California Wineries and Climate Change: Extreme Events, Resource-Supply Adaptation, and Wine Quality

Abstract

Current actions across countries to mitigate the impacts of climate change to the 2°C outlined in international climate agreements are currently insufficient, indicating an increasingly important need to understand both the impacts of climate change as well as how to adapt to the inevitable changes. This paper examines how extreme climate events impact firm product performance and resource-supply adaptation strategies. Using a dataset of 50,156 wine-winery-year observations for 535 wineries covering the years 1981-2019 in the California wine industry, we examine how extreme heat, cold, and precipitation events impact wine quality and winery adaptation strategies involving grape varietals and vineyard sources. We use a panel regression with firm-, region-, and year-fixed effects to test for the relationship between extreme climate events, winery resource-supply adaptation strategies, and wine quality. First, we find that there is an adaptation gap which is a mismatch between adaptation responses by wineries and the adaptation needs of wineries. Second, we find that extreme climate events can not only create adverse conditions for firms, but can also create advantageous conditions where the firms can prosper. Finally, we find that the impact of extreme climate events on performance and adaptation strategies differ by both the type of extreme climate event and the dimension of the extreme climate event.