The year is almost over so it is natural to start looking ahead to 2026. Here are three questions relevant to the wine industry to keep in mind as you pull corks to celebrate the new year.

Question One: Are We There Yet?

It is no secret that 2025 has been a tough year for the wine business both here in the U.S. and around the world. There are bright spots, of course, but the thousands of acres of wine grapes that went unharvested this year are a clear sign of trouble as is the continuing removal of vines and conversion of vineyards to other uses.

Some wineries had enough wine in inventory to cover sales and made little or no wine in 2025. The conventional wisdom is that the industry is not going to begin recovery until that inventory of unsold wine is drawn down (or ages out and becomes unsaleable).  Will we reach that point in 2026? Or will this be another bitter vintage for growers, especially those without firm contracts?

It is not something we talk about much in the U.S., but it would speed things along a bit if the government were to consider temporary crisis distillation programs or other policies to help reduce the overhang and bring the wine market into balance. Yes, you can go too far with programs like this and encourage “zombie” vineyards and wineries that exist only because of government support. No one wants that. But there is a useful short-term adjustment role for such programs, too, and it would help draw a line under the current situation and allow the industry to move forward.

Question Two: Will They or Won’t They?

The Supreme Court will soon rule on President Trump’s “Liberation Day” tariff regime. Will they declare them a valid exercise of presidential power? Or will they rule that many of the tariffs violate constitutional provisions and must be rescinded?

This question has importance that goes well beyond the wine industry, but wine certainly has a dog in the fight. The full impact of the tariffs will start to be felt in 2026 through higher costs and disrupted supply chains, but some of the biggest impacts are already here, transmitted through the political system, not markets. I’m talking about the loss of our largest wine export market, Canada, in response to U.S. tariffs on Canadian products. Tariffs are often a tit-for-tat situation and U.S. wine is suffering from the retaliation effect.

There are many follow-on questions here, of course. If the SCOTUS rules against the tariffs, will the ruling stick? Or will new tariffs appear to replace the old ones to keep the legal limbo going? Will the tariff tax revenues have to be repaid? If so, where will that money come from? The list goes on, but it starts with the Supreme Court’s decision.  Stay tuned.

Question Three: What Next?

The U.S. economy is something of a puzzle as we bid 2025 adieu. Is growth booming, as the most recent GDP figures seem to suggest? Or is it slowing down and maybe struggling as jobs data indicate? Is inflation pretty much under control? If so, why is “affordability” the year’s hottest word (and not in a good way)?

There are many different ways to answer these questions and economics nerds like me add one more to the list: who will lead the Federal Reserve in 2026 and how will they react to economic news as the year unfolds? The public focus will be on interest rates. Up or down? But the bigger question is how we will navigate the traps and trade-offs of a complex, highly indebted, rapidly evolving economy.

I think this is a wine economics question because I believe that affordability is a significant explanation for the current malaise in wine sales. It’s not the only issue, but it matters. If you think of affordability as roughly the cost of living divided by disposable income, then what the Federal Reserve does is important because it can affect both the numerator and the denominator in many ways. There’s a lot at stake.

What’s next for the wine economy? And what unexpected events (unknown unknowns in the Donald Rumsfeld taxonomy) will appear? 2026 will be many things, but it won’t be boring!

Weight gain is the problem we most closely associate with Thanksgiving, but this Wine Economist column from 2021 argues that wine lovers need to consider the economic concept of deadweight loss when choosing a wine to bring to the festive gathering.

An Economic Theory of Thanksgiving Wine

The Wine Economist / November 15, 2021

Thursday is Thanksgiving Day here in the United States and many of us will gather with family and friends for the holiday feast. If you have been invited to share Thanksgiving with others (and if you are interested enough in wine to be reading this column), then you must confront a perennial problem: what wine should  you bring?

Deadweight Loss?

Why is the choice of a gift wine an economic problem? Well, it isn’t much of a problem if you plan to drink it all yourself. Then you should just buy what you like — but don’t expect to be invited back next year!

Since the point will be to share the wine with other guests, the choice is more difficult because just as you can’t be sure exactly what dishes will be served, you cannot be certain what wines the other guests will like the best.

There is a pretty good chance that you will experience what economists call a “deadweight loss” which is more or less where the benefit that the guests derive from your wine is less than what they’d have gained from a simple cash transfer.   The story (which is possibly true) is told about the time Malcolm Forbes threw himself an extravagant birthday party where the guests were served some of the rarest, most expensive wines on the planet. Forbes went from guest to guest pouring the evening’s show-stopper wine. Finally he came to Warren Buffet. Wine? said Forbes with a smile. No thanks, Buffet replied. I’ll take the cash!

Warren Buffet understood the concept of deadweight loss and wanted nothing to do with it!

The Problem of Other People’s Money

The problem is asymmetric information. You know your own preferences and budget situation pretty well and so you have a fairly good idea of what you are giving up when you buy an expensive bottle of wine as a gift. But you don’t know the preferences of the other guests very well or whether they would prefer your wine or a simple cash payment to be spent on something else. You can’t be sure that their gain is greater than  your loss.

This leads (I hope you are following along) to the conclusion that you are most efficient when you spend your own money on yourself because you can fairly well calculate both the gain and the opportunity cost. You are less efficient (in terms of deadweight loss) when spend your money on others. You are even less efficient when you spend other people’s money on yourself. And you are hopelessly inefficient when you spend others people’s money on other people. What do you think?

So it would seem like the most efficient thing to do would be to decline that dinner invitation and stay home with the wine you buy for yourself. How sad! No wonder economics is called the “dismal science.”

It’s Not About the Wine

But here’s the notion that saves the day. Thanksgiving is not really about the wine (or the turkey or the green bean casserole), it is about the sharing. Thanksgiving is more a public or communal good than private good. And so, if you do it well, the particular elements of Thanksgiving including the wine will play a secondary role to the general warmth of the shared experience.

I used to get frustrated when wine wasn’t the centerpiece of gatherings, some of which were actually organized to celebrate the wine. But then I got over it. Wine is doing its job when it makes everything else better. Don’t you agree?

This fact changes a bit how you might approach your choice of a Thanksgiving wine to share. Cost is nearly irrelevant. Picking a wine that draws undue attention to you (and  your fine taste or great wealth) almost defeats the purpose.  A modest wine that makes everyone smile — maybe something with bubbles? — will serve very well. And then you can concentrate on what Thanksgiving is really about.

That said, no one will complain if you bring a nice Port, Madeira, or Sauternes to savor at the end of the meal.

>>><<<

Happy Thanksgiving, everyone. Enjoy the wine and the feast and most of all each other!

Nine months ago today, The Wine Economist published its annual column that, inspired by the upcoming Unified Wine & Grape Symposium, looks ahead to the future. The theme was sort of anti-climactic at the time, but it seems pretty much on the mark at this point: the future of wine is always uncertain, but 2025 is special. There are more unknowns and even unknown unknowns than ever before.

Frozen by Doubt

That’s a problem because fear, uncertainty, and doubt tend to freeze businesses in their tracks. It’s hard to know what to do, so the tendency is to wait until the smoke clears. The air is still far from clear both for the wine market generally (see this recent Wine Economist report) and for key international variables.

Many predicted that the dramatic increase in tariffs would lead to higher retail prices and this has happened to a certain extent. However, many firms have delayed raising prices until they know for sure what the tariff rates will be and which products and countries will be exempt. U.S. tariff policy has changed course several times and there is no assurance that the tariffs in place on the day you sign a contract will be the same ones in force when the shipment arrives and payment is due.

The Pasta War?

There was a surge in wine imports prior to tariffs coming into force. Now it seems to be wait and see because the situation could change yet again. Just last week, for example, we learned about the 107% “pasta war” tariffs that the U.S. threatens to impose on Barilla and some other Italian pasta makers. Thirteen Italian producers are accused of “dumping” pasta in the U.S. market and will be subject to a 92% pasta tariff on top of the existing 15% “reciprocol” tariff. The Financial Times reports that the import taxes will go into effect in January, so you might want to stock up.

Wine. Pasta. What next? I have no idea.

November is an important month in this regard because that’s when the Supreme Court hears arguments on whether the tariffs that apply to wine were legally imposed. Sectoral tariffs (steel, aluminum) may be legal, but general tariffs such as those that apply to wine may have been incorrectly applied, with unclear consequences. For what it is worth, the Economist newspaper’s AI-powered SCOTUSbot predicts that the broad tariffs (including wine) will stick.

In the meantime retaliation against U.S. products in foreign markets continues. The loss of much of the Canadian market for U.S. wine is especially damaging as Canada was the #1 export market. Wine’s problems mirror in a small way the situation of much of U.S. agriculture, which is heavily focused on exports. There is talk of $10 billion in federal aid to farmers to offset some of the negative effects, but I don’t know if any of this is earmarked for winegrape producers.

Dollar Dilemma

Uncertainty permeates other economic variables. The dollar has fallen this year, for example, when many thought it would rise. The logic (see below) was that tariffs would increase inflation and force the Federal Reserve to raise interest rates. The inflation has been less than expected so far, but the economy seems to be weakening. The Fed is now lowering interest rates, accepting the risk of higher inflation in order to reduce the chances of slower or negative growth.

Inflation or unemployment? That’s a lot to worry about. But there’s more. But what will happen in the future if, as the Treasury Secretary has suggested, the U.S. does “whatever it takes” to support Argentina’s economy and its tenuous debt situation? I don’t have an answer to that question. More uncertainty!

The list of uncertain factors goes on and on. Here’s the original article from earlier this year.

>>><<<

2025: Wine & the Age of Uncertainty

The Wine Economist / January 14, 2025

The Unified Wine & Grape Symposium, North America’s largest wine industry meeting and trade show, is only a few weeks away. I will be in Sacramento to moderate the State of the Industry session, which features an impressive lineup of wine industry experts:

• Jeff Bitter, Allied Grape Growers
• Glenn Proctor, The Ciatti Company
• Stephen Rannekleiv, Rabobank
• Danny Brager, Brager Beverage Alcohol Consulting

The panelists have decades of experience in the wine industry, which informs their analysis of current problems and future prospects. It is a tremendous opportunity to hear what the experts are thinking now and to talk about it with the other attendees.

There are many other sessions at the Unified covering all sorts of topics in winegrowing, winemaking, marketing, and business operations. I am particularly interested in the Thursday general session on Crafting a Positive Narrative: Promoting Wine in the Face of Challenges, which will be moderated by New York Times wine critic Eric Asimov. One of the biggest challenges, of course, is the rising anti-alcohol movement. Telling wine’s positive story is as difficult as it is important in the current environment.

There is something for everyone at the Unified (click here to view the complete program and click here to read the speaker bios). Sue especially appreciates the big trade show where more than 900 exhibitors will highlight what’s new in the wine industry from the biggest machines, smartest technology, and best products and services from vineyard to cellar to bottling line all the way to market.

Always the Age of Uncertainty?

I always start the State of the Industry session with a few remarks to set the stage and this year I have chosen a theme, the Age of Uncertainty. This is a time of great change in the wine industry and change makes people nervous.

Age of Uncertainty? I know what you are thinking. It is always the Age of Uncertainty in the wine business. Growing grapes is risky, making wine is risky, and selling wine is risky. There is no part of the wine business that does not have an uncertain component. Wine is a global business, too, and while global markets create opportunities they also introduce additional layers of risk.

I specialize in international and global wine markets, so I am especially concerned with how international economic policies add more layers of uncertainty to wine business today. We have been told to expect high tariffs (on wine and just about everything else) in 2025. Depending upon how they are structured, and how our trading partners react to them, tariffs can have a number of direct and indirect effects.  There’s a lot at stake and the final outcome is difficult to predict.

Indeed, the International Monetary Fund recently identified the threat of tariffs as a major global economic concern. The possibility of tariffs has driven up long-term borrowing costs around the world, according to the IMF, which will release its new report on the global economy later this week.

And this week’s Economist newspaper highlights uncertainty about tariffs and other policies as a main cause of global instability.

It is easy to see why uncertainty has spread. Will Donald Trump deport millions of people? Nobody knows. But if he succeeds inflation could jump as employers lose workers. The story is similar for tariffs, which would also increase prices. At the same time, potential Chinese counter-measures in a trade war, such as a devaluation of the yuan, could prompt a global deflationary shock.

The rising perceived risk, according to the Economist, helps explain falling bond prices, rising mortgage interest rates, and many other current trends. They say that what you don’t know won’t hurt you, but uncertainty clearly has a cost.

Not by Wine Alone

I know many people who think a tariff on imported wine would benefit American growers and producers and others who strongly oppose the idea. But it is important to remember that we aren’t talking about tariffs just on wine. Although it is hard to know right now (that uncertainty thing), it looks like the new administration will impose tariffs on most imported products from many or most of our trading partners, with the highest tax rates on China, Mexico, and Canada, the countries with whom we trade the most.

Border taxes on such a long list of imports have different effects than a tax on a specific product category like wine. That’s part of the uncertainty problem. U.S. producers may gain from protection from imports but lose from higher costs for imported supplies, equipment, and technology. Labor costs, interest costs, and insurance costs would all likely be pushed higher by rising inflation.

And U.S. tariffs aren’t the end of the story. How will other countries react? Will European nations retaliate with tariffs on U.S. wine? Probably not. I think they’d focus on spirits, not wine. Would Canada target U.S. wine? Yes, I think they might and that’s a problem because Canada is a good market for U.S. wine exports.

The  Dollar Also Rises

President Trump favors a falling dollar value on foreign exchange markets because that would reinforce his trade policy by discouraging imports and promoting exports. But tariffs tend to push the dollar higher as we have seen since the election results were announced. The dollar’s value rises when it sounds like tariffs will be used as a blunt weapon to keep out imports. The dollar falls, however, when the rhetoric suggests tariffs as targeted strategic tools to gain specific concessions. Which way will tariff policy lean in 2025? I don’t know, do you?

How are tariffs and the dollar related? Here’s one way. Tariffs tend to increase inflation, which forces the Federal Reserve to keep interest rates higher than they otherwise would be. This attracts foreign capital that boosts the dollar’s value, making imports cheaper in dollar terms and U.S. exports less competitive abroad.

Immigrant policies are the third element of the Age of Uncertainty for wine in my analysis. It is too soon to know how border controls and deportations might affect labor both generally and in industries such as agriculture and construction that are most exposed. So wine’s Age of Uncertainty is a complicated matter. What’s the bottom line? I’m saving that for the State of the Industry session.

Galbraith’s Uncertainty Principle

Why did I choose this theme for my remarks? The idea was inspired by an old book that strikes me as still relevant today. The Age of Uncertainty is the title of a 1977 BBC/KCTS television series and an accompanying book by the distinguished Harvard economist John Kenneth Galbraith. The book and videos, which survey two hundred years of economic history and the history of economics, were timed to coincide with the 200th anniversary of Adam Smith’s Wealth of Nations.

People tend to remember Galbraith as the sophisticated author, public intellectual, and Harvard professor that he became, but his personal story is more complicated. He grew up on his family’s small Ontario farm and seemed set for a farming career, graduating from Ontario Agricultural College in 1931. But the 1930s were not the best of times for farming and Galbraith soon found himself doing PhD studies in agricultural economics at the University of California and then working for the U.S. federal government’s Agricultural Adjustment Agency (AAA) trying to prop up farm prices.

I don’t think that wine is mentioned even once in Galbraith’s book, but his agricultural background and experiences are easy to trace. The world has changed a lot in the almost 50 years since The Age of Uncertainty first appeared (and nearly 250 years since Wealth of Nations), but American winegrowers and agriculture generally can certainly relate to Galbraith’s story and the concerns he expressed in this book.

Two of the most-read Wine Economist columns of 2023 analyzed theories of the global wine glut. The first focused on demographic theories (generational differences and life-cycle patterns) and the second took aim at economic forces (rising inflation, interest rates, housing costs, consumer and business debt). The first column got more attention. Until now.

A recent OIV report on global wine sales found that consumption measured by volume fell in almost every major consuming country between 2022 and 2023. It really is a global issue. And while there are many factors involved, including rising health concerns, the OIV stressed the economic theory of tighter budgets squeezing consumer choices. Why didn’t the OIV stress demographic trends? I can’t speak for them but it is clear that they are interested in the global problem and not every consuming country has the same demographic pattern as the U.S. Baby boom or lifestyle explanations don’t help us understand the sudden collapse of wine consumption in China, for example, but changing economic circumstances might.

Everyone knows that people are feeling economic strain these days, but can it really be affecting wine sales as much as that? Remember that sales in most countries haven’t collapsed (China being an exception). The volume of consumption has fallen by 2% to 4% in most countries. This is relatively small in percentage, but a big deal to winegrape growers and producers with unsold product.

This is where Starbucks and McDonald’s come in. Both are U.S.-based global firms and both have suffered significant declines, just like wine. I’ve been following the news about both companies recently and I think there are insights that wine producers need to consider.

Starbucks’ share price fell by 15% in a single day recently. Why? The Wall Street Journal published an article about persistently declining sales at the coffee giant. The problem, it noted, was that the company was running out of American customers who are willing to pay $5, $6, $7, or more for a beverage. Starbucks was premiumizing while their customers were belt-tightening. It turns out that many people don’t think they need Starbucks as much as Starbucks maybe needs them. Starbucks’ CEO announced a turnaround plan that seemed to miss the mark and the stock value took a dive.

What is the lesson for wine? Wine is sort of the Starbucks of its own category. Wine is more expensive per serving than other alcoholic beverages. It is a discretionary purchase. Consumers don’t need to buy wine. They don’t need to buy beverage alcohol at all. If only a few percent of them change behavior, you’ve got a Starbucks problem.

McDonald’s might also have lessons for wine. Once upon a time, fast food in general was seen as good value, but rising costs have increased the average drive-thru bill considerably and the volume of traffic has fallen. The McDonald’s CEO recently recognized the economic problem and vowed to restore the value proposition. There are rumors of a $5 hamburger meal, for example. Significantly, McDonald’s stock did not tank upon this announcement.

Perhaps wine needs to reevaluate its value proposition, too. Yes, there are inexpensive wines on the shelf, but are they good value? Consumers don’t seem to think so. Sales volumes have been falling for several years. Significantly, one of the few bright spots in the current market is the premium 3-liter box category ($4+ per bottle equivalent). Apparently many consumers see value here that they don’t find elsewhere on the wine wall.

I am not arguing that health concerns are over-stated or that generational and life-cycle explanations are wrong. But I think that the economic argument about the global wine market is important and wine producers need to take consumer budgets explicitly into account as they move forward. Consumers are feeling the squeeze. How can wine producers address this situation?