The Bio-economyFermentation, and Wine

David ZilbermanUniversity of California Berkeley

Presented at the Pre-Conference Workshop on The Economics, Technology, and Sustainability of the Wine and Beer Economy

16th ICABR Conference

Feudi di San GregorioJune 24, 2014

introduction Last year I spoke about the lessons of the

fermentation to the evolution of the bio-economyToday I want to emphasize the impacts of the

emergence on the bio-economy on wine and other fermented productsBut I will repeat some points made last yearMy comments will have elements of science fiction – but the

bio-economy is an application of science fiction

On the relationship between Wine and Beer and the Bio-

economy  The bio-economy consists of industries that use biological processes to produce new products Fermentation base of “traditional bio-economy”

The new bio-economy relies on new discovery in molecular and cell biology- relies on Biotechnology Biofuels Green chemistry

Partially motivated by environmental concerns Reducing GHG emissions and other pollution Replacement of non renewables with renewables Desire to address lifecycle problems and and reach sustainability Driven by science regulations and desire to a economic competitiveness

(Walmart sustainability criteria)

Fermentation- key to the traditional bio-economy- ( key element

of agribusiness)It has been used to

To produce  wine  beer and cider To create leaven bread Create lactic acid to preserve and produce sausages, or

yogurt Create vinegar for pickling foods

Fermentation enables to move from perishable crops to preserved products

Fermentation key to bio-fuelsThe modern bio-economy expand the science base

of the traditional one to include modern knowledge of molecular and cell biology and take advantage of information technology and nano science

Gains from fermentationWith fermentation humans have overcame

seasonality constraints-The range of locations where they can survive

increasedEfficiency of food use enhancedThere is an element of disease control

Fermentation expanded the range of output of farming

With fermentation agriculture become more than source of nourishment Wine and beer provide heath and fun Quality and value depend on taste- not nutrition Fermentation provide fine chemicals and fuels

No gain without painConsumption of alcohol is risky180.000 dead on drunk driving Many other wrecked livesBut it has immense benefits

Taste/fun Alcohol is the best pain reliever Great disinfected Nourishment

Multiple efforts to ban alcoholProhibition tried to eliminate this risky activityIslam banned itThroughout hisSmelled of “the precautionary principle” Prohibition Failed ( smuggling, Mafia)

Now alcohol use is regulated Negative Externalities are penalized Sin-taxes source of revenue and acceptance

fermented products are differentiated products

Thousands of wines & beers, hundreds kimchi)Division between normal vs luxury goods

generic low end mass products ( Bud) fine products- with high quality premium• Hedonic price analysis suggests that price is

convex function of quality Need research on earning distribution (Ginni)

small percentage of top wines has high percentage of revenue

Heterogeneity of product affects industrial structure

Differentiation will affect the bio economy

With less costly regulation we expect generic biofuel vs. specialized fuels and lubricants Biotech flowers not only corn Novelty products ( based on university patents) capture

private research-Moralistic censorship of biotech products will hurt

industry- NGOs do not know best and can not pick winners

Preventing generating products for the rich will hurt the poor

Light regulatory touch is a must

Importance of Supply chain in wine and other fermented products

Supply chains control quantity and quality Different parts of supply chain have different structure

Production diverse Distributions concentrated

Large emphasis on use of contracting - not only market transactions- within the chain

Processor may provide guidance and inputs to farmers

The Bio-economy will transform fermentation from

craft to scienceThe bio-economy increase the scale of fermentation activities biofuel requires large volume low cost fermentation

Proposal to switch from of batch to continuous production New types of enzymes are being discovered Alternative and complements to fermentation ( through

bioengineering) are being introduced New products (fuels, chemicals, feeds, foods) New processes Capacity to introduce new traits to old products New feedstocks

Life cycleEmphasis on life cycle and pollution control will

enhance fermentation and modify it

concern about residue and waste will provide more feedstock for various fermentation activities ( Biofuel, compost, various chemical)

Waste management system of fermentation system (cheese, wine, beer) will be redesign

Redesign will respond to carrots ( PES) and sticks

biotechnology has the potential to demystify wine

and its productionGenomic model gradually will reveal the secrets of wine attributes and how to manipulate them

New traits may be discoveredPlants disease that constrain the spread of

Wine across location are likely to be controlledSupply of wine may increaseMay challenge the status quo depending on

relative growth of demand and supply

Future of Biotechnology in wine

it may pose a threat to value of attributes and control of supplies

Cause of resistance by incumbents to application of biotech

introduced only to avert disaster

Some regions will apply biotechnology to enter wine sector

Cause of differentiation and dispute

• Major theme in wine economics– keeping the premium of the incumbents ( terrior)

• It will affect the adoption and future of biotechnology in wine• Biotechnology will affect the distribution of power within the

industry

Bio-economy will enhance control of diseases affect feedstock for

fermentation

Conclusions-1Fermentation- first step of a likely progressionThe bio-economy will derive the future of

agriculture Enable a transition to a renewable ( sustainable)

economyKey requirements

continuous increase in productivity Enlightened regulations

Bio-economy will require taking worthy risks Will encounter resistance

Conclusion II Bio- economy will enhance fermentationIt may provide disruptive innovations that

may change the wine industry and encounter resistance

Eventually biotechnology and similar method will enter to the wine industry Will expand wine producing regions May affect distribution of value within the industry