Out with the old, in with the new: an analysis of economic trends beyond New World wine innovation.

• Author: Mohan, Monica D.

1. INTRODUCTION

   The global wine industry, almost a three hundred billion dollar market, has seen a shift in recent years with "Old World" wine producers no longer being the dominant players that they were for decades. (1) Tightening regulations in traditional wine-producing countries provided an opportunity for "New World" producers to emerge. (2) The New World countries embraced freedom from the restrictions of traditional standards and methods of production, leading to disruption and a major shift in the industry. (3) The New World producers were not subject to the same regulations and, in recent times, the regulations in emerging wine-producing countries have been supportive to business rather than acting as barriers. (4) The fundamental difference between the competing global regions lies in how the Old World and New World perceive the process of wine making. (5) As a result of the fragmented approach of wine production and classification systems in various regions in the Old World, countries such as France were not able to support a branding strategy. (6)

   In contrast, New World producers used their land to their advantage and "industrialized" the wine-making process, creating an efficient production method while developing globally recognizable brand names that customers have grown to trust. (7) Having no traditional processes to follow, the New World producers are able to take bigger risks with innovation, driving consumer demand in the wine industry. (8) Each and every step of the value chain experienced innovation, and the result was increased efficiency, which cut costs and scaled production. (9) The New World wines are no longer perceived as inferior in the marketplace and aspects such as marketing, packaging, and even mode of delivery are differentiators that manufacturers and retailers are using to get ahead in the competitive landscape. (10) The shift in consumer preferences, especially by the Generation-Y consumers, has had profound implications throughout various aspects of society. (11) Given the size of the market and considering the direct and indirect economic impact on the entire supply chain process, there are many jobs and dollars at stake. (12)

   This Note analyzes the economic, political, and legislative implications of this fierce Global War in the wine industry, and delves into the drivers that will determine the shape of the industry for years to come. (13) Part II of the Note discusses the history of the wine industry and the old World processes of wine production, along with the cultural significance of wine-making to these nations. (14) Part III discusses the impact of regulations on the industry and the ways in which producers adapted to these regulations, comparing the regulatory environment between the old and New World and the shift in global dominance. (15) Part IV analyzes innovations in the industry that permanently caused disruption both in the production as well as consumption of wine, and discusses the regulatory environment today and its impact on consumer trends. (16) Finally, Part V concludes with an analysis of the major factors that have shaped the wine industry until now and highlights drivers that will be crucial in determining the direction of the industry. (17)

2. FACTS

   1. Regulations on the Global Wine Industry

   1. Old World Wines

      1. European union

         The E.U. wine regulations are a part of the Common Agricultural Policy (CAP). (18) Despite the set of rules that guide the wine sector in areas concerning production, oenological practices and processes, classification of wines, rules around labeling of wines, and imports from non-E.U. countries, each country within the European union has its own legal framework concerning specific regulations that govern the percentage of a grape needed in a wine to be deemed a particular wine variety. (19) Historically, Europe had laws devoted to limiting the use of certain geographic words to designated producers in particular regions to protect specific products' prestige and meaning like " wine," thus protecting the consumer from misinformation. (20) of these laws, one of the most important has been the French system of appellations, d'Origine Controlees. (21)

         Appellation laws come from the idea of "terroir," meaning that a particular land directly impacts the quality of that product. (22) Laws, like appellation laws, are created since no one outside the locale can truly make the same product, and when a geographic name carried a certain cachet, this exclusive control can produce certain economic benefits for the local producers. (23) The European Union has an international registration system that provides a mandatory strong protection of old World agricultural production names. (24) While the European Union has strict laws and wine regulations, it is made up of individual regulatory systems of the European Union's Member States, which also have their own individual requirements and standards. (25)

      2. French Wine Regulations

         In France, the Appellation d'Origine Controlee (AOC) system governs quality wine law. (26) The French policy is concerned with having trade names from a specific place of origin, helping guarantee quality, and providing an easily identifiable mark for the public. (27) The AOC integrates the concept of a required trade name, region, and guarantee. (28) The AOC system is also founded on the idea of a terroir, meaning that a particular wine's qualities come with the territory or the vine's environment. (29) French law controls AOC-regulated products like wine by requiring them to be processed in the same region where the grapes are produced. (30)

      3. Italian Wine Regulations

         Similar to the French AOC classification requirements is the Italian Denominazione di origine controllata e Garantita (DOCG) and the Denominazione di origine controllata (DOC) classification system. (31) The Italian system has four quality classifications, with each hierarchy reflecting a level of quality of the wine. (32) The highest quality level is DOCG, Appellation of Controlled and Guaranteed, followed by DOC, Appellation of Controlled Origin, Indicazionae Geografica Tipica (IGT), Typical Geographic Indication, and lastly, Vino da Tavola (VDT), Table Wine. (33)

      4. Spanish Wine Regulations

         The Spanish classification system is known as Denominacion de Origen (DO). (34) Prior case law has shown that Spanish wine regulations require wine to be bottled in cellars at the place of origin, which satisfy the conditions as to quality, but this is just one of the many regulations that impact the Spanish wine industry. (35) Though Spain is a member of the European Union and complies with their laws and standards, they also have their own classification system. (36) Per E.U. standards, Spain divides wines into two categories: "table wines and quality wines." (37)

         Spanish table wines are subdivided into two further categories: Vino de mesa, meaning table wines that account for half of Spain's production, and Vino de la tierra, or country wines that come from a broad wine region or geographical indication (GI) that must meet "alcohol and sensory standards." (38) In addition, Spain has four subcategories of quality wines recognized by different standards, the Vino de Calidad con Indicacio Geografica [VCIG], Denominaciones de Origen [DO], Denominaci

   2. New World Wines

      1. United States

         The United States does not fully recognize the French AOC system, but instead has its own regulations regarding wine. (41) The U.S. Department of the Treasury, and the Alcohol and Tobacco Tax and Trade Bureau governs wine laws and regulations. (42) The U.S. microclimate appellations and viticultural areas, which are modeled after the old world's classification systems, are known as the American Viticultural Area (AVA). (43) Appellations and AVAs are not just regulations to promote the sale of wine through labeling, they also serve as a way to preserve and defend the quality of a wine product. (44) The regulations cover basic permits around the sale of alcoholic products; the labeling and advertising of wine, define statements regarding the health and safety that must be disclosed, and define designated areas that can be used as wine regions. (45) Although the strategy of defining areas that may be used as wine growing regions and governing the labeling of wines to ensure that they are in accordance to certain requirements seems similar to what the AOC does in France, the regulations in the United States have only been around for a couple of decades and are still developing. (46)

         In comparing the two systems, the French system is hierarchical and the classifications are also a perception of quality, whereas in the United States, they simply identify wines with the regions that they came from. (47) While most of the Alcohol and Tobacco Tax and Trade Bureau regulations focus on the permissibility of aspects such as labeling and advertising, there has been little focus on the vineyards themselves from the Food and Drug Administration (FDA) until the Food Safety Modernization Act (FSMA) was legislated in January 2011. (48) This enactment has resulted in the wineries having to go through inspections by the FDA and also follow certain preventative measures. (49)

      2. Australia

         One of the biggest New World producers, Australia, is also adopting new regulatory measures to support the wine sector. (50) The Australian Grape and Wine Authority, which was established in 2014, is responsible for creating regulations around exporting and compliance, domestic and international wine promotion, maintaining the integrity of the wine labels and practices, and identifying the boundaries of the wine producing areas in Australia. (51) Similar to the regulations in the United States, the labeling of wine is strictly governed by legislations and must include the variety of the wine, country and region of origin, and additives among other details. (52) While the United States regulations...