digit percentages. New Zealand, rocked by COVID-19, is predicted to see output fall by 19%. Unbelievably (at least to those of us who consume a good deal of NZ wine), total output for 2021 is forecast to 71.3 million gallons.
Impact on Price
Economists rely on the price elasticity of demand to determine how changes in quantity supplied impacts the equilibrium price. The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price.
Can we really come up with a believable number for the global price elasticity of demand? Well, I wouldn’t try. Thankfully, a brave wine economist, James Fogarty, has done this. I’ve taken the liberty of roughly averaging Prof. Fogarty’s estimates. My guesstimate is that the global price elasticity of demand for wine is -0.7. Among the OIV countries, wine production is forecast to change by -4.6% in 2021. We can do a little arithmetic.
It looks like the average price of wine will increase by 6.5%. Assuming, of course, that the OIV estimates reflect what’s happening in the rest of the world.
The Global Market
As promised earlier, here are the 74 countries that produced wine in 2014. They are sorted by 2014 production volume.
Economists work with data. We are a bunch of number-crunchers. Some, like James Fogarty, use sophisticated statistical methods. Others use math and Excel. No matter. The era when an economist could publish a paper that’s pure mathematics with no data supporting it is over. Access to many unusual and interesting datasets has opened up a world of exploration.
My favorite example is an article by Rebecca Diamond, Tim McQuade, and Franklin Qian. They exploited an odd change in rent control laws in San Francisco in 1994. They looked at data before and after this change using comparable rent controlled and non-rent controlled units. The data describes address-level migration information as well as detailed housing characteristics of each household. They found that
rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
Good stuff. Interesting and very useful.
- Sparks, Hannah (2021). “Wine shortage ahead as experts expect ‘extremely low’ production in 2021.” New York Post November 5, 2021. Available at https://nypost.com/2021/11/05/wine-shortage-ahead-as-experts-expect-extremely-low-production/. Accessed November 7, 2021. ↑
- Roca (2021). “2021 Wine Production.” OIV, Paris, Press Release, November 4, 2021. “SPEAKING FROM THE OIV’S HEADQUARTERS IN PARIS, BY WEB CONFERENCE, DIRECTOR GENERAL ROCA ROCA, PRESENTED, THE FIRST ESTIMATES OF 2021 WORLD WINE PRODUCTION.” ↑
- That last designation makes me wonder if the EU has expansion plans. Seems unlikely, but after the last ten years, who knows. ↑
- The 2020 production numbers were calculated because M. Roca gave the 2021 forecast and the percentage change from 2020. Another calculation was converting million hectoliters to million gallons. For those that are interested, one hectoliter equals 26.4172 gallons. ↑
- Fogarty, James (2008). “THE DEMAND FOR BEER, WINE AND SPIRITS: INSIGHTS FROM A META ANALYSIS APPROACH.” Working Paper 31, American Association of Wine Economists, November, 2008. Available at https://wine-economics.org/wp-content/uploads/2012/10/AAWE_WP31.pdf but may be paywalled. Contact me if you’d like a copy. ↑
- Fogarty, Table 4, p.34 ↑
- Diamond, Rebecca, Tim McQuade, and Franklin Qian (2019). “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” American Economic Review 109(9), 6635-3394. Available through Prof. Diamond’s website at https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20181289. ↑
- Diamond, p.3365. ↑