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

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  • Eduardo A. Haddad
  • Patricio Aroca, Pilar Jano, Ademir Rocha, Bruno Pimenta

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.

Suggested Citation

  • Eduardo A. Haddad & Patricio Aroca, Pilar Jano, Ademir Rocha, Bruno Pimenta, 2019. "A Bad Year? Climate Variability and the Wine Industry in Chile," Working Papers, Department of Economics 2019_37, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon37
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    References listed on IDEAS

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    More about this item

    Keywords

    Climate; viticulture; wine; computable general equilibrium; Chile;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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