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Imports versus Domestic Production: A Demand System Analysis of the U.S. Red Wine Market

  • James L. Seale
  • Mary A. Marchant
  • Alberto Basso

The U.S. wine market experienced rapid growth in all facets—production, consumption, exports, and imports—over the past decade. Red wine imports more than tripled while consumption of domestically produced red wines doubled. This research estimates demand elasticities of U.S. red wine imports from five countries accounting for over 90% of imports—Italy, France, Spain, Australia, and Chile—using the first-difference version of the almost ideal demand system (AIDS). These elasticities are compared with those for domestically produced red wine. Results for conditional expenditure elasticities indicate that the U.S. red wine industry gains over imports when U.S. consumers’ total expenditures on red wine increase. However, comparing own- and cross-price elasticities reveals an increase in the price of U.S. red wine results in a decline in quantity demanded six times greater than for French and Italian red wines and over 20 times greater than other import countries, thus harming the U.S. red wine industry. Empirical results suggest that U.S. red-wine producers could increase their total revenue by decreasing prices, while Italian and French producers can increase total revenues by increasing them. Copyright 2003, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/1467-9353.00053
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Article provided by Agricultural and Applied Economics Association in its journal Review of Agricultural Economics.

Volume (Year): 25 (2003)
Issue (Month): 1 ()
Pages: 187-202

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Handle: RePEc:oup:revage:v:25:y:2003:i:1:p:187-202
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  1. Moschini, GianCarlo, 1995. "Units of Measurement and the 'Stone Index' In Demand System Estimation," Staff General Research Papers 5058, Iowa State University, Department of Economics.
  2. Seale, James Jr. & Walker, Wayne E. & Kim, In-Moo, 1991. "The demand for energy : Cross-country evidence using the Florida model," Energy Economics, Elsevier, vol. 13(1), pages 33-40, January.
  3. Terry L. Kastens & Gary W. Brester, 1996. "Model Selection and Forecasting Ability of Theory-Constrained Food Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 301-312.
  4. Chalfant, James A, 1987. "A Globally Flexible, Almost Ideal Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 233-42, April.
  5. Seale, James L., Jr. & Sparks, Amy L. & Buxton, Boyd M., 1992. "A Rotterdam Application To International Trade In Fresh Apples: A Differential Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
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