The Economics of Champagne

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Today’s article is prompted by a story on NPR’s Morning Edition.  The focus of the story was Champagne.  There were so many inaccuracies and misstatements that I’m writing two pieces.  This is the first, covering the economics of champagne with specific references to intellectual property issues.  The second (What is Champagne?) is on CaliforniaWineFan.com, my wine and wine economics blog.

One point made in the NPR story is what can legally be called “Champagne.” Quoting from the NPR website [emphasis added].

And while we’re on the subject of French traditions, I should point out that if you listen to my story you’ll hear about the kerfuffle over the use of the term Champagne.

The French are keen to point out that the term Champagne should only be used on the bottles of sparkling wines produced in the Champagne region of France. Champagne producers have launched a campaign in the U.S. to raise awareness of this issue.

In deference to this, Frank, a few years back, took the word Champagne off his label. Instead he references the Champagne method. And he says he’s proud to promote his bottles of bubbly as sparkling wine from the Finger Lakes.

Bear with me — this is going to be a little dull.  I promise it’s worth the effort.

Background: The WTO and TRIPS

The World Trade Organization (WTO) charter includes three main Annexes.  Annex 1A is the Multilateral Agreement on Trade in Goods, 1B is the Multilateral Agreement on Trade in Services and 1C covers Trade-Related Aspects of Intellectual Property Rights (TRIPS). My concern is with TRIPS.  There are eight specific areas mentioned in the TRIPS agreement:

  1. Copyright and Related Rights
  2. Trademarks
  3. Geographical Indications
  4. Industrial Designs
  5. Patents
  6. Layout-Designs (Topographies) of Integrated Circuits
  7. Protection of Undisclosed Information
  8. Control of Anti-Competitive Practices in Contractual Licences

Geographical Indications are the issue here.  Quoting from Article 22,

1.    Geographical indications are, for the purposes of this Agreement, indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin.

Consider Parmesan Cheese.  Technically any cheese labeled “Parmesan” must be made in the Parma region of Italy.  Champagne is part of the same category.  The area around Épernay (about 148 km northeast of Paris) carries the geographic indication “Champagne.”  Under WTO rules, sparkling wine made anywhere else in the world cannot be called Champagne.

Do You Know the Way to Epernay The Economics of Champagne

Do You Know the Way to Epernay? (click for a larger image)

The U.S. has been slow to sign the treaties for geographic indications.  Champagne is actually not the issue.  But consider Parmesan cheese.  Kraft Foods makes something they call Parmesan cheese.  But it ain’t made in Parma, I promise.

Geographic Indications and Champagne

Rather than forcing you (and me) to wade through a bunch of legal documents, let me instead relate a story I heard several years ago during a tour of the Korbel Champagne Cellars in Guerneville (Sonoma County), California.  The guide explained that U.S. sparkling wine producers were now prohibited from using “Champagne” on their labels, with one exception.  Because Korbel was so old and used the méthode champenoise technique, they alone were allowed to keep Champagne on their labels.  This was formalized in a bilateral treaty between the U.S. and the European Union in 2008.  The NPR reporter completely misunderstood the legal ramifications of calling something “Champagne” when it was not made in Champagne, France.

Conclusion

NPR prides itself on not “dumbing down” their broadcasting.  Sadly, they seem to spend too much time congratulating themselves and not enough time doing actual reporting.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.

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