PART IV

The Great Divergence: The Growth of Industrial
Wine Production in the New World

WINE PRODUCTION was of little importance in the New World until the late nineteenth century. This was despite the considerable interest shown by colonial governments as wine was considered a valuable addition to local diet; was a necessity for the Catholic Church for celebrating Mass; and offered a potential source of taxation. In addition, viticulture, in contrast to ranching, required permanent, densely settled communities of small farmers. Wine exports also promised to reduce the dependence of Britain and the Netherlands on French and Iberian imports. Hernán Cortés introduced vines into Nueva España (present-day Mexico) in the 1520s, and they were reportedly being grown as far south as Chile by the second half of the century, and in Alta California (present-day California) when the Spanish missions arrived in the late eighteenth century.¹ There were also unsuccessful attempts in the sixteenth century by French Huguenots in Florida, and slightly later by British settlers in Virginia, to make wines from native American grapes.² Elsewhere, the Dutch produced small quantities of wine and brandy in the Cape Colony, and vine cuttings were on the ships that arrived to establish Australia’s first colony in January 1788.³

The limited success of these early initiatives can be attributed to a variety of factors, including vine disease, poor wine-making systems, the very low population densities in those areas most suitable for specialized viticulture, and the huge distances that separated them from their potential markets. These restrictions were relaxed with the rapid development of the global economy in the late nineteenth century, which brought massive immigration, improved transportation, and a better understanding of the needs of viticulture and wine making. Production conditions were very different from those found in Europe. Factor prices were reversed, as land was relatively cheap and abundant, and labor expensive. Wages for unskilled workers in Argentina in 1910, for example, were 34 percent more than in France, in Australia 90 percent more, and in the United States 139 percent more.⁴ Although capital markets were weak for wine producers everywhere, profits from gold mining in both California and Australia benefited the local industries, and the greater scale of production in the New World by the late nineteenth century allowed producers better access to banks than their European competitors enjoyed.

Another difference was terroir, and in particular climate. Vines were easy to grow and the risks from disease limited in the New World, but the hotter climates produced grapes with a high sugar content that caused fermentation to end prematurely, leading to the development of bacterial diseases and ruining the wine. A number of colorful pioneers, such as Agoston Haraszthy in California and James Busby in New South Wales, traveled to Europe to collect vines and learn at first hand production techniques, although it was only in the 1890s that European technology started to resolve the problems associated with wine making in hot climates. This revolutionized the sector and allowed the possibility of producing large quantities of homogenous cheap wines that could be sold under brand names.

High import tariffs and the arrival of millions of immigrants, together with the New World’s high fertility, gave the new industry a rapidly growing potential market. Population increased elevenfold in Australia between 1850 and 1910 (from 0.4 to 4.4 million); sixfold in Argentina (from 1.1 to 6.8 million); fourfold in the United States (from 23.3 to 92.8 million), and almost threefold in Chile (from 1.4 to 3.4 million).⁵ Immigrants arriving in the New World brought with them their own drinking customs, and wine was the favorite alcoholic beverage for many of the Italians and Spaniards settling in Argentina and Chile. By contrast, most consumers in Australia and the United States drank beer and spirits, increasing marketing costs for merchants as they had to educate drinkers about wine and compete with other sectors of the alcohol industry, which underwent even greater changes in this period, especially in standardizing quality and reducing adulteration.

Producers responded to these differences in factor endowments, terroir, technology, and market demand by creating an industry that was very different from the artisan nature of European production.⁶ In particular, the new, large-scale wineries producing often in excess of 10,000 hectoliters were dependent in a way they were not in Europe on specialist grape producers, and wine producers became much more involved in marketing. In Europe, grape production and wine making were usually integrated in a single business, and producers therefore had to expand capacity in both sectors to respond to market upturns.⁷ In the New World this was not the case, and growers and wine owners faced different investment incentives, which in the case of Argentina especially led to periodical major downturns. Important differences also emerged among New World producers concerning who put the brand and controlled the value chain. In California a handful of San Francisco’s merchants created a hierarchical organization, integrating horizontally and vertically and investing heavily in advertising and brands to sell to distant consumers, controlling at one time about 80 percent of the state’s wine sales and making it one of the world’s largest wine businesses. By contrast, it was a British importer who created a buyer’s organization that distributed two-thirds of Australian exports and controlled the value chain. Finally, the Argentine industry was dominated by a dozen or so winemakers, but these had only limited success at creating brands and integrating forward into marketing. Instead they sold huge quantities of wine in a market where annual per capita consumption reached 60 liters by 1914, compared with just 2 in the United States and 5 in Australia. By 1913 Argentina was the world’s seventh largest producer, Chile the ninth, the United States the tenth, and Australia the eighteenth. This section looks at the development of the industry in California in the United States, South Australia and Victoria in Australia, and Mendoza in Argentina.

¹ Unwin (1991:218, 301).

² Pinney (1989, chap. 1).

³ Unwin (1991:247).

⁴ Williamson (1995:178–81). Figures are for unskilled urban building workers.

⁵ Maddison (1995:104, 106, 112).

⁶ Simon (1919:105).

⁷ In the Midi a separation was becoming apparent in some areas by 1900, resulting in a similar problem of a lack of cellar space. The problem was resolved by the creation of producer cooperatives (chapter 3).