Saturday, August 2, 2008

Globalization and France

French wine makers and grape growers are facing increased competition from foreign producers as the wine market becomes more globalized. What do you think is their response to the increasing amounts of foreign imports?

Cut costs? Rationalize production? Innovate? Wrong.


A few excerpts:

"Too much wine, it is known, can cause violent behavior. But few have gone as far as the grape growers of France's Languedoc-Rousillon region, the world's biggest wine growing area by volume. Hurting from over-production and cheap imports, and punished lately by the rising cost of gas, a small group of local wine growers has resorted to "wine terrorism" in a violent attempt to shock the French government into helping them."

"Those incidents are just two of many in a series of violent and destructive acts by local grape growers over the past three years that has targeted public and private buildings, supermarkets, tanker trucks hauling cheap imported wine, and businesses accused of gouging growers with ever-shrinking prices. Claiming responsibility: a clandestine group known as the "CRAV", or 'Regional Committe of Viticulture Action'."

Quixotic as it may seem to outsiders, the group — and many Langeudoc-Rousillon growers who support its aims while condemning the violence used to achieve them — want the French government to protect them from a rapidly globalizing market. Foreign wine from cheaper producers such as Italy, Spain, Australia, the US, and South America — where costs can be one-fifth of those in France — has saturated the market, and driven down demand for locally-grown grapes. That has depressed the price Langeudoc-Rousillon growers get for their crops by up to 50% in recent years.

That doesn't impress locals. "Many of these vineyard owners are committed to production and investment plans spanning 20 or 30 years," says one member of the regional wine sector who asks not to be named due to "the vivid tension" the situation has created. "These aren't operations that can change strategy or cut production overnight."

So, in the face of competitive pressure from foreign producers--producers that can make a bottle of wine 5 times cheaper (!) in some cases--the French wine growers turn to terrorism in order to protect their abnormal profits. I wonder how the non-wine growing Frenchman feel about this. Maybe they enjoy paying more for their wine? It really wouldn't surprise me considering the overall French attitude toward competition and the market economy (they famously reprimanded for shipping books for free. FOR FREE! Because it undercut domestic booksellers.) I just love the last guy basically saying that the wine makers overestimated in their long-run investments and that should serve to help their case for protection.

I really wish the article would have closed by explaining that trade facilitates a more efficient and effective utilization of all available resources. Without any protective barriers, some French wine growers will go out of business while others may have to make undesirable adjustments. Such is life in any environment where the future is not completely knowable or predictable. But the by-product of cheaper foreign imports are lower prices and higher quality products for consumers, as well as the capability to produce other stuff with the newly freed up resources that come from the inefficient and now defunct producers.

With attitudes like this, it is not surprising that France continues to have limited economic growth.

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