1. International Wine Trade: A Prospective Approach based on Porter’s Diamond
Olivier Bargain
LAREFI - Bordeaux University
Jean-Marie Cardebat
INSEEC Business School
Raphael Chiappini
Corentin Laffitte
12th Annual AAWE Conference Ithaca, New York, USA - June 10-14, 2018

2. 1. Context
The international trade of wine: a rapidly growing market (almost 300 billions USD in 2016)
Yet, the topic is poorly documented (excepted Anderson and Wittwer, 2013, 2017, 2018)
Especially given the huge challenges to come in the next decades (climate change, change of consuming habits, emergence of new players, etc.)
World wine export volume and value – 1995 to 2017
Source: OIV

3. 1. Context Is Europe the immutable wine trade leader?
Europe is the current leader…
about 50% of the wine produced
2/3 of the exported volume
Export volume (1000hl) in 1995 and 2017, with growth rate 1995 to 2017
Source: OIV

4. 1. Context Is Europe the immutable wine international trade leader?
Europe is the current leader…
… but there is a catch-up phenomenon
So, what to expect?
Will the New World lead the international wine market in the future, following the catch-up theory? Morrison & Rabellotti (2017). Research Policy.
Export volume (1000hl) – old world vs new world – 1995 to 2017
Note: old world (France, Italy, Spain), new world (USA, Argentina, New Zealand, South Africa, Chile, Australia)
Source: OIV

5. 1. Context Is Europe the immutable wine international trade leader?
Europe is the current leader…
… but there is a catch-up phenomenon
What about the situation in 20 years?
Do we have to look in new directions for finding the future wine-exporting leaders?
North-Europe, Asia, America…?
Export volume (1000hl) – old world vs new world – 1995 to 2017
Note: old world (France, Italy, Spain), new world (USA, Argentina, New Zealand, South Africa, Chile, Australia)
Source: OIV

6. 2. The drivers of international trade performance
The Porter’s diamond…
Porter (1990). The competitive advantage of nations. Harvard Business Review.
The Porter’s diamond
Factors conditions
Firm strategy, structure, and rivalry
Demand conditions
Related and supporting industries

7. 2. The drivers of international trade performance
The Porter’s diamond…
Porter (1990). The competitive advantage of nations. Harvard Business Review.
… and the theory of international trade
The Porter’s diamond
Factors conditions
Firm strategy, structure, and rivalry
Demand conditions
Related and supporting industries
Ricardo, Neo-Ricardian theory (Vernon)
New trade theory (differentiation)
Linder’s theory
Clusters theory (Marshall, Porter)
HOS,
Neo-factorial theory
New trade theory (economies of scale),
New economic geography
Economic geography

8. 3. An application of the diamond to the wine industry
List of countries studied (16 countries):
Old world (3)
New World (6)
Challengers (7)
France
Italy
Spain
Argentina
Australia
Chile
New Zealand
South-Africa
USA
Brazil
China
Georgia
Germany
India
Portugal
U-K
Method:
Desk research - literature search to find relevant proxies for providing a reliable trend  calculation of variables  scoring via quintiles (from -2 to +2)
Google survey (wine economic experts)

9. 3. An application of the diamond to the wine industry
The 4 factors of the Porter’s diamond:
Factors conditions (6)
Related industries (4)
Market structure (6)
Demand conditions (4)
Agricultural land area, (vineyard area / agricultural area)
Variations of vineyard area (over the 20 last years)
Evolutions of yields
Productivity level (divided by the average monthly salary)
Capital intensity (number of tractors for 1000 hectares of agricultural land)
Climate evolutions at a horizon
Number of “wine professionals” (# of places giving level 3 awards in wine identified by the WSET (Wine and Spirit Education Trust) for 1 million inhabitants
Number of wine retailers for hectares of vineyard
Wine intensity of the domestic agriculture Vineyard area / agricultural land area
Research in wine (# of wine related research institutions for hectares of vineyard)
Number of procedures to create a firm
Time in days to create a firm
Firm size Number of wineries for hectares of vineyard
Cooperation intensity
Capacity of the domestic industry to create a competitive advantage (composed statistic based on the wines value and the volume exported)  revealed comparative advantage
Annual domestic consumption per capita
Its evolution between and 2014,
Annual domestic consumption
Its evolution between and 2014

10. 3. An application of the diamond to the wine industry
Scores by factors:
Countries
Factors' Conditions
Related Industries
Market Structure
Demand conditions
India
8,0
France
4,3
Georgia
6,3
Australia
2,8
New Zealand
5,0
3,7
China
2,4
Germany
3,3
USA
2,2 UK
3,0
Italy
1,8
Chile
2,7
1,6
South Africa
1,0
2,3
Spain
0,6
Brazil
Portugal
1,7
0,4
0,0
1,3
Argentina
0,7
-0,2
-1,0
-0,7
0,3
-0,4
-3,0
-0,3
-0,8
-1,3
-2,0
-4,0
-2,3
-1,2
-3,7
-2,7
-4,3
-1,6
FC: climate change+land availability&price+labor cost
RIindus: bias toward indus countries (research) and mature market (#retailers + pro)
MStruc: Georgia because liberal (proc to create firm) & firm size; other because of the coop system and the procedure; capacity to sell at high price important volume (trade balance)
DC: score could be fallacious because there is no weight for the potential market size (i.e. the demography)

11. 3. An application of the diamond to the wine industry
Global scores: expected evolution of the wine export performance

12. 3. An application of the diamond to the wine industry
Survey results: first statistics

13. 3. An application of the diamond to the wine industry
Survey results: comparison with the desk research
 Spearman corr. = 0.21 (ns)

14. 3. An application of the diamond to the wine industry
Survey results: comparison with the desk research
 Spearman corr. = 0.21 (ns) / 0.40 w/o Argentina (significant 14%)

15. 4. Discussion Interpretation of the results: HOS vs Linder
HOS: Factors’ conditions play a prominent role  climate change and land availability will be crucial (NZ)
Linder’s theory: the main driver of trade performance is the domestic demand  large and growing market will give a significant advantage (Chinese domination? USA?)
Comparison to the existing literature: (1) economic models
CGEM (Anderson and Wittwer)  confirm the emergence of China and stress the role Exchange rate
Macro-model (OECD-FAO, 2017; EU agri. outlook, 2017)  give interesting indications of trade evolution depending on the macroeconomic conditions  but never predict huge changes (prolong trends)

16. 4. Discussion Interpretation of the results: HOS vs Linder
HOS: Factors’ conditions are prominent  climate change and land availability will be crucial
Linder: the main driver of trade performance is the domestic demand  large and growing market will have a significant advantage (Chinese domination? USA? UK?)
Comparison to the existing literature: (1) economic models
CGEM (Anderson and Wittwer)  confirm the emergence of China and stress the role Exchange rate
Macro-model (OECD-FAO, 2017; EU agri. outlook, 2017)  give interesting indications of trade evolution depending on the macroeconomic conditions  but never predict huge changes (prolong trends)
“This report presents the medium-term outlook for the major EU agricultural commodity markets and agricultural income to 2030, based on a set of coherent macroeconomic assumptions. The baseline assumes normal agronomic and climatic conditions, steady demand and yield trends, and no particular market disruption.”
EU Agricultural Outlook, 2017, p8.

17. 4. Discussion Interpretation of the results: HOS vs Linder
HOS: Factors’ conditions play a prominent role  climate change and land availability will be crucial
Linder: the main driver of trade performance is the domestic demand  large and growing market will have a significant advantage (Chinese domination? USA? UK?)
Comparison to the existing literature: (2) Business and management literature
Morrison and Rabellotti (2017): based on a thorough analysis of the trade trends
They offer a complex picture of the wine industry  the challengers might become the major players in the future

18. 4. Discussion Interest and limitation of the paper: Future research:
Prospective method  seems the best approach to anticipate a breakdown
Despite extensive sensitivity analysis, results are subject to personal interpretation, data availability and researchers’ choices (like for models)
Future research:
Extend the survey to wine professionals
Refine the variables used to proxy the diamond factors
Investigate the gap between the survey and the desk research (Argentina)

19. International Wine Trade: A Prospective Approach based on Porter’s Diamond
Olivier Bargain
LAREFI - Bordeaux University
Jean-Marie Cardebat
INSEEC Business School
Raphael Chiappini
Corentin Laffitte
12th Annual AAWE Conference Ithaca, New York, USA - June 10-14, 2018