1. Factors affecting price - Supply and demand

Question 1

What two reasons have increased consumption trends in the US in the last 20-30 years.

Answer 1

The increased globalisation of food and drink making import/export easier and increased domestic production.

Question 2

Why has consumption increased in China?

Answer 2

A growing middle class aspiring to drinking imported wine.

Question 3

What is the pattern of German wine consumption?

Answer 3

Has remained steady between 2003-present.

Question 4

At what rate is wine being produced compared with consumption?

Answer 4

Consumption is c.16 million hectolitres lower than supply.

Question 5

What are two reasons why wine consumption is decreasing in traditional wine drinking countries?

Answer 5

1) Health-related government campaigns such as Loi Evin in France.
2) Lunchtime drinking is increasingly becoming forbidden or unacceptable.

Question 6

With a reduction in availability of cheap wine, what might consumers do?

Answer 6

Find alternative inexpensive drinks or non-alcoholic beverages.

Question 7

What is a ‘price-sensitive’ market and give an example?

Answer 7

A market in which the majority of consumers are willing to pay the the minimum amount for their chosen style. Germany and the UK.

Question 8

Fierce competition in price-sensitive markets results in what?

Answer 8

Lower prices for consumers but potentially fewer choices as some producers may not choose to sell to these markets.

Question 9

How might a brand in a price-sensitive market encourage consumers to continue buying their product following price rises?

Answer 9

By building up ‘brand loyalty’ as part of their marketing campaign.

Question 10

What styles of wine were once popular but have fallen from fashion?

Answer 10

Fortified wines and medium-sweet inexpensive German wines.

Question 11

How has Prosecco DOC accommodated a growing demand for Prosecco wine?

Answer 11

By expanding the area covered by the Prosecco DOC.

Question 12

What consumer trends are typical in an economic downturn?

Answer 12

Consumers trade down to less expensive wine or alternative alcoholic drinks such as beer or cider.

Question 13

When an exporting country’s currency gains value what options does a producer in that country have?

Answer 13

Keep their price stable and risk being seen as expensive therefore risk losing sales OR reduce their price and so return lower profit margins.

Question 14

What other impact does a weak currency have to a producer?

Answer 14

Costs them more to import equipment and supplies such as oak barrels, corks, yeast.

Question 15

What four ways might supply be limited at government level?

Answer 15

1) State-owned monopolies in Sweden, Norway, Canada.
2) USA’s three-tier system.
3) Minimum drinking age.
4) Restricted hours of sale.

Question 16

What four ways might supply be limited at government level?

Answer 16

1) State-owned monopolies in Sweden, Norway, Canada.
2) USA’s three-tier system.
3) Minimum drinking age.
4) Restricted hours of sale.

Question 17

What is the name of the French government policy restricting alcohol advertising?

Answer 17

Loi Evin (1991).

Question 18

What is Scotland’s minimum unit pricing?

Answer 18

GBP 0.50 per unit of alcohol.

Question 19

What is the BAC limit in Norway, Sweden?

Answer 19

20mg/100ml.

Question 20

What style of wine saw a decline in sales following an excise duty increase in ROI?

Answer 20

Sparkling wine.

Question 21

What are the two purposes of trade tariffs.

Answer 21

1) To generate revenue
2) A form of protectionism policy intended to encourage domestic sales over imported goods.

Question 22

How might trade wars impact consumer sentiment?

Answer 22

Negatively to the point where consumers avoid products from previously restricted countries out of principle.

Question 23

What result did the Argentine government’s trade restrictions have on Argentine wine in early 2010s?

Answer 23

Restricted importation of winery equipment and so increased production costs.

Question 24

What impact did China’s 2012 Anti-Extravagance policy have?

Answer 24

Reduced demand and sales of Bordeaux Premier Cru and Burgundy Grand Cru.

Question 25

What impact might the creation of a new GI have on producers in that area?

Answer 25

Greater recognition and demand allowing the producers to increase their prices.

Question 26

What impact does the migration of younger generations to urban areas from rural areas have?

Answer 26

Reduces the workforce available and can result in the abandonment of family-run estates with no-one to take over.

Question 27

What allowance have EU member states had since 2016?

Answer 27

Ability to expand area under vine by planting up to 1% of the current area under vine.

Question 28

What might a grape grower do to combat low financial returns on grapes?

Answer 28

Vine pull and replant with a higher value product such as apples in Elgin, SA.

Question 29

What pattern can be seen in the area under vine globally between 2003 and 2019?

Answer 29

A decline.

Question 30

What two reasons explain why Spain’s production levels have increased despite a reduction in land under vine?

Answer 30

1) A relaxation of irrigation laws allows areas not previously planted to grow vines. 2) Higher density plantings along with more modern winegrowing techniques.

Question 31

Why does inclement weather in Europe impact global wine supply?

Answer 31

Most of the world’s vineyards are planted here and vintage variation is more keenly felt in ‘classic’ regions.

Question 32

What (8) climatic factors in the vineyard might contribute to lower yields?

Answer 32

Smoke taint, fire, untimely rainfall, heatwaves, hail, pests, spring frosts, drought.

Question 33

What techniques (3) are within the control of a viticulturist to combat undersupply - before planting and during the growing season?

Answer 33

1) Site selection - choosing a warmer or moderate site with better sunlight and water access. 2) Selecting high-yielding clones i.e. Pinot Noir 521. 3) Ensuring the canopy is managed to allow for air, sun and chemical penetration aiding ripening and staving off disease pressure.

Question 34

What is the major natural factor contributing to undersupply on a global scale?

Answer 34

Climate change - drought and excess heat.

Question 35

Name two aims of the European PDO system.

Answer 35

1) To define the style of wine produced in a particular area. 2) To bring supply and demand into line to reduce risk of downward price pressure as that style of wine can be produced only within the delineated area.

Question 36

What impact do PDO restrictions have on production levels?

Answer 36

Reduces risk of market oversaturation and a reduction in price.

Question 37

What risk does expanding the permitted production area of a GI have?

Answer 37

Expanding the area under vine into less suitable sites and potentially diluting the quality.

Question 38

What impact might selling a wine below its usual price have?

Answer 38

Can devalue the brand image and create lasting brand damage.

Question 39

What options (3) does a producer have if they have an over-supply of unsold wine?

Answer 39

1) Reduce sell price or sell at a loss. 2) Bottle under a different/private label for sale to a deep discounter, private label or bar. 3) Seek new sales markets.

Question 40

What disadvantage is there to seeking a new sales market for unsold wine.

Answer 40

It can take time to establish relationships and thus get the wine to market.

Question 41

Name two risks to a winemaker in the event of undersupply.

Answer 41

1) Strained relationships with retailers. 2) The retailer may impose a financial penalty or cancel their contract with the producer.

Question 42

Give two options a producer has if there is an excess demand for their product compared with supply.

Answer 42

1) Sell their wine at a higher price point. 2) Sell wine on allocation.

Question 43

How might under-supply be ‘fashioned’? Given two examples.

Answer 43

1) May suppress the market availability of its Grand Vin by putting ⅔ of its fruit into Pavillon Rouge where it would otherwise be suitable for the Grand Vin, which controls the volume of Grand Vin in the marketplace thus giving the appearance of low quantities and high demand. 2) Blocage in Champagne - where the house reserves juice in bountiful vintages for vinification and blending into production during leaner years.

Question 44

What is a Veblen Good?

Answer 44

A good for which demand increases as the price increases. Typically high-quality and exclusive i.e. Grand Cru Burgundy.

Question 45

What are two examples of modern winemaking techniques that a winemaker might employ to increase yield from harvested fruit?

Answer 45

1) Pea and potato proteins for more efficient fining. 2) Rotary drum vacuum filters to separate more juice from lees

Question 46

What do changes in temperature through climate change mean in relation to certain persts?

Answer 46

Changes in temperature mean that certain pests can survive further towards wine growing regions where it would have previously been too cold i.e. Pierce’s Disease being spread by an overwintering sharpshooter in California where it is becoming less cold.