Organic wine datapoint of the day

By Felix Salmon
March 8, 2010
Meg Sullivan has a good write-up of a paper by Magali Delmas and Laura Grant, which asks a simple question:

Why would wineries seek costly eco- certification without informing their customers about it?

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Meg Sullivan has a good write-up of a paper by Magali Delmas and Laura Grant, which asks a simple question:

Why would wineries seek costly eco- certification without informing their customers about it?

The answer turns out to be surprisingly simple.

Our results show that eco-labeling has a negative impact on prices in the wine industry, while there is a price premium associated with eco-certification. Overall, certifying wine increases the price by 13%, yet including an eco-label reduces the price by 20%, confirming the negative connotation consumers apply to “green wine.” The premium puzzle for this luxury good is driven by certification rather than its label, a confounding result not previously documented.

This is a huge result: non-labeled organic wines cost 13% more than non-organic wines. But labeled organic wines cost 20% less than non-organic wines. Which implies that if you take the “organic” label off your Californian wine, you can raise its price by more than 40%.

As Sullivan says, this presents an easy and obvious arbitrage for consumers: buy wines which are labeled organic, and you save lots of money.

Essentially, what’s going on here is pretty simple: winemakers know that organic wines taste better, but consumers think that organic wines taste worse. So winemakers make organic wines without telling consumers, and consumers happily pay up for them so long as they don’t know they’re organic. When consumers do know the wine is organic, however, they won’t pay nearly as much.

There’s a problem here with organic wine (no added sulfites) as opposed to wine made from organic grapes. Organic wine does taste better, but it can age badly, and it tends to turn to vinegar much more quickly after the bottle has been opened. If you know that the wine is organic, that isn’t a problem: you just drink it within a few months of buying it, and you don’t try to save it for the following day. But if you don’t know that the wine is organic, you can end up being disappointed in it when you treat it like any wine made with sulfites.

So let’s hope that consumers wise up about organic wine soon, and for the time being, those of us who know the secret can continue to happily play the arbitrage.

(Via Cowen)

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Comments
6 comments so far

Once again I am forced to conclude that you gringos really will buy anything.

Posted by ottorock | Report as abusive

‘organic wine tastes better’……

than what? than wine made with metabisulfites? with the amounts used in modern winemaking, I don’t believe you would be able to discern any difference* (‘with’ vs without). So, unless you are implying differences about how the wine is made in the vineyard, ie no irrigation, trellising methods, etc this is a cryptic statement, indeed.

* I cannot discern any difference at all

Posted by crocodilechuck | Report as abusive

Well I have to say this is finally something you say that I disagree with and I am able to comment on w/o in some way having a conflict of interest.

Isn’t the issue at hand here really what differentiates those people who choose to go after eco-certification vs. those who do not? The Eco people are much more likely to be making terroir driven stuff that tends to be lower in alcohol, more food-friendly etcetera, whereas the people with no interest in eco-certification are more likely to believe that it’s what goes on in the winery that determines how a wine tastes. It just so happens that all of the very high priced/high parker points stuff tends to be the latter rather than the former. Isn’t the real causal relationship between wine styles and price not eco certification and price?

The inefficiency to exploit isn’t eco-certification, it’s style – and if you happen to prefer spoof then you are SOL.

Also you can’t age Natural Wines? Really?

Posted by topofeatureAM | Report as abusive

BTW – to clarify – people who think its important to tell people they are organic are more likely to be pro-terroir

Posted by topofeatureAM | Report as abusive

I don’t think that organic wine made by a given winery tastes worse than its non-organic wine, and assume it probably tastes better. But I do avoid wines labeled organic.

I assume that people who *prominently* label their wine organic are doing so because it is a way to distinguish an inferior or mediocre product in a crowded market and compete effectively for customers who don’t buy on quality alone.

Posted by Brad9999 | Report as abusive

The “surprisingly simple” answer here doesn’t answer the question at all.

Wineries don’t go organic because they think sulfites affect taste (it doesn’t, for one thing); in fact sulfites are naturally occurring compounds that exist in most wines, “organic” or not. To be certified organic, a vintner may not ADD additional sulfite.

But that’s the least of certification. To be certified organic, a winemaker may not use pesticides, herbicides, fungicides, chemical fertilizers, or synthetic chemicals of any kind on the vines or in the soil. In fact, depending on the governing body, a vineyard may lose certification when its neighbor uses any of those.

There are many reasons why a winery might go the expense of going organic. In our experience in the Finger Lakes, the small vintners who get certified (some remain unlabelled as such) do so because they care about the environment. So yes, the answer is surprisingly simple.

Posted by CaptainHowdy | Report as abusive
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