Wine Bankruptcies in Australia: More Ill-Advised Government Policy

Lynne Kiesling

Tim Worstall alerts us to a manifestation of government distortion of decision-making in Australia: a glut of grapes has pushed down grape and wine prices, and small producers are in danger of going out of business. The Telegraph article that Tim cites says that

The problem is so severe that the industry said yesterday that it will take a multi-million pound government bail-out to save smaller producers from going out of business.

The popularity of Australian wine in Britain and America, coupled with generous government tax breaks, encouraged a craze for establishing vineyards from the late 1990s. The Wine Grape Growers’ Council of Australia said that years of over-planting of vines and two recent bumper crops meant that up to 40 per cent of grape growers would lose their livelihoods unless urgent action was taken.

So let me get this straight: government tax policy induced people to establish wineries, which lowered the price of wine (and in particular the price for a given quality) sufficiently to lower profits (suggesting that the demand for wine is somewhat price inelastic), which is leading to bankruptcy of these small wineries, which leads to the need for government policy to solve the problem that government policy created.

Is that not some of the most convoluted logic you’ve heard in a while? That’s almost convoluted enough to sound like it’s from the ethanol industry!

Hey, there’s an idea: excess wine supplies could be a source of energy, as Dr. Vino has suggested in the past. Uh-oh, that may open up yet another avenue for inefficient, distortionary government policy!


7 thoughts on “Wine Bankruptcies in Australia: More Ill-Advised Government Policy

  1. It’s overstating it to suggest that the Australian winegrape industry exists purely because of subsidies. Winegrapes are an ag commodity like any other, and in Australia production responds more closely to the interaction of supply and demand than in nearly any other grape growing country.

    The explosion of winegrape production in Australia in the 1990s had its genesis in two factors: one was the collapse of a wool price support scheme, which pushed a lot of farmers into diversifying into mixed cropping (mainly wheat and oilseeds but also winegrapes); and the improvement in marketing by wine companies that enabled Australian wine companies to grow the size of the market in the UK (and then the US) by supplying quality wine at a lower price than the French. The bandwagon effect pushed a lot of farmers into winegrapes, and because of the time lag – 4 or 5 years – before maturity, a lot of bandwagon producers will get caught in an oversupply situation.

    If you look at Australia’s record they usually don’t look too sympathetically at farmers who get caught on the wrong end of commodity price movements. Unlike the French, who get paid to grow, paid to destroy excess surpluses.

    Running your car on a bottle of Yellow Tail would probably only get you pulled over by the cops, anyway.

  2. Think Like an Economist: Marginal vs. Total Thinking

    Lynne Kiesling I will apologize in advance to Sturt for the fact that I am going to use his comment on my recent Australian wine post to illustrate a crucially important point about economic logic: It’s overstating it to suggest…

  3. Think Like an Economist: Marginal vs. Total Thinking

    Lynne Kiesling I will apologize in advance to Sturt for the fact that I am going to use his comment on my recent Australian wine post to illustrate a crucially important point about economic logic: It’s overstating it to suggest…

  4. They could cleanup the supply if the middlemen passed the savings on to consumers sell it in six packs like beer .

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