NYU economist Karl Storchmann has always loved wine—so much so that, years ago, before he moved to the U.S. from Germany, he even tried his hand at making his own. From 1994 to 1999, when he was working for the Rhine-Westphalian Institute for Economic Research, he cultivated a small vineyard in his free time. “I pruned and trained the vines, and I made some wine—not a lot, like 350 bottles,” Storchmann recalls with a smile. “It was really fun.”
In a roundabout way, what started as a hobby would come to influence the course of his career. In 2004, Storchmann got a job as a professor at Whitman College in Walla Walla, Washington, which he describes as “a peculiar little village in the middle of nowhere” that was just beginning its transformation into a new destination for wine. Happily surrounded by vineyards, Storchmann got an idea. Partnering with some economist colleagues who shared his appreciation for wine, he approached the college about sponsoring a Journal of Wine Economics. “We thought it was going to be a very small thing for like 50 people,” Storchmann says. For the first issue in 2006, they only printed a hundred copies.
A decade later, the peer-reviewed journal—now published by Cambridge University Press, with Storchmann as managing editor—has something like 3,000 subscribers from colleges and universities around the world. “In the beginning it was laughed at by our colleagues who thought we were just looking for an excuse to drink wine,” says Storchmann, one of the founding members of the American Association of Wine Economists, which oversees the journal. But over time the economics of wine has become its own surprisingly rigorous discipline, with intersections in the fields of marketing, law, and even environmental science.
With a season of holiday dinners ahead—and some of us wondering how much was smart to spend on a festive bottle or two for the Thanksgiving table—NYU News sat down with Storchmann for a lesson in wine economics 101. Here’s what we learned.
What determines the price of wine? Well…it’s complicated.
On some level, the basic rules of economics apply. There’s supply and demand, of course: Wine that’s scarce will be more expensive, while the more plentiful stuff is cheaper. It follows, too, that higher quality wine should cost more. But how do you evaluate quality? That’s where things get tricky. Buying wine is a little like buying a peach, Storchmann says: “A peach can be awesome and juicy, or it can be mealy and dull—but you can’t know which it is until you bite into it.” Wine has a similar problem: Before you get the bottle home and open it, you really don’t know a thing about what’s inside, so you’re left looking for clues. These might include the thickness of the glass in the bottle or the length of the cork—factors that don’t really affect how the wine tastes, Storchmann says, but signal to the consumer that no expense has been spared in its production. Then there are the endorsements of experts: Critics judging wine competitions or writing for magazines like Wine Spectator award wines points out of a hundred—and wines that receive a higher score are able to fetch a higher price.
Whether expensive wines actually taste better is a different question.
A Journal of Wine Economics study of 6,000 blind tastings found that, when they didn’t know what they were drinking, most non-expert wine drinkers actually preferred inexpensive wine over the pricier kind. Based on that, we all should just go for the palate- and budget-friendly Two-Buck Chuck and be happy, right? Not so fast, Storchmann cautions, citing a 2008 study (published in PNAS) that wired subjects up to fMRI scanners while they were tasting wines that they were told cost different amounts. In the experiment, subjects said they preferred what was presented as a $90 wine over that presented as a $10 wine, even when what the researchers poured them was actually from the exact same bottle. Moreover, the drinkers’ brain scans showed that they weren’t bluffing about what they felt: The medial orbitofrontal cortex, a region of the brain associated with pleasure, showed higher activity when the subjects drank the wines they had been led to believe were expensive.
In other words, the satisfaction we get from consuming something we perceive as fancy is totally real. “You see this all the time at wine tastings,” Storchmann says. “Once you tell people this wine costs a thousand bucks, all of a sudden you hear ‘oh yeah, it tastes of rose petals’ and all this crazy stuff. If you believe that it is really good and tastes of leather, then it will be really good and taste of leather.”
As for those experts? Don’t let them bully you.
For a person who really loves and knows a lot about wine, Storchmann doesn’t have much patience for the snobbish culture that surrounds it. “Wine is made up of some percentage of grapes, but then there’s also a lot of bullshit,” he says. The notion that wine is something only those with lots of training and highly developed palates can properly enjoy was invented by wine experts, Storchmann insists. “They want you to need them.”
As economists, Storchmann and his colleagues are in a position to disrupt all of that by subjecting received wine wisdom to rigorous statistical analysis, and often the results are telling. In a pair of Journal of Wine Economics investigations, California winemaker Robert Hodgson found that expert judges at prestigious wine competitions gave different scores to the same wines that they tasted on the same occasion, and that earning a coveted “gold” designation at one competition didn’t significantly raise a wine’s chances of receiving a gold at another. The findings called into question both the sensitivity of judges’ palates and the existence of any meaningful consensus about what quality wine tastes like; in reality, it seemed, the medals might as well have been handed out at random. (Be that as it may, winemakers might feel they have no choice but to pay to enter these competitions for the chance of earning gold and, by extension, the right to charge a premium for the award-winning product.)
Another study focusing on the words that wine critics use found that amateur drinkers fared no better than if they'd flipped a coin when trying to match critics’ tasting notes to the wines they described—even when the descriptors were as evocative as “cherry” and “tar.” And even a so-called “supertaster” like Robert Parker, the world’s most influential wine critic—who says he can store the tastes of thousands of great wines in permanent memory—once famously faltered in a guessing game involving a blind tasting of several expensive vintages of Bordeaux.
As if that weren’t unsettling enough, there have also been investigations pointing to possible bias and even outright fraud among members of the elite wine press. One study that found that Wine Spectator ratings for advertisers in the magazine were on average one point higher than those for non-advertisers. And in another experiment, wine critic Robin Goldstein made a website for a fictional restaurant that somehow—despite offering selections Wine Spectator critics had once described as tasting like “paint thinner and nail varnish”—won the award of excellence that the magazine hands out to restaurants with the best wine lists worldwide.
Don't assume the best wine comes from far away.
Though many grapes now grown around the globe—like Cabernet Sauvignon and Chardonnay—originally came from France, which still produces some of the most coveted vintages, it’s been decades since the wine industry went global. (In fact, China now boasts more vineyard area than even France, trailing only Spain worldwide.) It was back in 1976 that American upstarts first famously bested the old guard: In a blind taste test that came to be known as the Judgment of Paris, French critics chose red and white wines from California over their French competitors. Storchmann and colleagues recently re-created that experiment, this time pitting New Jersey wines that cost $12 to $15 per bottle against French wines (ranging from $70 to $1000 wholesale). It wasn’t a rout, but New Jersey more than held its own, taking the second, third, and fourth place spots for Chardonnay and beating out several renowned French producers to win third place for reds.
“I think that’s really, really cool,” says Storchmann, who relishes the thought of being able to decamp to wine country in less than the time it takes many New Yorkers to commute to work. “It’s hilly, it’s beautiful, and there are some really wonderful wines there—fantastic wine you can still get for $30.” An early devotee of New Jersey wines, Storchmann explains that the state actually boasts two distinct growing regions, with reds from near the town of Vineland, in the south, likely to appeal to fans of the Bordeaux style.
If this is news to you, it’s probably because New Jersey wines are still a rarity in New York City stores and restaurants: Storchmann sees several reasons for this, including stringent and complex American laws regarding how alcohol is produced, shipped, and sold, especially when it’s crossing state lines. More than that, though, he says it all comes back to the conservatism of the wine establishment: “90% of the entire wine press is here in New York, and twenty miles in front of their nose is outstandingly good wine for a very low price. Why has no one written about this?” Storchmann’s theory is that it’s just too risky, especially for young wine critics trying to make a name for themselves, to recommend something so…well, accessible.
“The locavore thing works for food,” he muses, but “there’s this crazy idea that we should drink wine that’s from as far away as possible—that it should come from Australia or something. No one wants to write about a region that the wine press considers a laughingstock known for traffic jams.”
It’s a shame, because a “drink local” movement, in addition to helping get high quality wine into consumers’ hands at a fraction of the cost of imported bottles, could also dramatically reduce the industry’s environmental impact. Vineyards aren’t a terrible threat in terms of land use because grapes tend to grow in rocky areas where not much else will thrive, Storchmann says, but then there’s the costly matter of shipping finished wine (which is heavy due to its water content) around the world. For a New Yorker, choosing wine from New Jersey rather than, say, New Zealand, France, or even California could mean signaling a commitment to reducing the industry’s carbon footprint.
Climate change has already begun to shift wine regions around.
Studies about the effect of the environmental factors on the wine market are a staple of wine economists’ work, Storchmann explains, and in fact the Journal of Wine Economics’ most recent issue was devoted entirely to wine and climate change. The central message? Big changes are already underway.
In Europe, the growing regions for various grapes are essentially moving north, meaning that winemakers will have to change tactics if they’re going to succeed. This is tricky in a country like France, which has strict quality-control laws concerning wine origins and governing which grapes can be planted in which regions. “In Burgundy, or example,” Storchmann says, “it’s all about pinot noir. You couldn’t plant a Grenache there, or a cabernet. It wouldn’t be legal.” But what happens when the climate warms to the extent that pinot noir won’t grow there anymore? Storchmann says that vines will give fruit for 25 or 50 years, so growers with foresight are looking at climate projections to decide on what they should plant now. That means that flexibility is now an asset, with regions with fewer growing restrictions gaining a competitive edge. And nations like Great Britain and Canada, which have historically been too cool to grow grapes, are suddenly getting into the winemaking business. “The Brits, of course, don’t care about French rules—they’re free in what kind of grape they want to grow and where,” Storchmann says, “and so there’s enormous growth there. They make really good wine—outstanding champagne.”
It’s not the first time in history such changes have occurred, Storchmann says. Ancient maps tell us that during a previous warm spell, about a thousand years ago, there was winemaking as far north as Berlin and the northern reaches of France. But with the Little Ice Age, which lasted from around the 14th century to the 19th, vineyards moved to southern France and Spain, giving rise to today’s wine culture that developed over hundreds of years. Now things are warming up again—but the difference is it’s happening much more quickly.
“A change that would have taken from the year 800 to the year 1,000 now takes only 20 years,” Storchmann says, noting that in his native Germany, which in the past could only grow the white grapes that thrive in cooler climates, robust reds are becoming more common. “When I left Germany in 1999, most of the vines planted were white. Now most of the newly planted vines are red.”
And while global warming might present welcome opportunities to make wine in new places, climate change also brings with it unpredictable fluctuations in temperature and rainfall that threaten crops everywhere. Storchmann’s beloved New Jersey region—famously walloped by Sandy—may prove increasingly vulnerable to hurricanes, for example.
There’s only one way to put aside what you think you know to figure out what you genuinely like.
Storchmann’s advice for ignoring the critics and exploring your own preferences is simple: Go to the wine store and buy five or six different bottles of a single type of wine—dry pinot noir, say. Then taste them blind and make notes about what you liked and didn’t. And if you find out that you prefer the cheaper bottles? There’s no shame in it. “People tend to feel guilty when they like the cheapest one,” Storchmann says. “But that’s actually awesome! It saves you a lot of bucks.”