The price for organic produce and organic milk is usually higher than that of their non-organic counterparts, but what happens when a wine label has the word “organic” on it? A study by two environmental economists has found that, as expected, California wines made from organic or biodynamic grapes cost more than conventional wines on average. However, in a surprise finding, wines made from organic or biodynamic grapes that indicate so on their labels cost less than conventional wines. The findings have shocked some in the wine industry, especially after some prior reports misstated the conclusions. But others warn that there are plenty of caveats in the study and that it may not reflect the current market.
The study in question, which will be published in a forthcoming issue of Business & Society, a journal focused on corporate social responsibility and sustainability issues, was conducted by UCLA's Magali Delmas, associate professor at the Institute of the Environment, and Ph.D. student Laura Grant at the University of California at Santa Barbara. They looked at prices of thousands of California wines from eight vintages, both conventional wines and those made with organic or biodynamic grapes, and tried to determine how much eco-certification and eco-labeling added to a wine's price tag.
"I wanted an understanding of the incentive for people to adopt green practices," Delmas said. "Most of the time, there is a price premium [for organic products]. We wanted to understand why wineries were going for eco-certification, but not the eco-label."
Many wineries use organic or biodynamic practices in their vineyards, but not all that are certified put the label on the wines. Vintners offer varying reasons. Some want consumers to remember their wines for the quality, not the "green" label. Others have been concerned that consumers might be confused by the different certification labels and mistake wines made from organically grown grapes with organic wines; because the latter cannot contain added sulfites, which act as a preservative, they can be less stable.
For their study, Delmas and Grant crunched numbers on 13,426 California wines from 1,495 wineries (about 72 percent of the state's producers)—of which 28 had an eco-certification and 16 put the green labels on the wines. The wines came from the 1998 through 2005 vintages—many of them released prior to the recent explosion of consumer interest in green products. More than 30 grape varieties and 25 appellations were represented. The wines' prices ranged from $5 to $500. They noted whether a wine was made from organic or biodynamic grapes (no organic wines were included in the study). Their goal was to isolate the "price premiums" that eco-certification and eco-labeling add to a wine's price tag.
Multiple factors determine a wine's price—from the quality of the wine to the particular vintage, the grape variety and the winery's production volume. Using an economic model called hedonic regression (commonly used to calculate the Consumer Price Index and other economic indicators), the researchers tried to eliminate all the other factors and isolate the impact of eco-certification and eco-labeling. (They used Wine Spectator ratings as a "reliable proxy for quality," according to Grant; interestingly, they found that eco-certified wines scored almost 1 point higher on average on Wine Spectator's 100-point-scale than conventional wines.)
They found that wines that were eco-certified cost 13 percent more than conventional wines. But wines with an eco-label cost 7 percent less than conventional wines. "The surprise was the magnitude," Grant said. "We expected an eco-certified price premium and a small decrease for the eco-label. But when it's eco-certified but labeled, it washes out the price premium and even decreases it."
The results were further telling when the wines were broken down into price ranges. Among wines under $25, there was little difference between certified, labeled and conventional wines. Above $25, it was more of a factor, particularly with wines costing between $25 and $35. The researchers believed that the findings suggest that consumers are not familiar with or do not understand eco-labels.
But critics of the study point to several limitations in the methodology. For one thing, the number of certified and labeled wines was low. Only 28 of the almost 1,500 wineries had an eco-certification for their vineyards, while "a handful of others" bought grapes from certified sources, for a total of 318 wines. Only 16 wineries put the green labels on the wines. That's a small sample size. Consumer interest in green wines has exploded in just the past few years, as has the number of certified and labeled wines, which means awareness of certification labels may be higher today than it was when the wines in the study hit the market.
Green wineries can take comfort in one finding. Delmas noted that the willingness for consumers to pay a price premium for certified wines without knowledge of that eco-certification signals a higher quality product. She said that she suspects that wines made from organically grown grapes are better than conventional products from a quality standpoint.
Still, she added, "What we find is interesting in terms of literature for eco-labels is that none of the attributes work for wine. There is more confusion and less willingness to pay."