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European Wines Exports Towards Emerging Markets. The Role of Geographical Identity

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Abstract

The geographical identity of agricultural products may be regarded as a means to differentiate the product in the consumers’ taste and eye, thereby ensuring higher prices. Building on the analysis of Agostino and Trivieri (Food Policy46:22–36, 2014), this paper provides empirical evidence on the performance of geographically designated and indicated wines in emerging economies. According to our findings—based on bilateral exports of wine originating from France, Italy and Spain in the period 2010–2013—the geographical designation seems reaching the ultimate goal of a price premium in the BRICS countries. Italian and Spanish quality wines, yet, appear lagging behind their French counterparts.

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Notes

  1. The European legislation concerning the geographical indication of wine, into force since the 1960’s, contempla-tes two broad categories: QWPSR and table wine. Since 1970, in the latter category the label can carry or not a geographic designation. Traditional producers (such as Italy and France) have their own version of QWPSR (DOC/ DOCG and AOC respectively) and table wines with geographical indication (IGT and Vin de Pays, respectively).

  2. Indeed, the geographical origin of wines—associated to peculiar characteristics—represents a trust or credence quality attribute, since a typical consumer cannot possibly deduce the product origin and related quality even after having consumed. Such an asymmetric information problem may be mitigated by labels certifying the geographical origin of products, which provide the sellers with a quality reputation.

  3. http://epp.eurostat.ec.europa.eu/newxtweb/setupdimselection.do# (accessed on 19/06/2014).

  4. Before 2010, the combined nomenclature didn’t not allow to distinguish wines with geographical indication (the main distinction being between QWPSR and table wine). Hence, it was not possible to compare “designation of origin” and “geographical indication” influence on exports values and volumes. In principle, PGI wines could be equivalent (or even superior) to PDO wines in terms of price (and quality), as some producers may have preferred less restrictive rules, to have more freedom to experiment grape varieties and innovative techniques. This is the case of several Tuscan PGI wines, that are worldwide appreciated and command higher prices than their PDO counterparts.

  5. As Agostino and Trivieri (2014) illustrate in detail, wines’ classification has been revised over time, tending to a finer classification of geographically designated products, by distinguishing separate PDO lines according to the specific region wines originate from.

  6. The sporadic zeros reported by Eurostat are not real zero flows, rather they correspond to quantities below 100 kg. Furthermore, it is worth noting that, to avoid imputing zero to codes that are not contemplated by the nomenclature in certain years, we proceed year by year (for further detail on this imputation process, we refer to Agostino and Trivieri 2014).

  7. Indeed, French PDO exports register, on average, a growth of about 2.8 % (7.9 %) in volume (value), the Italian ones have increased of about 2 % (9.5 %), and Spanish PDO exports have grown of about 3.7 % (8.2 %). Besides, volumes (values) of other wine exports have increased, on average, of about 14.8 % (10.2 %) for France, 5.6 % (12.7 %) for Italy, and 6.7 % (14.3 %) for Spain. By contrast, PGI exports tend to decrease in volumes, remaining stable in terms of value, with the exception of Italian PGI wines, featuring moderate increases in quantities and values. Both France and Spain display an average drop of about 3 % in volume terms, whilst the volume (the value) of Italian PGI wines increases, on average, of 0.13 % (8.2 %).

  8. More generally, it is not clear if the added value of products protected by a geographical indication is greater than that of equivalent standard products. On this issue, the European Commission has commissioned a study which has examined different PDO/PGI agricultural products (13 case studies) among which two PDO wines (Montepulciano d’Abruzzo and La Mancha). The work (Areté 2013) concludes that “in most cases the gross margin for final GI products was higher than that for standard products”. However, such a surplus was remarkably variable among the different cases. Moreover, given the high number of geographically indicated products in EU, the results obtained cannot be generalized.

  9. When considering exports in terms of volumes, we could not employ the production in terms of volumes as data are missing for Spain.

  10. Nonetheless, our results are confirmed when using the exporter countries GDP.

  11. Our specification does not include the exporter’s population as highly correlated to the production variable. Besides, we omit a dummy variable indicating colonial links as correlated to LANGUAGE (a correlation matrix is available on request). However, if we include both these variables, our results are confirmed.

  12. Since multilateral resistance terms are non-linear functions of trade costs, they can be estimated implicitly using non-linear least squares. Alternatively, the model may be transformed by first differencing. Further, importer and exporters specific dummy variables may be added to the estimating equation. Finally, a Taylor series approximation of the multilateral resistance terms may be taken and then the approximate model may be estimated by OLS.

  13. The first term on the right hand side is the GDP-weighted average (subscript w stands for world) of the trade costs that exporter i faces across all importers k, the second term is the GDP-weighted average of the trade costs that importer j faces across all exporters m, the last term is the GDP-weighted average trade cost. In our panel analysis, we compute (2) on an annual basis. In the case of time-invariant bilateral variables, the time variation of the multilateral terms is generated by the changing GDP-weights, and by the facts that importers may change over time.

  14. The omission of these observations, a common practice in the earlier literature adopting a gravity framework (i.e.,: Oguledo and MacPhee 1994; Nilsson 2002; Rose 2004), leads to neglect the occurrence of new trade relationships, which may be established over time (e.g.,: Helpman et al. 2008 and Piermartini and Teh 2005). Indeed, a country trade openness may expand not only thanks to increases in the trade volumes with the current commercial partners (intensive margin of trade), but also due to new trading relationships (extensive margin of trade). In our analysis, while the BVOLS estimations focus on positive trade flows (the intensive margin of trade), the PPML estimations are based on both zero and non-zero trade flows (hence accounting for both the intensive and extensive margin).

  15. To avoid the “bronze medal mistake” pointed out by Baldwin and Taglioni (2007), we do not deflate nominal values. Indeed, the gravity equation is a modified expenditure equation, and trade data are expressed in a common currency, hence as De Benedictis and Taglioni (2011, page 72) summarize “Deflating trade flows by price indices not only is wrong on theoretical grounds but it also leads to empirical complications and likely shortcomings, due to the scant availability of appropriate deflators.” What is more, deflating nominal values would have no impact as we include time fixed effects.

  16. The importer population sign is ambiguous on a theoretical ground, as more populated countries could import more if the domestic demand cannot be satisfied by national production. On the other hand, they could import less if a developed domestic sector is able to fulfil a large proportion of the internal demand.

  17. The exponentiated coefficients of PDO represents the estimated ratio between PDO exports and other wine exports. Thus, the estimated percentage increase/decrease in bilateral exports associated to the PDO indication is calculated as \( \left[ \exp\;\left(\upbeta \right) - 1\right]*100 \), where \( \beta \) is the PDO parameter.

  18. It is worth noting that higher increases do not necessarily correspond to a better performance in terms of relative price. Indeed, in the present case, the estimated ratio between PDO and other wine exports increases from 1.4 (e0.3) to 2.5 (e0.9) when considering quantities, while the ratio goes from 4 (e1.4) to 6 (e1.8) when dealing with values. Since the increase is proportionally higher in the volumes case, the price effect should be slightly lower for the BRICS quintet.

  19. The same caveat reported in footnote 18 applies. As before, PDO exports towards BRICS countries performs better compared to the other wine category, both in terms of values and volumes. However, in this case, since the estimated ratio between PDO and other wine exports quantities and the analogous ratio in terms of values tend to increase proportionally, the price premium should be equivalent.

  20. As Brambor et al. (2006) remind, the extended equation includes all possible interactions among the constitutive terms (the three dummies above mentioned).

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Correspondence to Mariarosaria Agostino.

Appendix

Appendix

Table 5 Number of PDO, PGI and total lines, by exporters (2010–2013)
Table 6 Annual means of unit value (in US $). All importers
Table 7 Annual means of unit value (in US $). Exports towards BRICS countries

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Agostino, M., Trivieri, F. European Wines Exports Towards Emerging Markets. The Role of Geographical Identity. J Ind Compet Trade 16, 233–256 (2016). https://doi.org/10.1007/s10842-015-0210-z

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