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Abstract
Since 1994 Argentinean government implemented the diversification policy to reduce wine supply in the
domestic market and stabilize prices through reducing the share of grapes allocated for wine production in favour of
must production. The policy has set a minimum percentage of grapes for concentrated grape must (CGM) production
for every wine maker.
The research aims to investigate the effects of the policy on the sector applying spatial equilibrium analysis, based on
the model of Interregional Trade of Wine products in Argentina. The qualitative analysis of the sector under the
current policy revealed, that the policy had a) no impact on the grape segment, b) a slight positive impact on grape
must production due to 14% increased grapes reallocated from wine sector, and c) an expected but modest 20%
decrease of wine production.
The anticipated increase of wine and grapes prices was not observed. Moreover the policy affects largely the optimal
recourse allocation process, because it encourages CGM production among others also in those regions, which have
non favourable agro-climatic conditions for CGM production.
The advantageous development of CGM segment benefiting from “infant industry argument” of the policy is
although a positive outcome, on the long run it will cause stagnation and discourage investments for advanced
technologies. The elimination of the diversification policy will ensure the competitive development of this emerging
industry.