Accounting for Growth in the Australian Wine Industry, 1987 to 2003

Abstract

A computable general equilibrium model of the Australian economy is used to account for the dramatic growth in Australia's wine industry between 1987Australia's wine industry between and 1999Australia's wine industry between , and to project grape and wine volumes and prices to 2003. Export demand growth has made a major contribution to total output growth in premium wines, and accounts for most of the increase in the producer price of premium red wine. Domestic consumer preferences have shifted, mainly towards premium red wine, but there is also some evidence of growing demand for premium white wine since the mid 1990s. From the perspective of producers, productivity growth, while being less important than growth in domestic demand, appears to have more than offset the negative effects on suppliers of wine consumer tax increases. From the domestic consumers' perspective, however, tax hikes have raised retail prices much more than productivity gains have lowered them. The high and sustained levels of profitability resulting from export demand growth have led to a massive supply response in Australia. Even so, by 2003 Australian wine output will still be less than 5 per cent of global production.

Modelling the Demand and Supply Determinants of Australian Wine Grapes

“…For acreage decisions, a standard partial adjustment framework is used to reflect the significant four years production lag between vine planting and grape output, and the role of contracts. In addition, previous analysis and commentary (e.g., Wittwer & Anderson, 2001) highlight the importance of substitution and complementarity relations between premium and non-premium grape varieties in the production process. Yield is hypothesised to be driven by weather considerations, technological advances given potential efficiencies resulting from economies of scale and increases in vineyard sizes over time (Senate, 2005, pp.…”

“…The substantial growth in the Australian wine grape sector in recent decades has been well documented (e.g., Wittwer & Anderson, ). Expansion in the sector has resulted from increases in domestic demand, but more significantly is due to increases in exports.…”

“…The purpose of this study is to identify and estimate the impact of demand and supply determinants on the Australian wine grape market. The importance of identifying key demand and supply elasticities is exemplified by the need to use such estimates to address issues such as decomposing the causes of the growth in the sector (Wittwer & Anderson, 2001), the impact of research and development on the sector (Zhao et al, 2003) and the impact of changes to the sector on regional economies (Anderson et al, 2011).…”

Trends versus cycles in global wine export shares

“…Also Phares (2000) and Auzias (2001) have examined the impacts of a wide range of business cycle indicators on the wine industries of Australia, France, Germany, Italy, Spain, the UK, and the USA. Studies by Wittwer (2001) and Wittwer et al (2003) have employed more disaggregated macro and industry variables to confirm similar cyclical impacts. An example of business cycle impacts on wine consumption is through per capita income, as partially determined by such leading indicators as productivity, hours worked, and wages.…”

Taxes and quality: A market–level analysis

“…Even though they are not directly comparable without significant effort, we believe that the set of elasticities used here is broadly consistent with that used by Wittwer and Anderson (1998, 2001, and neither set is clearly better or worse than the other. Some economists appear to believe that econometrically estimated elasticities are intrinsically more accurate and otherwise superior to 'calibrated' or 'guestimated' elasticities of the sort typically used in applied policy Source: Wittwer and Anderson (2001). Notes: a Quantities refer to quantities of Australian wine consumed in 1999, and include domestic and foreign consumption.…”