Studies show that between 1980 and 2000, growth in non-farm jobs reduced poverty, but growth in farm jobs did the opposite. In the past, increased demand for farm labor induced new immigration from Mexico, while increases in the supply of farm labor through immigration stimulated growth in the agricultural sector, thereby increasing the demand for farm labor. The key to this circular relationship between farm labor demand and immigration was that the supply of immigrant farm labor was elastic; that is, immigration was responsive to changes in U.S. farm wages. Our findings suggest that Mexico’s farm labor supply is not as elastic as it once was. Raising worker productivity is a prerequisite for increasing farm wages and enabling farm worker families to rise above the poverty line. Rising farm wages, in turn, create an incentive for farmers to make investments that will make farm workers more productive. In California, grapes rank as the highest-valued agricultural crop and the second-highest valued agricultural product after milk and cream. Wine grapes alone contributed roughly $2.1 billion, or 5.9%, to the total value of California farm production in 2010, with a further $0.9 billion contributed by table grapes, raisin grapes, and grapes crushed for other uses. California produced 86% of both the volume and value of U.S. wine grapes in 2010.Measures of demand response to economic factors, including price and income, are often used in economic analysis of markets and policies. The elasticity of demand for wine grapes is useful for estimating the price, quantity, and economic welfare effects of anything that causes a change in the production or consumption of wine grapes—new policy, disease, or pests, for example. Despite the economic importance of this industry,hydroponic grow table and the usefulness of elasticities, estimates of demand response for California wine grapes are scarce. In our recent article in the Journal of Wine Economics we report estimates of demand response for California wine grapes.

We also discuss the pitfalls and challenges of the estimation of demand response for commodities that are highly differentiated, with huge variation in price by agronomic variety, geographic location of production, and other characteristics that affect “quality” and end-use of wine grapes. Here, we summarize the main findings of that work, leaving aside the technical details, which can be found in the longer article in the Journal of Wine Economics. We focus on price elasticities of demand for wine grapes, which measure the percentage change in quantity demanded in response to a one-percent increase in price.Several aspects of the demand for California wine grapes are pertinent when estimating elasticities that will be useful for policy and market analysis, and in interpreting the results from estimation. First, it is appropriate to estimate an “inverse” demand model, in which the market price varies in response to variations in market quantity, rather than vice versa. Wine grapes are a perennial crop, for which current production is determined to a great extent by decisions made years, or even decades, earlier. Thus, variations in the current market price have comparatively little influence over the quantity supplied in the current season. Consequently, we can treat year-to-year quantity variation as determined by factors other than the current price, including past vineyard investment decisions, as well as current pest and disease incidence and weather, and treat the market-clearing price as responding to these quantity variations. Second, as for most farm commodities, the demand for California wine grapes does not reflect final consumer demand, but rather demand from processors who use grapes to produce a consumer product. This is important for how we approach the estimation problem and how we interpret the resulting estimates. Third, California wine is sold in the rest of the United States and exported, and competes in these markets—even in California—with wine produced in other states and other countries. Thus, global supply and demand conditions influence the demand for California wine and hence the demand for California wine grapes from which California wine is derived. With close substitutes in the market , we expect the quantity of California wine grapes demanded to be more sensitive to price than it would be otherwise. Fourth, wine is highly differentiated, made from highly differentiated wine grapes of many varieties produced across a diverse range of agroecologies.

Reflecting this differentiation and diversity, the California Department of Food and Agriculture collects detailed data for each of the 17 geographically based California “crush districts.” Broadly speaking, Napa and Sonoma vineyards produce comparatively few tons per acre at comparatively high cost per ton. In the Central Valley, especially in the southern San Joaquin Valley, yields are up to 10 times higher and grape prices per ton are in the range of one tenth of prices in the Napa and Sonoma crush districts. The rest of the state has a range of yields, costs and prices that fall between these extremes. For the purposes of our demand analysis, we aggregated the 17 crush districts into three regions that we defined as “High,” “Medium,” and “Low” based on their average wine grape prices, while noting that every region produces a range of wine grape varieties and characteristics. The regions are depicted in Figure 1. Table 1 presents regional statistics on value of production, average price per ton, total crush, and average vineyard yield in 2010.As noted, in this work we focus on price elasticities of demand for wine grapes, which measure the percentage change in quantity demanded in response to a one-percent increase in price. James Fogarty reviewed the worldwide literature on demand for alcohol. He reported estimates of the own-price elasticities of demand for beer, wine, and spirits from 141 studies. He reported 177 estimates of the elasticity of demand for wine with respect to its own price ranging from –1.86 to –0.18. These are measures of price responsiveness of demand for wine, a finished product, which is different from the demand for winegrapes, an input. In what follows we use an average value of –0.80 for the elasticity of demand for wine together with other information to derive estimates of elasticities or price responsiveness of the demand for California wine grapes. The demand for California wine grapes as an aggregate category is derived from the demand for California wine in conjunction with technology of wine making and the supply of wine making inputs.We evaluated this equation using a range of values for the parameters related to ROW wine grape supply response, supply response of wine making inputs, and international price transmission, combined with a value of –0.80 for the elasticity of demand for all wine.

The resulting estimates of the own price elasticity of demand for California wine grapes range from –0.4 to –4.5. The range reflects alternative assumptions about the elasticity of supply of wine grapes from the rest of the world, price transmission, and the elasticity of supply of other wine making inputs. Using intermediate values for these key parameters and available data, we estimated the overall elasticity of demand for California wine grapes as –2.2. The demand for California wine grapes can be further decomposed into interdependent demands for wine grapes by quality category. The corresponding elasticities of demand for wine grapes from different quality regions can be measured as a function of the overall elasticity of demand for California wine grapes,flood tray market shares, and the extent to which the different quality categories can substitute for one another in wine making. We derived the equations for these disaggregated elasticities and evaluated them using data on market shares, the intermediate value for the overall elasticity of demand for California wine grapes , and a range of substitutability between the different qualities of wine grapes. Allowing for quality differentiation and imperfect substitution among wine grapes from the three different regions—as defined Figure 1—gives a full set of own- and cross-price elasticities as shown in Table 2.The own price elasticities are in boldface.In addition to the “derived” estimates just discussed, we estimated elasticities using an econometric model of demand. We estimated inverse demand system models for the three quality cum-regional categories of wine grapes defined in Figure 1 and with differences in average prices and yields as illustrated by the summary statistics in Table 3. The models were estimated using annual data on prices and quantities of California wine grapes taken from the annual NASS/CDFA Crush Reports for the years 1985–2010. Table 2 shows the elasticities estimated using this method in Column . The own-price elasticity of demand for high-priced wine grapes is fairly large in magnitude , suggesting that a one percent increase in price for wine grapes from Napa and Sonoma counties, holding all other prices constant, would induce a 9.5% decrease in quantity demanded. The other own-price elasticities are substantially smaller in absolute value ; a one percent increase in price for mediumor low-priced wine grapes, holding all other prices constant, would result in roughly a 5.2% or 2.6% decrease in quantity demanded, respectively. Thus, demands for all three categories are fairly elastic. The econometric estimates indicate that demand for high-priced wine grapes is the most elastic and the demand for low-priced wine grapes, mostly from areas in the southern San Joaquin Valley, is the least elastic. We might have anticipated the converse, given the very strong international competition in the bulk wine market, and we have some reservations about putting too much credence in any particular disaggregated elasticities for particular quality categories estimated in this fashion.

Several points are clear from the comparison of the econometric estimates in Column and the derived estimates in Columns,and —the latter computed using a range of assumptions about substitutability among different qualities of wine grapes and an elasticity of aggregate demand for California wine grapes of –2.2. First, reflecting our assumptions, the derived estimates of cross-price elasticities are all positive numbers whereas some of the econometric estimates are negative numbers, indicating complementary relationships—though small values relative to the negative own-price and positive cross-price effects. While cross-price elasticities are of some interest, analysts are typically more concerned with own-price elasticities, and for this comparison we would place greater weight on ownprice elasticities while giving some weight to cross-price elasticities. Second, while the econometric estimates are broadly comparable to the derived estimates they are not completely consistent with any particular assumption about the degree of substitutability, denoted s, among wine grape qualities. The econometric estimates for the “Low”-price region are closest to the derived estimates assuming low substitutability ; those for the “Medium”-price region are closest to the derived estimates assuming moderate or high substitutability ; and those for the “High”-price region are closest to the derived estimates assuming high substitutability . Olive oil is hot. From the New York Timesto the New England Journal of Medicineto the U.S. International Trade Commission , olive oil is making news and raising important economic and policy issues. The California olive oil industry is also hot. Planting, production, and the reputation for quality are all increasing. Leaders in the California industry have plans to improve its competitive position in the market and become a major crop in the state. To act on their plans, however, they need more information and analysis. To understand how the market for olive oil in the United States is evolving and the importance of economic trends and policy initiatives, we must examine the market in some detail, including how factors such as prices, income, and new information affect quantities of olive oil demanded. This article begins this detailed examination. Global production of olive oil increased from less than 1.5 million tons in 1990 to over 3 million tons in 2012. Major producing regions, which surround the Mediterranean Sea, produce about 95% and consume about two-thirds of the world’s olive oil . About 300,000 tons of olive oil were sold in the United States in 2012, tripling the quantity sold in 1990. Thus, U.S. consumption now accounts for about 10% of world production. Spain is the world’s largest olive oil producer, with Italy a distant second.Italy is a major exporter to destinations outside of the EU and some of what is exported from Italy is oil produced elsewhere. North Africa is a major producer and an even more important exporter of olive oil. The U.S. industry produces only 4,000 tons of olive oil annually, or only about 1.3% of U.S. consumption.