Regional determinants of Hungarian wine prices: The role of geographical indications, objective quality and individual reputation

Abstract

Analysing the determinants of wine prices has always been a field of interest in the wine economics literature. By estimating hedonic price functions, however, most papers generally remain at the country level with regions generally neglected or treated as simple dummy variables. The aim of this paper is to analyse the determinants of wine prices at the regional level by using Latent Variable Path Modelling with Partial Least Squares and Principal Component Analysis on the example of Hungarian wines. This approach is able to capture the regional specialties of wine production and provides a better insight into price determination. Results suggest that intrinsic values play a major but ambiguous role in determining regional wine prices, especially in the case of sugar content. It also becomes apparent that specific Geographical Indications (GIs) play a crucial role in price determination, instead of GI use per se. Moreover, individual brands also have an important role, as Tier1 and Tier2 wineries tend to sell their wines at higher prices and in smaller batch sizes.

Subsidies and the income inequality in the Hungarian wine sector

“…However, income redistribution through public policies poses a challenge to farm management and policy-making due to fluctuations in wine farm market incomes [41]. While wine farm total incomes still depend on CAP subsidies and their reforms with income redistribution in the EU [29], the wine sector and wine farm total income can more related to adjustments to regional determinants of wine consumption and purchasing behaviour [42], and wine prices in association with geographical indications, objective quality, brand names, and individual reputation [43]. One additional factor for market income oscillations over time can be related to climatic risk and variations in weather conditions in Hungarian grape growing regions [12].…”