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Bacchus has a brand new bag: Globalization is changing the face of capitalism, and the market for fine wines is no exception.

FOREIGN POLICY: It’s no secret that some of the New World wines have cut into sales for more traditional wines. With the harvest looking dire this year, what will be the long-term impact on the markets in France, Italy, and some of these other “Old World” wine-growing countries?

Michael Veseth: Well, it seems things are pretty grim, and there will be a shakeout before things get better. In Italy, for example, they have huge existing surpluses of wine from previous vintages that they haven’t been able to sell, so they have suffered from the boom and bust of wine as an agricultural product. In fact, lower harvests for them may help them sell off some of the old wine. But they have to work through the gluts. At the same time, the European Union (EU) has just announced a new wine regime [to destroy excess grape vines, for example]. Some growers—the ones who can take advantage of the changes, adhere to the new labeling requirements, and are willing to update those old, bad marginal vineyards—will in the long run compete very well. But in the short term, some of these people will have serious income losses.

FP: So in that way, it is very much a microcosm of globalization writ large?

MV: That’s right. I like to think of wine as having three characteristics. We think of it as wine in a glass: We smell it and taste it and so forth. But wine is simultaneously an agricultural product, and so it booms and busts, with good harvests and bad. In Australia, they are having a drought problem now, and there are ecological limits to production. It is also a political product because it is subject to protection and regulation. And then finally, it is a business product. Most industries organize themselves around the biggest bottlenecks. The bottleneck in wine isn’t making it; it is in distributing it and then knowing how to market it. It seems to me that in Europe, they are kind of on the bad end of all three of these at the moment because they are going from a more protected to a more liberal regime, and this will cause stressful change. They are also going to have a power shift from the growers to the marketers and distributors. And then of course they are going through global market overproduction. So in France and in Italy, they don’t just have a problem when they produce too much wine; when the Argentines, Chileans, and Australians produce too much wine, it’s a problem for France, too.

FP: How do you think that France and Italy should best preserve their wine-growing heritage, while at the same time remaining competitive in the global market?

MV: I used to live in Bologna, and one of the great wines you would have in a restaurant in Bologna is called a Pignoletto. It’s a white wine; sometimes it’s a little sparkling; it has a little bitterness to it; it really goes well with the food. It’s really hard to find in the United States, and it’s even hard to find in other parts of Italy. But it strikes such a note with that local market that not only is it preserved, it would be pretty much impossible to get rid of it. The way to preserve these distinctive, local wines is to find a market for them, rather than try to regulate them or prevent competition. Some of the wines faced with global competition are wines that people aren’t going to want to drink. But I hear so much about how globalization is causing the local traditions and the local wine to disappear—and then I go to a wine shop. And in fact, you find dozens and dozens of [international] wines. Globalization has created an international market for some of these esoteric sorts of wines. So it works both ways: Competition from abroad can in fact undermine the local market for these distinctive products, but it can also create a global market for it.

FP: So which countries do you think are most redefining the market for new wines and will shape it in coming years? China? India? Or some unexpected countries?

MV: Everyone I talk to wonders what is going to happen with China, because China is so far an unsophisticated market. I think it is the sixth-largest wine producer in the world, but most of it is cheap, bulk wine that they blend with cheaper imported bulk wines. And then they import high-end wines more as status items. But it seems to me that as fast as China is changing, that the high-end market and the bulk market will probably both become more sophisticated. And it will be interesting to see to what extent that affects both their imports and their domestic production, and whether they end up following the U.S. model, the British model, or the German model.