The Rise and Fall of the World's Largest Wine Exporter—And Its
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Journal of Wine Economics, Volume 9, Number 1, 2014, Pages 3–33 doi:10.1017/jwe.2014.3 The Rise and Fall of the World’s Largest Wine Exporter—And Its Institutional Legacy* Giulia Meloni a and Johan Swinnen b Abstract This paper analyzes the causes of the rise and the fall of the Algerian wine industry. It is hard to imagine in the twenty-first century global wine economy, but until about 50 years ago Algeria was the largest exporter of wine in the world—and by a wide margin. Between 1880 and 1930 Algerian wine production grew dramatically. Equally spectacular was the decline of Algerian wine production: today, Algeria produces and exports little wine. There was an important bidirectional impact between developments in the Algerian wine sector and French regulations. French regulations had a major impact on the Algerian wine industry, and the growth of the Algerian wine industry triggered the introduction of important wine regulations in France at the beginning of the twentieth century and during the 1930s. Important elements of these regulations are still present in European wine policy today. (JEL Classifications: K23, L51, N44, N54, Q13) Keywords: appellations, European agriculture, institutions, regulation, wine history. I. Introduction It is hard to imagine in the twenty-first-century global wine economy, but in 1960— more than 50 years ago—Algeria was the largest exporter of wine in the world—and by a wide margin: it exported twice as much wine as the other three major exporters (France, Italy, and Spain) combined. Moreover, it was the fourth-largest producer of wine in the world. In the 50-year period between 1880 and 1930, Algerian wine *The paper benefited from helpful conversations with and suggestions from Koen Deconinck, Vicente Pinilla, and participants in the 2013 Florence FRESH Meeting, at the European University Institute, in Florence, Italy. We also thank an anonymous referee for constructive comments. a LICOS Centre for Institutions and Economic Performance, KU Leuven, Waaistraat 6, Leuven, Belgium; e-mail: [email protected] (corresponding author). b LICOS Centre for Institutions and Economic Performance, KU Leuven, Waaistraat 6, Leuven, Belgium; e-mail: [email protected]. © American Association of Wine Economists, 2014 4 The Rise and Fall of the World’s Largest Wine Exporter Figure 1 Wine Production in Algeria, 1860–2010 (in million hectoliters) Sources: Birebent (2007); FAO (2012); Insee (1935, 1966). production and exports grew dramatically, turning the industry from nonexistent into the world’s largest exporter of wine.1 What is as spectacular as the rise of Algerian wine production is its decline. The fortunes of Algerian wine have declined dramatically. Today, Algeria no longer produces or exports any wine. In fact, current Algerian wine production reflects the situation at the end of the nineteenth century, when wine production was virtually nonexistent. Hence, over the course of a century, Algeria went from producing almost no wine to the world’s largest exporter to again producing very little wine (see Figure 1). An analysis of the causes of growth and decline of such an important economic sector should be of interest to everyone interested in economic history and development. In this paper, we document the rise and the fall of the Algerian wine industry and explain how they were caused by a combination of factors, including technological advances, the spread of vine diseases, and the associated migration of investors and human capital. Developments in the Algerian wine industry were heavily influenced by its impact on the French wine market and French regulations. Free trade with France stimulated the growth of Algerian exports when high import tariffs blocked imports from Spain and Italy in the late nineteenth century. However, beginning in the 1930s, French wine regulations halted the expansion of Algerian wine production. After Algeria achieved independence in 1962, 1 Throughout the paper when we talk about wine production and trade, we consider Algeria separately from France. Algeria was a colony of France for much of the period 1830–1962. Giulia Meloni and Johan Swinnen 5 French import restrictions caused a decline in Algerian exports and, in combination with state intervention and poor management in Algeria, caused the collapse of the Algerian wine industry. However, there is an additional story—and one with major implications for today’s wine markets. The growth of the Algerian wine industry had a crucial impact on French wine regulations. Even if the Algerian wine industry has effectively disappeared from the world’s wine market today, the institutional legacy of the Algerian wine industry continues in France and in the world. The growth of the Algerian wine industry triggered the introduction of important wine regulations in France at the beginning of the twentieth century and during the 1930s. These regulations formed the basis of other regulations, which today affect a large share of global wine production. In fact, important elements of the French wine regulations triggered by the Algerian wine industry’s spectacular growth are still present in European wine policy. II. The Growth of the Wine Industry in Algeria in the Late Nineteenth Century When France annexed Algeria in 1830, no one could have predicted that Algeria would become the world’s largest exporter of wine and the fourth-largest wine producer (see Table 1).2 Although wild grapevines have been present in Algeria since the first millennium BCE, when the Phoenicians and Carthaginians3 traded huge quantities of wine (and transplanted grapevines) across the Mediterranean Sea, the cultivation of vines never took off at a substantial rate. The Romans used this region as a granary for their empire. Later, under Arab rule, viticulture was not encouraged, as the Koran forbade alcohol consumption (Barrows, 1982; Bourget, 1930; Carlà and Marcone, 2011; McGovern, 2009). It was only after France began to colonize the region that Algerian viticulture developed. The French colonists and settlers consumed wine because it was considered the safest drink and a “cure” for certain epidemic diseases such as cholera (Birebent, 2007, p. 67). Yet it took some time for wine production to develop. The first attempts to produce wine in Algeria were unsuccessful, and the settlers imported wine from France (Isnard, 1947; Isnard and Labadie, 1959; Leroy-Beaulieu, 1887).4 It was only after the 1880s that the Algerian wine industry 2 The Algerian cultivable land amounts to only 3% of the country (7.5 million hectares). By comparison, France has 32 million cultivable hectares, 60% of the national territory (Birebent, 2007; Fillias, 1886). In 2011, the share of cropped area under vines was 1% in Algeria, 4% in France, 6% in Spain, 8% in Italy, and 13% in Portugal (FAO, 2012; OIV, 2013). 3 Mago of Carthage wrote the first treaty on viticulture, later becoming the basis of Roman wine knowledge (McGovern, 2009, p. 195). 4 Not only did vineyards fail but so did other tropical plant species, such as sugarcane, cocoa, coffee, and cotton, because of a poor understanding of the Algerian climate (Isnard, 1949). 6 Table 1 Main Wine Producers and Exporters from 1865–2004 Production (average annual) Million hectoliters Percentage of world production 1865–75 1910–14 1961–65 2000–04 1865–75 1910–14 1961–65 2000–04 France 55.4 47.5 62.4 53.5 48.8 33.3 23.8 19.3 Italy – 42.3 62.3 49.6 – 29.6 23.7 17.9 Spain 17.1 13.6 26.1 38.4 15.1 9.5 10 13.8 The Rise and Fall of the World Algeria 0.2 8.1 13.1 0.6 0.2 5.7 5 0.2 World total 113.5 142.8 261.9 277.8 100 100 100 100 Exports (average annual) Million hectoliters Percentage of world exports 1909–13 1934–38 1961–65 2000–04 1909–13 1934–38 1961–65 2000–04 France 1.9 0.8 3.7 15.0 12.0 4.3 14.2 22.0 Italy 1.5 1.3 1.7 14.5 9.4 7.0 6.6 21.2 ’ Spain 3.1 0.6 1.9 10.2 18.8 3.0 7.1 15.0 s Largest Wine Exporter Algeria 6.8 12.9 10.6 0.03 40.9 67.0 40.6 0.1 World total 16.5 19.2 26.1 68.2 100 100 100 100 Sources: FAO (2012); Insee (1951, p. 413); Pinilla and Ayuda (2002) . Giulia Meloni and Johan Swinnen 7 took off in earnest (see Figure 1). The remarkable growth after 1890 was caused by a combination of scientific progress and the spread of a disease in France. A. Technological Progress in Wine Production From 1830 to 1860, French settlers tried to plant vines5 in Algeria’s warm subtropical climate, but winegrowers did not have the technology to produce drinkable wines in a hot climate. The problem with fermentation in hot countries is the high temperature reached in the tanks. If the heat exceeds 40 °C, sugar cannot be converted into alcohol, and fermentation stops. Refrigeration is needed to control the temperature in the tanks during the fermentation process, but refrigeration technology was not available at the time (Dervin, 1902). Scientific and technological innovations changed this by making wine production in hot climates possible. Pasteur’s discoveries in the mid-nineteenth century of the role of yeast in alcoholic fermentation were the basis for winemaking in hot climates. In the presence of high temperatures, yeast cannot survive, and fermentation stops unintentionally, leading to wine spoilage and bad wine (Robinson, 2006, p. 565).6 Pasteur’s discoveries led to an innovation in wine production called “cold fermentation,” which allowed the production of better wine in warm climates such as that in Algeria (Johnson et al., 2010).