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The Demand for California Wine Grapes*

Published online by Cambridge University Press:  10 February 2012

Kate B. Fuller  and
Julian M. Alston
Kate B. Fuller
Affiliation:
Department of Agricultural and Resource Economics, University of California, Davis, 1 Shields Avenue, Davis, CA 95616, email: fuller@primal.ucdavis.edu
Julian M. Alston
Affiliation:
Department of Agricultural and Resource Economics, University of California, Davis, 1 Shields Avenue, Davis, CA 95616, Robert Mondavi Institute Center for Wine Economics, University of California, Davis, email: julian@primal.ucdavis.edu
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Abstract

Wine grapes contribute significantly to the economy of California, with a gross production value of more than $2 billion in 2010. Studies on economic issues in the industry require measures of demand response to price, but despite the economic importance of this industry, estimates of elasticities of demand for wine grapes have not been published. We use a flexible-form inverse demand system model to estimate elasticities of demand for wine grapes from three grape-growing regions in California, representing three different quality (price) categories. The resulting estimates of own-price elasticities are high, ranging from −2.6 for grapes in the low-price region to −9.5 for grapes in the high-price region. Such high elasticities are plausible given the role of international trade in wine, and they are consistent with synthetic estimates that we computed based on a combination of economic theory, data on market shares, estimates of some pertinent parameters in the literature, and informed guesstimates of values for other parameters. (JEL Classification: Q11, Q12, Q13)

Type
Research Article
Information
Journal of Wine Economics , Volume 7 , Issue 2 , November 2012 , pp. 192 - 212
Copyright
Copyright © American Association of Wine Economists, 2012

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Footnotes

*

The authors gratefully acknowledge helpful comments from Karl Storchmann, James Fogarty, Abigail Okrent, Joanna Parks, David Ricardo Heres del Valle, and an anonymous reviewer. The project on which this article is based was supported in part by grants from the California Department of Food and Agriculture Pierce's Disease Research Program and the Giannini Foundation of Agricultural Economics.

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