Published by EH.Net (March 2012)

James Simpson, Creating Wine: The Emergence of a World Industry, 1840-1914.?? Princeton: Princeton University Press, 2011.? xxxvii + 318 pp. $39.50 (hardcover), ISBN: 978-0-691-13603-5.

Reviewed for EH.Net by Noel Johnson, Department of Economics, George Mason University.?

After his inauguration as President of France in May of 2007, Nicolas Sarkozy received not one, but two, threatening videos from balaclava wearing terrorists.? The first came from the Abu Hafs al-Masri Brigade, an Islamic group upset with the new President?s association with ?Zionists.?? The second video came from discontented wine growers from the South of France, the Comit? d?Action R?gionale Viticole (CRAV), and demanded that Sarkozy immediately raise the price of wine.? Both groups threatened bloody retaliation.? Perhaps surprisingly, however, it was only the wine growers who made good on their promise through a series of violent riots over the summer.? This story raises several important questions about modern France, the wine industry, and the regulatory state.? Why are French wine producers, or at least those from the south (the Midi), unable to compete in the modern marketplace?? Why do they feel it is the place of the state to shield them from competition?
In his well-written and fascinating new book, Creating Wine: The Emergence of a World Industry, 1840-1914, James Simpson sheds light on these questions and many more.? For example, we learn that in 1907, exactly one hundred years before the riots during Sarkozy?s Presidency, wine workers in the Midi protested so violently that an earlier President, Georges Clemenceau, was forced to send in the army.?? The concerns of the 1907 protesters were virtually identical to those of their modern counterparts.? They claimed that government intervention was necessary in order to raise wine prices which had been driven down by the production of adulterated wine.? Simpson?s book is a tour de force because he manages to place these boulversements within France into an international context.? This allows him to highlight some facts which help us understand what was going on in France, in both 2007 and 1907.? One of the most important of these facts is that ?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? (p. xxxii).? These differences are large ? in the United States and Australia about seventy percent of wine is produced by five companies, whereas in France, Spain, and Italy the number is only ten percent.? This difference also helps explain why portions of the French wine industry are failing.? The members of the CRAV who rioted in 2007 simply aren?t exploiting the scale economies in the production of cheap table wine that producers in the New World are.? One factory owned by the company Yellow Tail in Australia produces and sells more wine in the United States in a year, than all French producers combined (Colman, p. 104).?? Most of Simpson?s excellent book is dedicated to evaluating the relative contributions of geography, technology, and institutions in creating this modern organization of wine production.

The book is divided into four sections.? The first, on ?Technological and Organizational Change in Europe, 1840-1914,? tells the story of Europe?s cheap table wine industry during the nineteenth and early twentieth centuries.? France dominated this market, but in the middle of the nineteenth century production was mainly done by relatively small producers.? A lot of wine was made and consumed by farmers as a second crop, to add flavor to the diet and make use of marginal land.? This changed with the arrival of the devastating vine pest known as the phylloxera after 1863.? Simpson tells the fascinating story of how this invasion brought the French wine industry to its knees in the succeeding decades and how scientists eventually developed methods to combat it.? By the 1890?s the big winners from the phylloxera epidemic were the newly consolidated producers from the south who, thanks to technological innovations and newly lowered transaction costs of trade, were able to flood the wine market in France with cheap, high quality, table wine.? This success also set the stage for the, very modern, struggle within France?s wine industry between those who claimed low prices were due to production of adulterated wine by the? unscrupulous, and those who believed there was simply too much production.? Of course, the former would (and still do) argue for state intervention to overcome the coordination problems associated with maintaining ?high quality.?? The latter would let the market be free to creatively destroy high cost producers.??
In the second section, ?The Causes of Export Failure,? Simpson investigates why it was so difficult to sell wine in new markets.? He focuses on the failure of the French to turn the British away from spirits and beer after the 1860?s.? He concludes that high yearly variation in wine quality combined with the ease with which the product could be adulterated explains the failure of branding to create a British preference for wine.? The third section, ?Institutional Innovation:? Regional Appellations,? investigates more closely why some regions were able to successfully lobby their governments for protection from producers of inferior or adulterated drink whereas others were less successful.? The four regions he focuses on are Bordeaux, Champagne, Portugal, and Sherry producers from the Jerez region of Spain.? The first three were largely successful in getting protectionist measures passed, most famously in France under the eventual guise of the Appellation d?origine contr?l?e system (AOC).? Simpson tells a nuanced story about the collective action costs facing the growers, shippers, and the relative accessibility of the democracies in each country to rent-seeking by its producers.? Simply stated, popular democracy combined with strong growers and weak shippers led to protection in the French regions and in Portugal.? Weak growers, strong shipping interests, and a relatively elite form of democracy resulted in failure on the part of the Sherry producers in Spain to get protection.?

The final section, on the ?The Great Divergence: The Growth of Industrial Wine Production in the New World,? tells the story of how a wine industry in the New World (California, Australia, and Argentina) was created and why, with its extremely large scale production, it became the juggernaut on the world market it is today.? Simpson tells a compelling story about how new technologies which emerged at the end of the nineteenth century combined with the large distances between producers and consumers eventually led to the highly horizontally- and vertically-integrated organization we know today.
There is much to like and relatively little to criticize in this book.? Simpson tells a complicated story with great clarity and his attention to detail gives the reader confidence in his conclusions.? Nonetheless, one of the great difficulties in figuring out the evolution of the organization of the wine trade is that many things often happen at the same time.? For example, a large part of the book is dedicated to explaining the shift in production to the south of France at the end of the nineteenth century and the eventual consequences of this for the future regulatory environment.? However, at least three different factors were at play in this process.? Technological innovations in fermentation technology which allowed for large-scale production in the Midi emerged during the early 1890?s.? The phylloxera epidemic also was ending at that time.? And finally, there were several institutional changes, like the reduction in internal taxes on wine throughout France in 1901.? All of these factors tended to push production up and prices down, and Simpson acknowledges all of them.? It would be nice, however, to know a little bit more about the causal channels.? It matters, for example, whether technology conducive to large scale production was adopted because the costs of trade were going down, or if technology made increased scale possible and this, in turn, led to the opening up of new markets.?? Answers to these causal questions are also important for how we think of the role played by modern states in all of this.? Did they encourage trade (e.g. through lower taxes) or discourage trade (e.g. through protectionist regulation)?
In writing Creating Wine, James Simpson has done a great service to those who are interested in how a traditional industry inherited the modern, highly regulated, market structure we observe in places like France today.?? The book is important and carefully written. Anyone interested in wine or the interaction between markets and modern democratic states should buy it.
Tyler Colman, Wine Politics: How Governments, Environmentalists, Mobsters, and Critics Influence the Wines We Drink, Berkeley: University of California Press, 2008.

Noel Johnson is an Assistant Professor of Economics at George Mason University.? He is the author (with Eliana Balla) of ?Fiscal Crisis and Institutional Change in the Ottoman Empire and France? (Journal of Economic History, September 2009). Email:?

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