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Analysis of Structural Changes on Grape Grower's Return Per Ton a Case Study of Developing American Viticultural Areas A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Hoemmen, Garrett; Rendleman, C. M.; Taylor, Brad; Altman, Ira; Hand, Karen Article Analysis of structural changes on grape grower's return per ton: A case study of developing American Viticultural Areas Wine Economics and Policy Provided in Cooperation with: UniCeSV - Centro Universitario di Ricerca per lo Sviluppo Competitivo del Settore Vitivinicolo, University of Florence Suggested Citation: Hoemmen, Garrett; Rendleman, C. M.; Taylor, Brad; Altman, Ira; Hand, Karen (2013) : Analysis of structural changes on grape grower's return per ton: A case study of developing American Viticultural Areas, Wine Economics and Policy, ISSN 2212-9774, Elsevier, Amsterdam, Vol. 2, Iss. 2, pp. 67-75, http://dx.doi.org/10.1016/j.wep.2013.10.002 This Version is available at: http://hdl.handle.net/10419/194471 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ www.econstor.eu Available online at www.sciencedirect.com Wine Economics and Policy 2 (2013) 67–75 www.elsevier.com/locate/wep Analysis of structural changes on grape grower's return per ton: A case study of developing American Viticultural Areas Garrett Hoemmen, C. Matthew Rendleman, Brad Taylor, Ira Altmann, Karen Hand Southern Illinois University—Carbondale, Department of Agribusiness Economics, 145G Agriculture Building, 1205 Lincoln Drive, Carbondale, IL 62901, United States Received 23 May 2013; received in revised form 27 September 2013; accepted 11 October 2013 Available online 30 October 2013 Abstract As of 2012 the United States has become the world's leading consumer of wine (Wine Institute, 2011). In Illinois alone this industry has created an economic impact around $320 million (MKF, 2009). The presence of a distinguishing terroir is one of the prerequisites for the establishment of a federally recognized American Viticultural Area (AVA). Wineries in the U.S. are using these geographic designations and labels to differentiate their wines and increase the consumers' confidence (Love, 1997). The TTB granted the Shawnee Hills, located in southern Illinois, this designation at their request in 2006. The goal of this research is to determine the economic impact of a regional designation on a wine-producing region. The next step in the discovery of this goal is to examine less recognized wine-producing regions with an established AVA designation and a wine culture in place. We have chosen two California AVAs, Lodi and the Central Coast AVAs. Using a regression model we have attempted to discover the source of these regions' growth in grower return. Our results show the significance of achieving an AVA status, and the formation of regional quality wine standards program for that AVA. & 2013 UniCeSV, University of Florence. Production and hosting by Elsevier B.V. Open access under CC BY-NC-ND license. Keywords: Economic return; Grape production; American Viticultural Areas 1. Introduction The industry provides over 2,000 full-time employment positions. With total revenues of $247,513,000 and total wages Since the end of Prohibition in the USA, wine consumption paid of $71,466,000, the full economic impact is almost $319 has grown by a noticeable 751 million gallons a year. United million (MKF Research LLC, 2009). States wine consumption per resident increased by over 900% Many reasons have been identified as to why this resurgence from 1934 to 2012 from 0.26 to 2.73 gallons and is trending up of winegrape and wine production has occurred in Illinois. (Wine Institute, 2011). Grapes are now the highest value crop These include the new crop appeal, a growing understanding in the country and the grape crop in the United States has more of which grape varieties are best suited to its terroir, a more than tripled over the last two decades. In Illinois alone there fluid procurement process of out of state grapes and juice, and are over 90 wineries (MKF Research LLC, 2009). About 85% the rising demand for wine (MKF Research LLC, 2006). of these wineries have been established within the last fifteen years. From the grower's perspective, the most important reason for the The average annual production of Illinois wine is 357,000 gallons. growing grape and wine production might be the product's profitability. When compared to the staple crops of Illinois, corn and soybeans, winegrapes are considerably more profitable per n Corresponding author. Tel.: þ1 618 453 2430; fax: þ1 618 453 1708. acre. Revenue from soybeans or corn can fall in the range of $300 E-mail address: [email protected] (I. Altman). to $400 an acre. Winegrape revenue can fall in the range of $4,000 Peer review under responsibility of Wine Economics and Policy. to $6,000 an acre. This allows many vineyards to make a profit even after including labor costs (MKF Research LLC, 2006). The wineries and vineyards of Southern Illinois and specifi- cally those within the Shawnee Hills American Viticulutural Area 2212-9774 & 2013 UniCeSV, University of Florence. Production and hosting by Elsevier B.V. Open access under CC BY-NC-ND license. http://dx.doi.org/10.1016/j.wep.2013.10.002 68 G. Hoemmen et al. / Wine Economics and Policy 2 (2013) 67–75 (AVA)areleadingthewayintheresurgenceofwineinIllinois. and the city of Chicago is the third largest US metropolitan Five of the top 17 counties that contain 54% of Illinois' vineyards wine market (MKF Research LLC, 2006). are in part within the boundaries of the Shawnee Hills AVA Furthermore Americans are not only demanding more wine, including the top two grape producing counties, Jackson and they are demanding better wine, and there is potential for Union counties, with 32% of all grapes planted within the southern growth in the wine quality reputation of the Shawnee Hills region of the state. Of the top 17 counties that contain 62% of where theoretically the best grapes in Illinois can be grown. Illinois' wineries, five are again within the boundaries of the However thus far this has not translated into national consumer Shawnee Hills AVA, including the top two, Union and Jackson recognition for the wines of the Shawnee Hills AVA as 70% of (Shoemaker, 2005). Furthermore the terroir of Southern Illinois is all cases of wine are sold in winery tasting rooms (Ward, the most conducive to the growth of vinifera grapes that currently 2012), and 60% of all visitors to the tasting rooms are local sell for higher prices than both natives and hybrids. Expanding the (defined as coming within 50 miles). The present research is growth of vinifera grapes is of great importance to the maturation important because it will potentially help to find a way to bring of the wine industry in the state (MKF Research LLC, 2006). broader consumer recognition to the 20 wineries in the The terroir of Southern Illinois is characterized by rolling Shawnee AVA and their wines. Furthermore as wine con- hills with sandy and clay loam soils, which are both very sumption and wine awareness continue to rise in the United favorable conditions for the growth of grapes. Terroir is a States, the industry has the potential to facilitate overall concept relating the sensory attributes of the wine to the economic growth. environmental conditions in which the grapes are grown. The The specific objective of the present research is to determine word “terroir”, from the French, can be translated as a “sense the most substantial method of improving the reputation of of place” and describes a wine's geographic, geological, and wine quality in the Shawnee Hills AVA. To accomplish the climate based characteristics as they relate to the grape's objective, American Viticultural Areas similar to the Shawnee genetic character. The climate of Southern Illinois is more Hills that possess a unique and advantageous terroir, while temperate; with low levels of frost. Its consistent summer also exhibiting a similar trend of growth in wine production breezes help to keep the grapes dry even with frequent were selected for analysis. The areas chosen are the Lodi and showers. The favorable terroir elements supported wineries the Central Coast AVAs, both located in California. These and vineyards, which began opening in the area in 1984 with areas were chosen because only relatively recently did many Alto Vineyards. In 1995 enough wineries existed for the consumers associate quality with their wines. Furthermore both establishment of the Shawnee Hills Wine Trail, and in only the Lodi and the Central Coast areas were recommended by seven years it had catered to over 100,000 visitors and grossed industry professionals based on common structural changes over $2 million. All of these factors contribute to Shawnee that led to increased price for grapes and mutual data Hills' unique terroir, and are part of what encouraged the availability. In examining these areas, we asked two primary decision to petition the Alcohol and Tobacco Tax and Trade questions: What were the structural changes in production or Bureau to become an American Viticulture Area, a petition marketing that best explain or predict the change in grower's was granted in December 2006 (MKF Research LLC, 2006).
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