Morgan Stanley Whine on Wine

A few days ago, researchers at Morgan Stanley issued a report on the state of the wine market. They assert that there will be an imminent “shortage” in that market. In order to demonstrate their point, they present a graph which purports to show a divergence between production (lower) and consumption (higher). For a moment, let us suppose that their data are correct. Will consumption above production result in a shortage? The answer my friends is “NO.” Instead, what would happen is that the price of wine would rise. As a result of the rise in price, the quantity demanded would decline and the quantity supplied would increase [immediately by drawing down inventory and ultimately by increasing the inputs to production including land]. A shortage [greater quantity demanded than quantity supplied] can exist only in the presence of governmental price control.

In fact, there are serious questions about the accuracy of the Morgan Stanley data. The International Organization of Vine and Wine seems to have a VERY different view.