The basic idea, which my International Economics students will recognize immediately, is that exchange rate changes create many direct and indirect winners and losers. This is particularly true in the increasingly integrated global wine market.
The Euro has appreciated from about $1.35 per Euro to about $1.55 in the last year, which means that a wholesale $10 bottle of French or Italian wine?s dollar cost has increased from $13.50 to $15.50. This pushes the retail price from about $20 to $23 or $24, assuming a full cost pass-through, which puts it at a different price point on the supermarket shelf.
Higher shipping costs will nudge the dollar price a bit higher still. Basically, you?re looking at a $20 wine selling for as much as $25. US wines are corresponding cheaper in Eurozone countries.
US winemakers hope that the falling dollar will be their ticket to higher sales abroad. I wrote about this in January when a group of Washington and Oregon wineries [hyperlink] organized an export event in London. It is difficult to get traction in foreign markets, but the dollar?s weakness should help.
In the meantime, rising import prices here give domestic wines an advantage. Wine buyers tend to make most of their purchases around particular ?comfort zone? price points and rising import prices should create some advantageous substitution effects.
?http://www.wine-econ.org
