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Thursday, October 28, 2004

French Wine Boycott Fails

Curious about why Australian wine seems to be permanently on sale at the delis I frequent, I found an article by Frank Vannerson called "Wine, Francophobia and Boycotts," on the Liquid Assets web site. (Liquid Assets is a newsletter for investors in high-end win run by Princeton labor economist and oenophile Orley Ashenfelter).

In January, 2003, just before the Iraq War, anti-French sentiment heated up. As you may recall, french fries were briefly renamed freedom fries. French toast became liberty toast. The makers of French's Mustard felt compelled to point out that they weren't really French at all. French wine sales fell, leading to some early reports of success for the boycott.

I clipped the figure below out of the Vannerson paper. The graph shows the share of the US wine market captured by French, Italian, Australian, and other producers. The data is from supermarkets, so it's mostly limited to low-end wines, under $10 a bottle. The figure shows that sales of French wine have been plummeting while sales of wine produced by our ally Australia have soared. At first blush, this seems to suggest that the boycott was successful.

However, the figure makes clear that French wine sales had been falling steadily for over a year before the boycott, and the post-boycott fall was merely a continuation of the trend. Vannerson's article demonstrates this statistically. At the same time, Australian wine sales have been increasing, by about 80% in less than two years (again, in line with pre-boycott trends).

According to the Worlds of Wine (sort of a wine blog, written by a wine historian) wine imports, at least at the low end, rise and fall with exchange rates.
With the problems in the American economy (deficits, massive trade imbalances), the U.S. dollar has lost value dramatically against the Euro, the currency now common to the biggest European wine-producing states, France, Italy and Spain...As a result, French and Italian wine imports to the U.S. fell 15 per cent in 2003....No surprise that it'’s the Australians who’'ve hopped in to fill the gap created by falling European imports.
So where the boycotters failed to hurt French winemakers, Bush succeeded -- by running up the deficit and weakening the US dollar.

Source: Adapted from Vannerson, Liquid Assets.

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