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

Eduardo Haddad and Patricio Aroca

No 2019_37, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

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 CGE model for Chile, which incorporates detailed information about the value chain of the wine sector in the country. Using information for the 2015-2016 harvest, we calibrate climate 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 technical 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.

Keywords: Climate; viticulture; wine; computable general equilibrium; Chile (search for similar items in EconPapers)
JEL-codes: C68 Q13 Q54 (search for similar items in EconPapers)
Date: 2019-09-20
New Economics Papers: this item is included in nep-agr, nep-env and nep-lam
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