Abstract:
Wine grape characteristics and prices depend upon an interaction among climate, soil and topography among other influences. Furthermore, the effect of these natural endowments on wine grape characteristics and prices vary across wine grape varieties and geographical locations.
We estimate relationships between weather, climate, sugar levels and prices of wine grapes varieties grown in different climatic regions across 17 crush districts in California. We use time series cross section data over several decades. Estimation is divided to three parts: weather and sugar content relationship, sugar content and grape price relationship, and weather, climate and grape price relationship.
A biophysical relationship between weather and sugar content in grapes is known to exist. An estimated relationship between weather and sugar content different from the experimental biophysical relationship may indicate that climate may not be a binding constraint in certain regions, enabling growers to adapt their practices for achieving the required sugar content to the local climate as it changes.
We hypothesize that both weather and climate affect the price of wine grapes. Weather affects the vintage-to-vintage price, mainly through yield level, and climate affects the price through reputation. Furthermore, regions that grow varieties with similar characteristics are close substitutes such that prices of grapes are jointly determined. Therefore weather and climate that affect grape prices grown in a particular region may affect prices of grapes grown in other regions. We use these historical relationships across regions and varieties to consider potential impacts of climate change on the wine grape industry.
