French Wine Trade: General Determinants, Frictions and Tastes

Wine is now widely available and wine drinking has become common in Western countries, in Japan, Russia, China and some South American countries like Brazil, while it remains a luxury good in poorer parts of the world. The consumption dynamics have evolved relatively fast with both the democratization of wine consumption and the emergence of new producers (“new world” wines). In this context, it is important to assess the determinants of wine exports from France, which is probably the most famous wine country and still today the world’s leading exporter (in value). However, trade frictions such as transportation cost, tariffs and non-tariffs barriers or even cultural discrepancies between countries can strongly affect exports. For instance, Kashiha et al. (2016) focusing on European wine shipments reveal that border effects are important and highly asymmetric, even within the European free-trade zone. Moreover, the capacity of firms to bear trade costs is also highly correlated to the quality of their products. Indeed, Martin and Mayneris (2016) show that distance (which is a proxy for trade costs) has almost no effect on high-end exporters. Given the diversity of French wines, an interesting perspective pertains to the export determinants of different French wines across different markets of a global world of wine consumption. We pursue this idea by exploiting a unique dataset on wine shipments in volume and value terms of almost 400 different types of French wines to 27 countries between 1998 and 2015 (see also Cardebat and Figuet, 2015). After describing the recent trends in exports, both at the extensive and intensive margins, we estimate a gravity model to disentangle the main determinants of wine exports, especially focusing on the role played by trade costs. Our estimations are based on state-ofthe-art specifications (Anderson and Van Wincoop, 2003, 2004). In particular, we rely on the Poisson pseudo-maximum likelihood (PPML) estimator developed by Santos Silva and Tenreyro (2006) to account for heteroskedasticity and the presence of zero trade flows in the data. We include a variety of relevant factors including: GDP of destination country, exchange rates (appreciation or depreciation of the Euro relative to destination currency), trade barriers and trade costs (distance, average custom duty, prohibitions and specific tariffs, taxation, technical barriers and sanitary and phytosanitary standards, etc). We also question the role of cultural dimensions regarding wine culture and tastes (Anderson and Wittwer, 2013), regarding health and beliefs; the role of country-specific retailing structure and wine commercialization; complementarity or substitution with local wine production (potential demand for variety). Indeed, Head and Mayer (2013) argue that behind the estimated coefficient associated with distance or to the border effect in the standard gravity model of trade, hidden sources of resistance are of greater importance. They called these sources, “dark trade costs”, making an analogy to astrophysics, and reveal that these dark resistance account for 50%–85% of the effect of distance on trade flows. This “new” sources of frictions could be linked to spatial decay of information, localized tastes, colonial legacies, and longrun impacts of conflict. These sources of frictions could be very important in wine trade as tastes are very important and, therefore, should be evaluated. This paper focuses on the broad offer of French wines (red, white, sparkling, with and without mention of origin and according to different packaging – i.e. bulk or bottled wines), including fine wines from appellations communales. Hence it comes along recent attempts to explain export determinants of champagne (Crozet et al., 2012), cognac brandy (Bouët et al., 2015) or French luxury brands (Fontagné and Hatte, 2013, Martin and Mayneris, 2015). It is also complementary to general studies on world trade of food and wine that assess the broad determinants related to trade costs and tariffs and tastes (Anderson and Wittwer, 2013, Dal Bianco et al., 2015, Raimondi and Olper, 2011, Fogarty, 2010). Having a high diversity of wines in our database also allows us to study exports by quality level and to test the Alchian-Allen conjecture in line with Hummels and Skiba (2004). Moreover, the large distribution of different quality level (based on packaging and mention of origin) provides an opportunity to analyze the evolution of the demand for quality from importing countries and changes in their tastes.