Introduction

WINE IS NOT a homogenous product. A bottle from one of Bordeaux’s first growths of the 2000 vintage today sells for several thousand dollars, much more than virtually any other wine, not just for that particular vintage, but also those produced on the same estates in previous and later years. Like most readers of this book, I have never drunk such a wine and probably never will, but I still get great pleasure from drinking more modest ones. A current favorite for everyday drinking is Tábula’s Damana 2006 crianza, which my local shop sells for around fifteen euros, or twenty dollars. By the time this book is published it may be something else—perhaps because another winery will release a more competitively priced crianza next year; or the Tábula winery may have problems meeting demand for its wines and be forced to buy lesser ones to sell under its own brand (or instead may restrict the supply and raise the price above my budget); or my own tastes may change; or, but highly unlikely, my disposable income available for wines may increase to allow me to move upmarket. I also enjoy drinking Alfredo’s vino tinto, especially as it is free and each glass comes with five or ten minutes of lively conversation (although whether supplies will be quite so forthcoming when Alfredo realizes that I have no influence to help his “export drive” remains to be seen). It is of course this huge diversity that makes wine interesting to so many different people. It also probably explains why few wine histories consider more than a single country, even though many regional studies exist. This book is an attempt to understand the dynamics of production and marketing of all wines during the period of major change that took place between the mid-nineteenth century and the First World War.

Wine production in Europe today is dominated by small family vineyards and cooperative wineries, while in the New World viticulture and viniculture are highly concentrated and vertically integrated. As a result, in the United States and Australia 70 percent of the wine is produced by the top five wine companies; Argentina and Chile, 50 percent; and in France, Italy, and Spain, only 10 percent.¹ In this book I argue that these fundamental organizational differences already existed by 1914 and were caused by six distinct but interrelated variables, namely, terroir (which can be explained roughly as production conditions), tradition (or path dependency), technology, the nature of market demand, political voice (especially of small producers), and political organization in each country. The result was that in Europe the functions of grape growing and wine making were integrated but marketing was a specialist activity, while in the hot climates of the New World the situation was reversed, as grape growing was a specialist activity, but the wine-making and marketing activities were often integrated. The ability of groups within the industry everywhere, from grape growers, winemakers, merchants, retailers to consumers, to influence government policy led to very different policy responses to the problems of periodic overproduction, adulteration, and mislabeling of wines, which further helped to determine the organizational structure. In particular, Europe’s small family producers successfully lobbied governments and created a variety of new institutions, including regulatory bodies to control fraud, regional appellations, and cooperatives. By contrast, New World winemakers found a much more favorable political environment to create large, integrated businesses and trusts, investing heavily in advertising and brands to sell to distant consumers generally unaccustomed to wine drinking.

Yet despite these changes, about nine-tenths of wine in 1914 was produced in Europe, with France, Italy, and Spain alone accounting for almost three quarters of world output. Higher wages, urbanization, and the railways all helped contribute to the doubling of French consumption to more than 150 liters per person annually in the sixty or seventy years before the First World War. Technological change was rapid in both the vineyard and winery, and this led to the spread of commercial wine production to new regions, especially those with hot climates. However if a stable, good-quality dry wine could now be produced in places as diverse as Algeria, California, or South Australia, merchants everywhere had limited success in selling them to consumers who originated from outside Europe’s traditional wine-producing regions. The period before 1914 saw the spread of commercial wine production to new geographical regions, but it is only in the past two or three decades that we can genuinely talk of a global wine market.

A number of different processes are required in the production and distribution of wine before it reaches the consumer. First the grower must prepare the land and choose and plant a suitable vine variety, followed by an annual cycle of cultivation (hoeing, pruning, harvesting) and wine making (crushing of the grapes and fermenting of the must). The wine is then racked, matured, and blended with others for sale. When the wine is marketed over long distances, merchants are needed to find suitable supplies in sufficient quantities and create distribution networks. Producers of fine wines such as claret, champagne, port, or sherry developed diversified commodity chains, but these wines accounted for only a small percentage of total production, even in their own countries.² Most wines were cheap, referred to in the literature by a variety of names, including vin ordinaire, vino común, jug, commodity, or beverage wines. Despite the huge variety of wines produced, the different steps involved in the commodity chain can be summarized relatively easily.

The commodity chain above suggests that different enterprises carried out each activity. On a few occasions this was indeed the case, but usually a single business integrated backward or forward into one or more activities. The particular business that controlled the chain and was ultimately responsible for quality and establishing the brand could vary significantly. Fine wines, for example, were sold by a variety of methods: under the name of the grower (Château Margaux), the manufacturer/exporter (Moët & Chandon), the shipper (Sandeman), or the importer (Victoria Wine Company). By 1914 there were also fundamental differences in the production and marketing of cheap table wines between the Old and New Worlds.

In much of Europe, growing grapes was risky. Hubert de Castella, a Swiss viticulturist who settled in Australia, noted that European growers faced “a long list” of potential damages: “First the spring frost, next the rain at blossoming time, the hail all through the summer. As to diseases and parasites, le jaune, le collis, la pyrale, l’écrivain—the sweeping oidium—and of very late years several new ones with ominous names, including peronospera, the antracnose.”³ Harvest size was not only up to four times more volatile than with cereals, but grape quality varied significantly from one plot to another, as well as from one year to the next. Grapes had to be processed rapidly after collection, and because growers could not depend on independent wineries purchasing them within such a short time frame, most had their own crushing and wine-making facilities. Therefore grape growing and wine making, with a few notable exceptions such as Champagne, were activities that were almost always integrated, eliminating any coordinating problems that would have occurred if two distinct businesses had existed instead. By contrast, European wine production and marketing were separate activities. Merchants played a crucial role in collecting the highly diverse wines from the thousands of small family producers and blending them to produce an acceptable drink for urban consumers. Even so, wine quality varied significantly, and there was virtually no attempt by merchants to sell their commodity using brand names. Therefore in Europe, where wine was the alcoholic beverage of choice for most consumers, it was the reputation of individual retailers in the thousands of taverns in cities such as Paris, Madrid, and Rome that determined which wines were drunk.

In Europe, viticulture and wine production were generally family businesses. Vines were widely cultivated despite the considerable output volatility because grapes could be successfully produced on land that was marginal to most other crops and was therefore cheap. Large quantities of labor were required to prepare the vineyards for planting, but much of the work could be carried out during periods of slack demand, when there was little alternative employment. Small plots of vines were therefore excellent vehicles for family producers with limited means to acquire a capital asset, which provided both a pleasant (and important) dietary supplement, as well as a possession that could be sold in times of difficulties. In France in the late nineteenth century, there were around one and half million producers, most of whom had only a very small area of vines and combined viticulture activities with others, both rural and urban.

The small-scale nature of production did not stop producers responding quickly to market upturns by adding to their vines, but they were much slower to uproot them at times of overproduction, creating a ratchet effect and more price volatility. During periods of low prices, growers preferred to dedicate more of their labor resources to other activities rather than destroy their vineyards. Traditionally the inadequate keeping quality of most wines limited the impact of a large harvest, and hence low prices, because stocks could not be carried over to the following year. By the late nineteenth century, however, production conditions had begun to change. In particular, increased scientific knowledge related to grape growing and fermentation allowed potentially higher yields and improved the keeping quality of wines. In addition, many growers, merchants, and retailers learned during the phylloxera-induced shortages of the 1870s and 1880s to adulterate their wines, using a variety of substances other than fresh grapes to increase volume and improve their keeping quality—techniques they were reluctant to give up when production recovered with phylloxera-resistant vines. By the turn of the century overproduction and low prices threatened to drive many producers to bankruptcy and seriously damaged some regional economies. France’s Midi region was especially affected, and large and small owners there joined together in a series of demonstrations in the summer of 1907 that culminated in over half a million people protesting in Montpellier, which obliged the government to allow a growers’ organization (the Confédération générale des vignerons du Midi) to monitor fraud and prosecute illegal wine-making activities and the sale of adulterated wines.

Although the protests in the Midi were largely organized by the new “industrial” producers, they underlined the growing negotiating strength of small growers everywhere with the state, and their ability to challenge the economic power of merchants. This new power was already clearly apparent by the First World War in two distinct areas: the creation of cooperatives (which allowed family grape producers to benefit from the increasing economies of scale found in wine production) and regional appellations (which restricted the use of names such as “Bordeaux” and “Champagne” to local producers). Similar changes appeared in Europe’s other wine-producing nations, although the timing differed, partly because political institutions initially were less favorable to family growers, and partly because wines had to achieve a sufficient popularity to encourage deception through mislabeling.

The European wine-producing tradition stretched over several millennia, and with the massive emigration of the late nineteenth century migrant laborers took their highly site-specific knowledge with them to the New World. There they often found climatic conditions much more favorable for viticulture, as fully mature and disease-free grapes could be produced virtually every year. Furthermore, by 1900 new wine-making technologies, which were especially suited to the hot climates of these countries, allowed producers to make consistently better wines that kept longer and were cheaper than those made using traditional methods. Consequently the new, large wineries depended on specialized growers for a significant quantity of their grapes, leading to different coordination problems from those found in Europe.

In the New World, unlike in Europe, the combination of good grape-growing conditions and the new fermentation technologies allowed large quantities of brandable homogenous wines to be produced. As a result, Australian wines were sold under the importer’s brand in London, while many Argentine and California wines were sold under that of the winemaker. Major marketing problems existed, however, because production was located at considerable distances from large urban markets, and also because the consumers of California and Australian wines were traditionally beer or spirit drinkers. Even when wine was the alcoholic beverage of choice among consumers, such as in Argentina, price primarily determined demand, which encouraged producers to sacrifice quality for quantity and thereby reduced the value of the brand. Overproduction and adulteration were just as common in the New World as in Europe, but the political voice of growers was much smaller, and it was the winemakers and merchants who imposed solutions, in particular by exploiting the economies of scale in production and marketing and restricting competition.

This book is divided into four parts. Part 1 examines the transformation of Europe’s cheap table wine industry. The period was dominated by the vine disease phylloxera, which was brought on vine stock from the United States and over the course of many decades would kill almost all vines in Europe and the rest of the world. The only permanent solution was to graft European varieties to phylloxera-immune American rootstock. Wine shortages caused by phylloxera in one market encouraged growers in others to increase output, as well as to produce artificial wines, while the new phylloxera-resistant vines were capable of producing significantly higher yields. Recovery in production and continued fraud resulted in markets becoming glutted by the turn of the twentieth century. Growers looked to avoid the consequences of their own success, namely, overproduction, low prices, and the need to exit the industry. They demanded help from the government to resolve collective-action problems associated with controlling the production of artificial wines and to create wine-making cooperatives to allow them to improve wine quality and cut production costs.

Part 2 looks at export failure and the difficulties of selling in a market where wine, for most consumers, was not the alcoholic beverage of choice. For centuries wine had been an important export commodity, and in 1850 it still accounted in terms of value for half of all Portugal’s exports, a quarter of Spain’s, and one-fifteenth of France’s. Much of this was fine wine destined for the British luxury market. The potential of this market changed dramatically with Gladstone’s legislation of the early 1860s that specifically sought to create a mass market for table wines. Britain had a large and wealthy population and was open to world trade, importing over half of its food and beverage needs by 1914. Although wine imports tripled between the late 1850s and the mid-1870s, there was no permanent change in drinking habits. Consumption drifted lower for the rest of the century, even though the population continued to increase, living standards rose, and the duties on wines fell in real terms. On the eve of the First World War, per capita consumption was no greater than it had been a hundred years earlier. The failure to create a mass market for cheap table wines among consumers who traditionally preferred beer and spirits was caused, at least in part, by the difficulties associated with developing cheap, impersonal exchange mechanisms such as brands because of the major annual fluctuations in wine quality and the ease with which the drink could be adulterated.

Part 3 looks at the response by local producers and exporters in Bordeaux, Champagne, Porto, and Jerez to the growth in the generic use of words such as “port” or “champagne” for wines of a certain type, regardless of where they had been produced. Local growers had long claimed that “claret” or “sherry” constituted collective trademarks, and they wanted to restrict the supply of grapes to a designated area by creating regional appellations. This not only led to confrontations between local growers and those located outside the appellation but was also opposed by merchants who claimed that it was they, not the growers, who created a wine’s reputation, and that they needed the freedom to purchase outside wines for blending to compensate for the vagaries in the local harvest and to sell at competitive prices. Local producers argued that regional appellations were essential to maintain wine quality and provide guarantees for consumers, but their opponents claimed they served only to create geographical monopolies and shift rents to the local producer. Collective action on the part of growers therefore needed the backing of the state. Although the sixty thousand growers in Bordeaux might oppose the production of wines made from raisins or the selling of cheap Midi wines as claret, they were happy to bend the rules when it suited them. Only when a grower believed that a system could adequately identify and punish cheats were they likely to respect the rules themselves. The creation of an appellation led to bitter and sometimes violent conflicts as the economic livelihood of the excluded growers was threatened.

Outside France, political institutions were often less favorable to small growers. In Spain, for example, authorities routinely dismissed demands by growers in Jerez for a regional appellation and the creation of a local bank because they went against the interests of a small number of powerful merchants. By contrast, in Porto, vine growers found a considerably more sympathetic state because the foreign shippers, unlike those in Jerez, still retained their British nationality, which placed them at a distinct disadvantage when negotiating with the Portuguese state.

The final section, part 4, looks at the development of the industry in the New World, comparing the experiences of California, Australia, and Argentina. In these areas factor endowments were reversed, as labor was scarce and land abundant. The potential of these countries to become major producers was quickly appreciated, but both the technology and virtually all the world’s wine drinkers were found in the Old World. During the half century prior to 1914, technology was transferred and adapted to the needs of the new producers, and millions of potential consumers migrated from Europe. Change was rapid and the New World’s reputation for poor-quality wines on account of faulty fermentations in the 1890s had disappeared in some areas by 1914. Good wine production under these conditions required heavy investment and significant technical skills, leading to a separation between grape production and wine making. From the final decade of the nineteenth century, the problems associated with overproduction and adulteration and the huge distances between the areas of specialized viticulture and their major markets led to the creation of very different organizational structures from those found in Europe. Winemakers successfully lobbied for tariff protection, but the small, family growers had very little political influence compared with their European counterparts. The leading producers were huge compared to those in Europe, and they learned to standardize production and integrate forward into distribution and marketing of their brands in distant urban centers, and to different degrees to manipulate prices. In both Australia and the United States, the difficulties of selling over long distances to consumers unacquainted with wine at a time of increasing interest in prohibition limited per capita consumption to less than a tenth of that found in Argentina or Chile. Technological change in wine-making technologies was especially impressive in Australia and California, but the difficulties of creating new markets for these table wines led to a switch to fortified dessert wines after 1900, and as late as the 1960s wines such as “sherry” or “port” made up at least half of California’s and Australia’s wine production.

¹ Anderson, Norman, and Wittwer (2004), table 2.1. The figures exclude champagne.

² This book follows the usual convention of using lowercase for the drink (champagne, claret, etc.) and uppercase for the region where it is produced.

³ He concludes, “Considering the capital necessary to establish a vineyard in the old world, the time to wait for a first crop, it requires some courage to undertake it” (Castella 1886:17–18). Peronospera is downy mildew and antracnose, black spot.