Vol. 9 No. 2 (2020)
Original Research Article

A Bad Year? Climate Variability and the Wine Industry in Chile

Eduardo Haddad
Department of Economics, University of São Paulo (USP), São Paulo, Brazil
Patricio Aroca
Business School, Adolfo Ibáñez University (UAI), Viña del Mar, Chile
Pilar Jano
Business School, Adolfo Ibáñez University (UAI), Viña del Mar, Chile
Ademir Rocha
Department of Economics, University of São Paulo (USP), São Paulo, Brazil
Bruno Pimenta
Department of Economics, University of São Paulo (USP), São Paulo, Brazil
Published November 23, 2020
Keywords
  • climate variability,
  • viticulture,
  • wine,
  • computable general equilibrium,
  • Chile
How to Cite
Haddad, E., Aroca, P., Jano, P., Rocha, A., & Pimenta, B. (2020). A Bad Year? Climate Variability and the Wine Industry in Chile. Wine Economics and Policy, 9(2), 23-35. https://doi.org/10.36253/web-7665

Funding data

Abstract

Short-term climate conditions may affect crop yields and vintage quality and, as a consequence, wine prices and vineyards’ earnings. In this paper, we use a Computable General Equilibrium (CGE) model for Chile, which incorporates very detailed information about the value chain of the wine sector in the country. Using information for the 2015-2016 harvest, we calibrate climate variability shocks associated with a “bad year” for the wine industry in Chile, when premature rains occurred in important wine regions, reducing the area harvested and leading to wines with less concentrated flavors, particularly for reds. We model the climate shocks as a productivity change in the grape-producing sector (quantity effect). Moreover, we model quality effects as a shift in the foreign demand curve for Chilean wine. Given the specific economic environment in the model and the proposed simulation, it is possible to note the reduction of Chilean real GDP by about 0.067%. By decomposing this result, we verify that the quality effect has a slightly greater weight compared to the quantity effect.