“Globalization versus Terroir” is the title of my first published essay on wine economics. It appeared as a chapter in my 2005 book Globaloney: Unraveling the Myths of Globalization, which was the third in a four-volume series analyzing globalization and its discontents. (See list of books below.)

The wine world has changed a lot in 20 years and my thinking about the wine economy has changed, too, so I thought it would be interesting to re-read that first essay and see what I think about what I thought then. Here is a brief report.

Globalization versus Globaloney

The book Globaloney was conceived as a collection of case studies of how globalization was playing out in different industries. I had noticed that much of what we were told about globalization was based on a few vivid stories from specific industries, boldly generalized to global dimensions. So globalization is McDonaldization, for example, or Coca-Cola-ization. Globalization was almost always a bad thing and almost always centered in the United States.

I was suspicious that something as complicated as the global economy could be understood in such a simple way. And I knew from previous research that the search for counterexamples would be interesting. An earlier book, Selling Globalization, had argued against the prevailing wisdom that globalization was unstoppable. Global economics is built on global finance, I argued, and finance is fragile by nature. Critics doubted this conclusion until the Asian Financial Crisis and then the Global Financial Crisis. And then they didn’t doubt so much.

What’s really true about globalization? And what’s just “globaloney?” That’s what I was trying to figure out.

Globalization versus Terroir

I would like to say that everything I know about terroir I learned from Adam Smith’s Wealth of Nations, which is almost true. It is probably hard to imagine Smith, an austere Scot, sniffing, swirling, and droning on about vineyards and microclimates, but he did develop both knowledge of and appreciation for fine wine in his mature years and recognized the importance of what we call terroir.

Significantly, because after all he was Adam Smith, he noted the economic value of terroir, real or imagined, in establishing a winery’s or a region’s reputation.  There was money in terroir then as there is today.

How does globalization affect wine terroir? Is it a McDonaldization situation, where the incentive to expand globally leads to homogenized products? Does the global mean the death of the local when it comes to wine?

I argued that while wine is a global industry, there really are not many truly global wine firms or dominant regions. Even Gallo, the largest wine producer in the world, has only a tiny share of total output and sales. Most wine-producing countries drink mostly their own products (a significant home-court advantage), limiting global effects.

Up the Wine Ladder

The impact of globalization on terroir seemed to me to depend on which step of the wine ladder you consider. At the bottom, basic commodity wine, there isn’t much terroir to lose (because that’s not what consumers are looking for). But globalization has had a big positive impact in raising the standard of quality of these wines by spreading winemaking knowledge and techniques and forcing bad local wines to compete with better wines from other regions.

The situation might be different at the top of the wine staircase. Winner-take-all global markets have the power to push the price of the best wines to stratospheric levels that Adam Smith could not have predicted.  Great terroir wines are traded or collected, but not necessarily opened and enjoyed. A shame!

I also cited the Parkerization argument, which was very popular when the book was written. The growing global market put more power in the hands (and palates) of famous critics like Robert Parker, providing a powerful incentive for upwardly mobile winemakers to make at least one high-scoring  “Parker wine.” If the top wines are all trying to please one critic, then won’t they all start to taste the same? That’s an unexpected globalization consequence for sure.

What about the wines in the middle, the ones that are neither commodities nor investment-grade icons? That’s the interesting question! I thought that product differentiation would be the key here because undifferentiated wines would sink toward the commodity bottom. Successful differentiation would allow for higher prices and margins. Looking back at this part of the essay I can see indicators of the premiumization trend that would gather force only a few years later.

Land versus Brand

What’s the secret to differentiation? Here’s where I made a mistake. Because I framed the chapter as globalization versus terroir, I naturally look to an increased emphasis on terroir as the key. So I was very hopeful about how things would turn out.

But, of course, terroir isn’t the only strategy. I should have paid more attention to branding as a strategic response to premiumization forces in the middle market tiers. I just wasn’t thinking land versus brand at this point. But I got there eventually (with the help of many wine people), which led to The Wine Economist and the five wine business books, starting with Wine Wars.

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Here are the books in my globalization series.

Globaloney 2.0: The Crash of 2008 and the Future of Globalization (2010).

Globaloney: Unraveling the Myths of Globalization (2005).

The New York Times Twentieth Century in Review: the Rise of the Global Economy (2002).

Selling Globalization: The Myth of the Global Economy (1998).