Abstract
Today’s European wine policy is centered on a system of appellations, implemented as geographical indications (GIs), that entail significant technological regulations—restricting the varieties that may be grown, while imposing maximum yields per hectare and other rules regarding grape production and winemaking practice. This paper outlines the historical development of European wine policy under the CAP, and presents a more detailed analysis of the economic consequences of the rules and regulations under the appellation system. The introduction of these rules and regulations was probably beneficial initially, both for their didactive effect on wine producers and consumers and as a way of overcoming a significant “lemons” problem in the market. However, those same rules and regulations are much less valuable today, given (1) the potential for alternative sources of information to solve the lemons problem, and (2) evidence that the appellation system per se might not be effectively serving that purpose as well as it once did, while some of the regulations impose significant social costs. Yield restrictions, in particular, are economically inefficient as a way of enhancing and signaling quality (their ostensible purpose) and as a way of restricting total supply to support market prices and thus producer incomes (a significant motivation). The inherent weaknesses of the policy design are compounded by failures of governance. A less heavy-handed approach to policy would allow more scope for the market mechanism to match supply and demand for this signature product from European agriculture.
Highlights
Around the world, wine markets are in a state of flux: producers are adjusting to shifting consumer demand for wine, global production is close to an all-time high, and we have once again entered a bust phase in the perennial boom-bust cycle— hard times for European wine producers, exacerbated by Brexit, President Trump’s tariffs, and the COVID-19 pandemic
The Appellation d’Origine Contrôlée (AOC) system was introduced in France in 1935 to establish standards for wine production systems—imposing regulations on both wine products and the processes used to produce them within defined locations—and thereby to create and enhance collective reputations based on regions (Haeck et al 2019; Meloni et al 2019)
To analyze the economic consequences of the European Union (EU) wine policy it is helpful to tease out its two main elements: first, the creation of geographical indications (GIs), which can be used to convey signals of quality and create a collective reputation associated with a place per se; and second, technological regulations: restrictions on the production process for wine to be designated as coming from a particular GI.19
Summary
Wine markets are in a state of flux: producers are adjusting to shifting consumer demand for wine, global production is close to an all-time high, and we have once again entered a bust phase in the perennial boom-bust cycle— hard times for European wine producers, exacerbated by Brexit, President Trump’s tariffs, and the COVID-19 pandemic. The objective of this paper is to explore the European system of appellations for wine, its management, the way in which it is regulated, its governance mechanisms, and the consequences for wine producers and consumers In this context, we raise questions about the use of technological regulation as an economic policy tool. Europe stands out from other producing countries for the size of its producer subsidies and the strength of its vineyard regulations seeking to increase the quality and restrict the quantity of wine produced These vineyard regulations are the focus of the present paper, in particular the appellation rules and supply management policies.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
