What Determines the Future Value of an Icon Wine? New Evidence from Australia

Abstract

The Australian wine auction market is characterised by large variations in price between different vintages of the same wine. Yet the release prices of those wines exhibit considerably less volatility. This paper addresses the question: to what extent can we anticipate the future price of such icon wines from information available at the time of release? Specifically, it looks at the importance of the weather conditions during the grape-growing season. A hedonic model is estimated to explain the variation in price between different vintages using several weather variables plus dummy variables for capturing changes in winemaking and grape growing techniques. The model is estimated using auction price data for four South Australian icon red wines: three by Penfolds (Grange, St Henri and Bin 707), and one by Henschke’s (Hill of Grace). We show that weather variables and changes in production techniques, along with the age of the wine, have significant power in explaining the secondary market price variation across different vintages of each wine. The results have implications for winemakers in determining the prices they pay for grapes and charge for their wines, and for consumers/wine investors as a guide to the quality of immature icon wines.