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Boudreaux on Bordeaux

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A report [2] in today’s New York Times describes the difficulties now suffered by many of the non-elite vineyards in Bordeaux. One vintner says that recently he had about five million bottles that weren’t moving: “Only by reducing prices 30 to 40 percent were we able to sell any of it.” (Being absolutely mad about wine, I welcome this news. Being absolutely mad about economics, I’m delighted to encounter evidence that the law of demand works even in France.)

The tale is typical: When wine prices spiked in the late 1990s and into 2000, several Bordeaux vintners expanded the acreage under cultivation, many with borrowed funds. Prices of all but the elite wines, such as Petrus and Chateau Lafite-Rothschild, have fallen significantly – evidence that too many resources are now used to produce wine. Many of these resources, including labor, are likely better used to produce things other than wine. (Being absolutely mad about wine, it pains me to write such a thing.)

The typicalness of the tale continues: many of these smaller vintners are demanding that the French government guarantee that they receive a minimum price for their wine. Such a guarantee, of course, would keep too many resources in the business of producing wine that is less valuable than other things that can be produced with the resources that should be released from wine production. (Being absolutely mad about wine – and about economic sanity – I strongly oppose government guarantees of minimum prices.)

But not all demands by the smaller Bordeaux vintners are unreasonable. One meritorious demand is that the government bureau that oversees (in great detail) the production and labeling of wines loosen its grip. For example, wines from Bordeaux cannot be sold with labels that prominently announce the variety of grape from which the wine is made. That is, the label can’t have pasted on it, say, “Merlot” – even if the wine is made 100% from merlot grapes. Instead, each label features the name of the chateau and some other esoteric information that isn’t easily understood by non-wine-snobs.

Prohibiting the useful display of the grape variety on the label makes marketing more difficult – hence reducing sales. If consumers respond positively to labels with grape varieties prominently displayed – and we seem to do so – where’s the harm in eliminating this prohibition? (Being absolutely mad about wine, I encourage any and all moves that will strengthen a free market in the precious nectar.)

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