The Impacts on Wine Demand of Balanced Messages About Wine and Health   Summary by Kirby Moulton June 21, 1995 KEYWORDS: health care, economic productivity, regional impact

This article summarizes a report, of the same title, made to the international symposium "Wine, Health and Society," held in Bordeaux, France, on 21 June 1995.

The economic benefits of a balanced education and communications program about moderate wine consumption can be substantial. If such a program succeeded in shifting consumer behavior toward healthy diets including the moderate consumption of wine, an economic gain of $36 billion might be achieved worldwide. The principal source of gain is the increased productivity realized by the world's economy as life spans become longer; this benefit is estimated at $20.8 billion. Health care costs might be reduced by $0.9 billion in response to a healthier population. Higher sales levels would add $7 billion to global retail sales and this would cause an added $7 billion in economic benefits to industries serving the grape and wine sector. Total income would be increased by $4.6 billion and 108,000 more jobs could be created. The costs for mounting such a campaign, based on experience in other commodity fields, would be about $200 million, or about 3% of retail sales value. This cost could mount substantially if behavior shifts more slowly than projected.

These estimates are based on the adoption by 40 million consumers worldwide of a healthy diet including the consumption of less than 1 glass of wine per day (39 liters per year). This level of consumption is considered moderate, or less, in the studies underlying this report. Such a consumption level would increase global wine use by 15.7 million hectoliters (174 million cases), or 7% of recent levels and would cause a series of important economic consequences.

The benefits and costs are based on a series of constraints and assumptions that call for careful interpretation. However, they are sufficiently credible to support the general magnitudes of the values and their relationship to one another. Besides presenting estimated values, the following sections define the various components that should be considered in any thoughtful analysis of benefits and costs.

Moderate wine consumption in the United States is associated with reduced health care expenditures (Lewin-VHI, 1994 and Table 1). If 10% of potential consumers shifted to a more healthy diet including moderate wine consumption, then the savings would be about $440 million, after allowing for costs associated with health status, age, gender, education, and tobacco use. It is based on the finding that 1.81% of the changed population will move into a better health classification with significantly lower health care costs. In the absence of comparable survey data, I have estimated potential health care savings in countries outside of the United States to be about $500 million if 10 percent of the potential consumers changed behavior.

Note: The differences in health care costs reflect differences in beverage preference and differences in tobacco use, age, gender, and health status. When adjusted for the latter, wine drinkers have lower costs than all others surveyed.

Source: Lewin-VHI, 1994, p. 8.

Healthy people are more productive than those who are not and when they live longer, society gains from the extra productivity. The global gains from this are far more impressive than projected savings in health care costs and are likely to be about $21 billion. This is a target worth striving for.

The U.S. National Health and Nutrition Examination Survey found that moderate drinkers had an average of 3% longer life spans than heavy drinkers or abstainers. This means a couple of years added to the average American male life span of 73 (Holmgren, 1995). I have used an increase of one month in the life span of consumers that change their behavior and an average income of $21,000 annually. Based on these assumptions and projecting them to a global basis, the productivity gain from increased life span would be $20.8 billion (Table 2).

Note: Population based on estimated number of alcohol abusers and abstainers; income based on U.S. per capita income.

 

If 10% of non-wine drinkers in the United States adopted moderate wine drinking patterns, and a proportional number of non-U.S. consumers did the same, wine sales would increase by perhaps $7 billion (Table 3).

Source: Calculated from Table 1 and assumptions from text.

This projection assumes that 10% of the non-wine and infrequent wine drinkers convert to a wine and dietary pattern identified with good health and consume the equivalent of one bottle of wine per week (39 liters per year). It assumes a retail value of $40 per case with about $20 reaching wineries. The projected increase in sales would be about 7% of recent consumption levels, 220 million hectoliters in 1993.

Increased revenues have an impact on job numbers, personal and community income, and revenues through the web of industries and individuals required to serve the production and marketing of wine. Based on economic relationships in the United States, the global increase in wine sales would suggest an increase of $7 billion in the output of other industries, $4.6 billion in total income, and a growth in employment of 109,000 jobs in all sectors (Table 4).

Source: Derived from Table 3 and assumptions in text.

The likely cost of a balanced communication program about wine and health is about $210 million based on advertising and promotion expenses of 3% of retail value growth. The estimation is difficult because of the interaction between free messages from the news media reporting research results, the slightly more costly public relations

investment needed to call attention to research results, and, finally, the paid for efforts of advertising and promotion seeking to change consumer behavior. The costs may range from $175 million to $300 million, depending on price and advertising elasticities of demand. Such costs emphasize the point that the desired changes in consumer behavior cannot be stimulated cheaply.

• The potential gains from reduced health care costs are not large compared with total health care costs.
  
  
• The potential productivity gains from longer life spans are large and merit attention in assessing the benefits of moderate wine consumption.
  
  
• Industry gains will be substantial if more moderate wine consumption patterns are extended.
  
  
• The costs of mounting an effective communications program may range between $175 and $300 million, but are reasonable in relation to anticipated benefits.
  
  
• Some results are speculative, but all deserve serious consideration in evaluating future strategies.

Doll, R., R. Peto, E. Hall, K. Wheatley, and R. Gray, 1994. "Mortality in relation to consumption of alcohol: 13 years' observations on male British doctors," British Medical Journal 309:911-918.

Heien, Dale, 1994. "The Economic Case Against Higher Alcohol Taxes," Journal of Economic Perspectives (Communications), Spring, 207-209.

Holmgren, Elisabeth, 1995. "Moderation and Mortality," Wines and Vines, 76, 2 (February), p. 5.

Lewin-VHI, 1994. The Benefits for Healthcare Expenditures form Moderate Wine Consumption. Lewin-VHI Inc., Fairfax, Virginia.

Moulton, Kirby, 1992. "Publicite dans le secteur vin," Bulletin de l'OIV, 65 (Mai-Juin), p. 362-403.

Moulton, Kirby, 1995. The Impacts of Wine Demand of Balanced Messages About Wine and Health. Berkeley: University of California Department of Agricultural and Resource Economics, Working Paper No. 753.

Kirby Moulton is with the Department of Agricultural and Resource Economics, University of California, Berkeley, CA.

Return to Commodity Specific Studies Index

Return to Globalization Index

Return to the Western Extension Marketing Committee

This site is hosted by the Department of Agricultural & Resource Economics, University of Arizona
Questions regarding content: Russell Tronstad
Send all other questions and feedback to: arecweb@ag.arizona.edu

Document located at http://ag.arizona.edu/ext/wemc/papers/ImpactsonWine.html