Development Strategies for a Premium Wine Region of Australia: an application of value chain modelling

The wine industry in Western Australia, like its counterparts in some other wine-making regions across the globe, faces some interesting investment choices regarding the relative merits of expenditure on promotion or production and whether export or domestic markets should be the focus for sales growth. This paper uses value-chain modelling to examine the economic consequences of investment scenarios involving promotion and the enhancement of the productivity of premium wine grape production. A value-chain model is constructed that considers grape growers, wineries, wholesalers, retailers and exporters. The model is applied to estimate the economic ramifications of three different investment scenarios. The main findings are that promotion activity in overseas markets that stimulates premium wine grape production in Western Australia, generates the greatest economic gains for the Western Australian wine industry. By contrast, if investment solely occurs in production research that boosts the productivity of premium wine grape production, then it generates the smallest economic gains relative to other investment options that include promotion.