Wednesday, September 19, 2012

The structure of the wine market and the issue of quality

I have been reading an interesting paper about 'Quality Classifications in Competition: Price Formation in the German Wine Market' by Jorg Rossel and Jens Beckert from the Max Planck Institute in Cologne.

One conclusion that can be drawn from the paper is that the market has some very distinctive characteristics. This does not mean that no more general lessons can be drawn from it, particularly given the EU's drive to promote high quality, value added production in European agriculture.

Although the authors don't say this, one lesson you can draw from their paper is that if you price something high enough, the initial reaction of consumers will be that it is high quality. Consider the market in jams and marmalades. There are commodity products sold in supermarkets, although there is some price and quality differentiation. Then there are high quality products sold in farmers' markets and (in the UK) in National Trust shops. These can be two or three times as expensive as the commodity product, but there is no system of classification as there is for wines.

A central theme of the paper is the existence of two systems of classification in Germany, one established by the regulatory authorities, ranging from table wines to quality wine with distinction. Then there is a separate system established by artisan producers which place considerable emphasis on the concept of 'terroir' which has been so important to French wines. Their approach is 'based on the conviction that the soil and microclimatic conditions as well as the craftsmanship of the wine producer determine wine quality.'

But how can the consumer tell that something is good quality? There are, of course, plenty of wine experts whose advice is widely disseiminated in the print media and online. However, the literature which the authors review very effectively casts doubt on this expertise. Most of a group of students of enology from Bordeaux were not able to distinguish white wine from red wine just by taste. A series of experiments show that wine experts do not exhibit a consistent quality scale in their judgments.

Quality assessments are very contingent. Today dry wines are seen as being of high quality and enjoy high legitimacy in the market. Only a century ago sweet wines merited high regard. One might add that medical advice is to drink red rather than white wine and dry white rather than sweet, but this is not a factor that the authors mention.

The authors make it clear that wine drinking habits are influenced by social class and status. The phrase 'wine snob' comes to mind, although it is not one that the authors use. The authors note, 'Becoming competent in the terroir philosophy, and the status differences of wine established through it, demands high cultural capital and is therefore also socially exclusive.'

Quality in the terroir philosophy, the authors argue, remains an abstract and evasive concept: 'it can be understood only by actors possessing high cultural capital in the field and can be bought only by those consumers with enough economic capital to pay for the "taste" of authenticity. The system allows for evocative fantasies to be aroused based on the qualities symbolically represented in a wine. These fantasies can be translated into status differences and thereby provide "good reasons" to purchase the high priced wine.'

The authors' underlying theoretical perspective, drawn from economic sociology, is that 'In an increasing number of markets, there is uncertainty among buyers as to the quality of products.' They link this increasing uncertainty with an increasing aesthiticization and moralization of everyday life and consumer products.'

As the authors note there are 'markets where the quality of the product is assessed based on "functional performance" that can be measured objectively.' But, in agriculture, this often involves products that are transformed before reaching the final consumer. For example, wheat can be assessed by its moisture content but this is of little relevance to the final consumer who buys bread according to its perceived quality in the different forms in which it is offered.

Wine is a very distinctive product in which much of the perception of quality is very subjective and open to manipulation of the image of the craft skills of the individual winemaker and the specific qualities of a certain vineyard. Specific knowledge is required to make judgments about wine. Neverthless, in European food markets more generally, the market for high quality products is limited by income and the willingness of consumers to purchase an image of the production process as well as the product itself.

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