Georgi’s Conclusion

Exchange rates are part of the explanation. There are other things that influence the wine trade: yields, demand changes, policy (duty drawbacks)

Theory and Reality: Bulk wine 2011-2014 A strong dollar

•  Increases volume of imports and
•  Lowers the U.S. dollar price of imports
•  Reduces the volume of U.S. Exports and
•  Raises prices of U.S Exports for foreign buyers in their currencies

Between 2011 and 2014 the dollar gained about 15.5% against currencies of most wine producing countries (weighted by the value of imports). The dollar gained about 7.5% against the currencies of major wine importing countries (Euro, Pound, Yen, Yuan, HK Dollar) • What happened to U.S. Imports and Exports of bulk wine?

U.S. Total Bulk Imports by Month

Chile, Argentina, and Australia are the major bulk suppliers to the U.S. (87%)

Chile, Argentina, and Australia Bulk Imports as Trendlines

Changes in Bulk Wine Quantities and Price (dollars/liter) from 2011-2014

Thoughts on Bulk Imports and Theory?

• Bulk imports did increase in 2012 for all countries but then declined in volume the following two years
• However Chilean and Australian prices fell in U.S. dollars by 18% and 19% and these two countries accounted for more than 50% of bulk shipments.
• Argentine bulk prices in U.S. dollars per liter remained roughly constant, but volumes declined by 60% from 2012 high. Not competitive with Chile and Australia?

Despite a strong dollar, volumes of U.S. bulk shipments have remained fairly constant

What Was Happening in the U.S.?

• Domestic quantity demanded has been increasing (2-4% per year) • Quantity demanded wine under $7 a bottle has decreased by 7% from 2011 to 2014
• Short vintages in 2010 and 2011. CA supply did not keep up with U.S. demand.
• This led to increased bulk imports in 2012, accounting for the spike • 2012 and 2013 were two record harvests in California
• Southern S.J Valley harvest produced a record 2.48 million tons in 2013, filling tanks and reducing the need for bulk wine imports
• All this affected California prices and import volumes

Quantity Demanded and California Shipments

Recent California Grape Crush

The drawback, if a factor, encouraged exports (and would tend to raise grape prices)

Conclusion?

• Exchange rates are one of several factors that affect grape prices.
• A strong dollar makes imports more competitive with domestic wine, thus lowering grape prices in California (at least for those segments where imports are a substitute)
• But decreasing U. S. demand for inexpensive wine coupled with large CA harvests also reduces CA prices (supply/demand)
• We live in a global marketplace. The two strategies for success are: (1) Differentiation (i.e. reduce the potential for substitution)(2) Increased efficiency (out-compete foreign producers)

Source: https://aic.ucdavis.edu/publications/CAWGLapsley2015.pdf