Thursday, May 16, 2013

The Price Premium for Organic Wines: Estimating a Hedonic Farm-gate Price Equation

Organic wines are increasingly produced and appreciated. Since organic production is more costly, a crucial question is whether they benefit from a price premium. We estimate hedonic price functions for Piedmont organic and conventional wines. We use data on the production side in addition to variables of interest [to] consumers. Our results show that, along with characteristics of interest to consumers, some farm and producer characteristics not directly relevant for consumers do significantly affect wine prices. We find that organic wine tends to obtain higher prices than conventional wine. The price premium is not simply an addition to other price components, but organic quality modifies the impact of the other variables on price.
Delmas, Doctori-Blas and Shuster (2008) report that organic wine-growing costs in California are 10 to 15 percent higher than for conventional grapes.
File:Uva, Olivetrees, Oaks, Vineyards.jpg
Among [on-farm winemakers 1.3 percent] had some organic production (not necessarily wine) [which] mirrors the general percentage of organic farms in the region.
A DOC appellation(Denominazione di Origine Controllata – Controlled Designation of Origin)  relative to no appellation (table wines), raises the price by about 38 percent. The DOCG (Denominazione di Origine Controllata e Garantita -Controlled and Guaranteed Designation of Origin) classification raises the price by [an additional] 14 percent... The only variety with a significant positive premium is Nebbiolo. This is an expected result, since it is the grape variety from which the most prestigious wines are made (such as Barbaresco and Barolo). The price premium is as high as 71.5 percent.... The more specialized the producer is in producing wine (in terms of the share of total agricultural area devoted to grape production), the higher is the price of his wine. The price increase is close to 0.4 percent for each additional 1 percent of agricultural area devoted to wine-growing. This result can be interpreted both in terms of better quality (and hence, higher prices) of specialized farmers, and in better marketing skills of farmers [devoted] specifically to wine-growing.
Organic wine - all [else being] ... equal - obtains a higher price in the market.... Under the assumption of the unified model, i.e., that organic quality raises the price but does not change the impact of the other variables on wine price, we find ... the price premium, which did not seem to exist only considering average price data, is actually sizeable, 27 percent.
by Alessandro Corsi 1 and Steinar Strom 2
1. Università di Torino, Department of Economics;
2. University of Oslo, Department of Oslo;
Length: 28 pages
Date of creation: 11 Mar 2013
University of Oslo, Department of Economics, P.O Box 1095 Blindern, N-0317 Oslo, Norway; Phone: 22 85 51 27; Fax: 22 85 50 35; Email:;
Keywords: Organic wines; Hedonic price functions; Farming; Prices; Price variables;

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