Central California Wine-Making Industry

Central California Wine-Making Industry

Wine production in California has experienced tremendous growth and changes, propelling it into a multi-billion dollar industry (Wine Industry Network Advisor, 2017). Introduced by the Spanish Mission in San Diego in the 18th century, the wine story in California continued to flourish, with the state making and exporting varieties of wines to other countries. However, the industry came to a standstill in 1919 with the passage of the Prohibition law. The 18th Amendment, popularly known as the prohibition law, banned the manufacture, transportation, and sale of alcohol in the US (18th Amendment 1919 (National Prohibition Act) | Bureau of Alcohol, Tobacco, Firearms and Explosives, 2016). About a decade later, the Prohibition law was repealed, and the wine industry in California reemerged and has continued to flourish. Today, California is the leading wine producer in the United States, accounting for about 90% of the value of US wine production.

How Has the Economy of the Napa Wine Region Been Influenced by Competition and Pricing

Wine was not a part of American daily lives as it was more expensive compared to other alcoholic beverages. This was further worsened by the passing of the Prohibition law in the early 20^th century, curtailing the consumption of alcoholic beverages. However, since the Prohibition law was repealed, wineries have continued improving their brands, and wine has slowly become a mainstream, culturally accepted product for many Americans. One factor that has contributed to the growth and expansion of the wine industry is collaboration among the various vintners.

In 1944, seven Vintners signed a collaboration agreement forming the Napa Valley Vintners trade association. This association has continued to grow, attracting over 500 wineries to date. The Napa wine region produces roughly 5% of all the wines made in California. This region is home to about 500 wineries producing among the most highly acclaimed wines in the world (Vintners, n.d.).

The Paris Wine Tasting of 1976 was among the most important events that put Napa Valley on the map. After California’s success in the competition, the region became the world’s new wine hub; with this, the number of wineries in Napa grew from just a few dozen to hundreds (GODOY, 2016).

Napa Valley is the highest producer of high-end wines in California. The region contributes to just 4% of the wine produced in the state by volume but delivers more than 27% of the state’s wine sales value. The total impact and contribution of the wine industry in Napa amounts to $9.5 billion, as shown in Table 1 (Napa Valley Vintners, 2005).

Table 1: Economic Impact of Wine And Vineyards in Napa County (Napa Valley Vintners, 2005).

How the Economic Concentration in the Area You Chose Influenced the Supply Chain

The California wine industry has come a long way from the days of a dozen wineries to the prohibition era and the current day. The industry has adopted a premiumization strategy that has increased sales volumes and prices for the past few decades. However, in recent years, wineries have continued to increase in the country, increasing the varieties of products available to consumers. This oversupply trend in the industry is driving greater discounts in the supply chain (McMillan, 2020).

With the current sluggish economic times due to the COVID-19 pandemic, consumer demands are very low, with distributors asking wineries for greater promotional allowances. These trends are necessitating a change in distribution strategies for wineries, with some considering implementing the direct-to-consumer model, which involves the end consumer buying directly from the winery.

Analyze Which of the 4 Factors of Production Were the Most and Least Important

The four factors of production are land, labor, capital, and entrepreneurship. Both land and entrepreneurship are the most important factors of production in the California Wine Industry. Most wineries have vineyards where they grow their own grapes, the main input in wine production, making land the most important factor of production. Additionally, in the initial years when the wine industry was still developing, entrepreneurship was a very important factor in production as wineries were started and managed by individual vintners. However, as the wine industry has continued growing and established brands, entrepreneurship has declined (Huyghe, 2019).

On the other hand, labor and capital are the least important factors of production in this industry. Most wineries in this region are family-owned, passed between generations, reducing the industry’s capital requirement. Lastly, the wine industry doesn’t require large amounts of highly skilled labor and hence has a large pool of workers available (Baiocchi, 2011).

Anticipated Changes

The wine industry is currently experiencing an oversupply due to the increase in the number of wineries. This increase in wine varieties, coupled with the low demand by consumers, led to many wineries in California not meeting their growth expectations in 2018 (McMillan, 2020).

This trend will lead to greater discounting of finished wine and numerous promotions from both wineries and wine distributors and, if not corrected, the closure of many wineries in California.

References

Atf.gov. 2016. 18Th Amendment 1919 (National Prohibition Act) | Bureau Of Alcohol, Tobacco, Firearms And Explosives. https://www.atf.gov/our-history/timeline/18th-amendment-1919-national-prohibition-act#:~:text=January%2019%2C%201919%2C%20Congress%20ratified,and%20transport%20of%20alcoholic%20beverages.&text=Underground%20distilleries%20and%20saloons%20supply,to%20control%20illegal%20alcohol%20markets

Baiocchi, T., 2011. Vintage America: A Brief History Of Wine In America. [online] Eater. https://www.eater.com/2011/1/3/6703783/vintage-america-a-brief-history-of-wine-in-america

GODOY, M., 2016. The Judgment Of Paris: The Blind Taste Test That Decanted The Wine World. [online] Npr.org. https://www.npr.org/sections/thesalt/2016/05/24/479163882/the-judgment-of-paris-the-blind-taste-test-that-decanted-the-wine-world

Huyghe, C. (2019).  What’s ahead for entrepreneurship in the wine business: a snapshot of millennial behavior. https://www.forbes.com/sites/cathyhuyghe/2019/01/30/whats-ahead-for-entrepreneurship-in-the-wine-business-a-snapshot-of-millennial-behavior/#2b5e2fa54e17

McMillan, R., 2020. State Of The US Wine Industry 2020. [online] Available at: <https://www.svb.com/globalassets/library/uploadedfiles/reports/svb-2020-state-of-the-wine-industry-report-final.pdf> [Accessed 20 October 2020].

Napa Valley Vintners, 2005. ECONOMIC IMPACT OF WINE AND VINEYARDS IN NAPA COUNTY. [online]. https://napavintners.com/downloads/napa_economic_impact_study.pdf

Vintners, N., n.d. History Of Wine In The Napa Valley. [online] Napavintners.com. https://napavintners.com/napa_valley/history.asp

Wine Industry Network Advisor. (2017).  WineAmerica study shows $219.9 billion economic impact of U.S. wine industry in 2017. https://wineindustryadvisor.com/2017/09/27/219-billion-economic-impact-us-wine-industry

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

Central California Wine-Making Industry

Write a 700- to 1,050-word paper evaluating economists’ assessments of the role the 4 factors of production played in determining how the economic concentration you selected has evolved. Complete the following in your paper:

Consider the resources provided and other academically appropriate sources. The use of charts and tables to illustrate data is highly encouraged.

Central California Wine-Making Industry

– Analyze how has the economy of the Napa wine region been influenced by competition and pricing.

– Analyze how the economic concentration in the area you chose influenced the supply chain.

– Analyze which of the 4 factors of production were the most and least important in determining the economic concentration of the area you chose.

– Predict changes you anticipate for the area of economic concentration you chose. Support your predictions.