The economics of wine tastings

A few weekends ago we took the motorcycle up to Sonoma and had a very nice time tasting wine and enjoying the sunshine. The only less-than-stellar part of the day was a visit to Ravenswood Winery, which got us thinking about the economics of wine tastings.

We usually stop at wineries with $5 or $10 tasting fees (part of the reason we prefer Sonoma to Napa, where tastings can run $25 or more), and most of the time the fee is waived if you buy a bottle. We've always felt this is a fair and mutually beneficial arrangement. If you don't like the wine enough to buy a bottle, you still pay for the wine you drank. If you do buy a bottle, which we often do, the winery makes money from the sale and potentially earns a repeat customer (and many people join the wine clubs of their favorite wineries).

We were surprised when we arrived at Ravenswood to learn that the cost of a tasting is $15 and that the tasting fee is only waived if you buy three bottles. We ended up getting a pour or two for free and headed out. We weren't impressed at all with the wines we tasted and were glad we hadn't paid the fee. We scribbled some back-of-the-napkin calculations later and realized we were doubly glad we hadn't gotten ripped off. Here's our math:

• Most of the wines being poured retail for at most $35 per bottle (and retail price obviously already includes a significant markup)
• Most wine tastings include 5 pours of 1oz each for a total of 5oz
• A bottle of wine contains 25oz
• Conclusion: The wine tasting cost $3 per ounce; the retail cost of a bottle is $1.40 per ounce. That's a more than 50% markup, and the fee isn't even waived if you buy a bottle

That's not to say that every $15 tasting isn't worth the money. The tipping point for a $15 tasting using the math above is $75 — that's to say you're more than getting your money's worth for wines that cost more than $75 and you're overpaying for wines that cost less. Given the price of the bottles being poured at Ravenswood, a $7 tasting fee would have been fair.

Wine tasting fee	Equivalent bottle price with 1oz pours	Equivalent bottle price with 1.5oz pours*
$5	$25	$16
$10	$50	$33
$15	$75	$50
$20	$100	$66
$25	$125	$83

* Some wineries are more generous with their pours, which would change the calculation

Caveat #1: I am ignoring other costs that wineries incur from offering tastings, including paying staff to work the tastings. But there's also a clear marketing and long-term sales value to the tastings not counted in the straight-up fee.

Caveat #2: Some places, like Scribe Winery, sit down and talk to you about their wines for a significant amount of time. That would be a completely different situation. This was not the case at Ravenwood.

- Steph

Photo by Dave Dugdale

Cost of living in Buenos Aires

We used to comment a lot on the high cost of living here, and the sometimes strange discrepancies between what's expensive and what's not. Now that we've been here longer, I no longer wince at paying $3+ for a cup of coffee in a cafe, though I still refuse to pay full-price for a movie ticket (there are almost always half-price deals available).

The staff at a local hotel put together a list of "How Much do Things Cost?" for visitors. I'm including it here (translated into dollars) to demonstrate two things:

1. The cost of living
2. The huge gap between the official exchange rate and the black market rate (more on that below)

Item	Official exchange rate (4.5 pesos : dollar)	Black market rate (6 pesos : dollar)
Subway	$0.55	$0.41
Bus	$0.24 - $0.39 depending on distance	$0.18 - $0.29
Taxi	During the day the initial meter is $1.62 and then 16cents/200 meters, at night the initial meter is $1.93 and then 19c/200m.	$1.22 then .12cents/200m / $1.45 then 15c/200m
Cafe con leche	$3 - $4 depending on the café	$2.33 - $3
Medialunas (pastry similar to croissants)	$0.77 - $1.11, depending on the café, $7.11 the dozen in a bakery	$0.58 - $0.83 in cafes, $5.33 the dozen
500ml bottle water	$3.33 in a restaurant, $1.33 in a kiosk and $1 in a supermarket	$2.5 / $1 / $0.75
600ml soft drink	$3.33 in a restaurant, $1.77 in a kiosk and $1.44 in a supermarket	$2.5 / $1.33 / $1.08
Local beer 970cc (not imported)	$1.53 in a supermarket, $6 in a bar	$1.15 / $4.5
Pizza	Average $10-$13 for a big pizza, depending on the toppings and the place.	$7.5 - $10
Ice cream	$4.44 for a cone	$3.33
Lunch menu including main course, beverage and dessert or coffee	$11	$8.33
Dining out	Starting at approximately $22 and up per person	$16+
Museums	$0 - $2 if the government runs them. The privately owned MALBA charges a $5.55 ticket for adults.	$0-$2 / $4.16
Cinema	General ticket: $8.88; 3D: $10.22	$6.66 / $7.66
Theater	Starting at $30 and up	$23+
Nightclubs	$9 - $15	$7 - $12

(FYI, I've adapted a list that was aimed at tourists, so it hides the high cost of everyday items like cereal or milk.)

So why include the black market rate? Because it's closer to what goods should actually cost. The Argentine government tightly controls the official exchange rate, using its dollar reserves to intervene almost daily in the local foreign-exchange market. Over the last six to nine months, it has only allowed the peso to devaluate slowly, opening up a wide gap between the official exchange rate and the black market one. The Wall Street Journal explains it better than I can:

Concerns over the economic direction taken by Argentina's government has sent the gap between a tightly controlled official exchange rate and a parallel rate—largely set by businesses conducting complex transactions in stock and bond markets to secure dollars—to multiyear highs. ... 

The blue-chip swap involves the purchase of Argentine sovereign bonds or the local shares of companies with listings in the U.S., and the subsequent sale of those securities abroad for dollars. The blue-chip swap rate is the exchange rate that is implicit in these transactions. 

The lower value of the parallel rate reflects expectations that Argentina eventually could have to devalue its currency at a swifter pace to trim capital flight and appease exporters.

Now most Argentines, us included, can't access the black market rate, so the cost of goods is closer to the middle column. Recently we've found a money transfer service that provides us with pesos at better than the official rate (but not quite as good as the black market one). With inflation at about 25%, getting pesos at a better rate has helped cut into the ever-rising cost of living. But it's still an expensive place to live, and getting more expensive.

- Steph

Understanding the scams and tax shelters in the expat real estate market

We had a dispute with our landlord recently, related to the dollar exchange restrictions imposed in November. The restrictions are aimed, among other things, at fighting a tax haven that has now become apparent to us.

To rent property here as a local, you need a guarantia, like a co-signer on the lease. Leases under those terms can be for two years, and the landlord - who otherwise has to deal with tenant-friendly eviction rules (which prevent homelessness at the expense of property owners) - has some protection.

Tourists and expats visiting here don't have a local guarantia or the wherewithal to navigate the local realtor system, so they go to a special market aimed at foreigners, with prominent websites to attract clients before they arrive, and local offices/agents who work as brokers with the landlords. That's the demand side of the market.

The supply side is fueled by the promise of easy cash dollars: a landlord could charge rent at a dollar rate, avoiding the peso's high inflation. Short-term visitors (who probably pay higher rates than locals to begin with) often pay in cash dollars that they've brought on the plane (as we did when we first arrived). The owner can then hold this cash in a safe, as a rainy-day fund for another peso crash (the currency being historically unstable) or simply wait for the exchange rate to rise. Most importantly, with the tenants living mostly off the Argentine grid, it's extremely easy to hide this income from taxes.

The new dollar restrictions are trying to fight this phenomenon. They're partly backfiring - dollars are still escaping the country, depleting the strategic reserves - but most people seem to credit the good intentions. The effect is, it's impossible for foreigners to buy dollars at the banks. They're available at the shady casas de cambio, but at rates much higher than the official rate. (Even the legal casas de cambio are able to raise the rates, because the alternative for locals evading taxes is the even higher black market.)

The dispute we had - resolved for the time being - is caused by the fact that our landlord, for his own reasons, literally hoards cash dollars, so he's having to buy them on the black market, and is losing money from the restrictions, a loss which he's trying to pass onto us. We're not having it, though - and our primary leverage is simply the fact that what he's doing is illegal, and we know it, and neither he (nor the realtor, who isn't directly involved in the scheme but knows full well how it works) doesn't want the government to know it.

Some of our expat friends here are having the same problem. I'm guessing our realtor is having this problem with many of their landlords, as are their competitors in the market. They're all probably wondering if their business model - offsetting the risk of short-term leases with the advantage of cash dollars - will still make sense at the new rules sink in.

- Ben

Little stores that sell everything

There's a mental process of figuring out which stores are likely to sell a given product, but the methods that worked in the U.S. don't work here. For example, in Boston a corner store was likely to sell basic "bread & butter" products, but if you wanted something interesting - multiple varieties of salsa, farmers cheese, macaroni & cheese with pesto sauce - a big supermarket was a much better bet. Similarly, to buy some nails a local hardware store was fine, but if you wanted options, you'd be better off going to Home Depot.

Here it often seems to be the other way around. We went to a massive Jumbo supermarket today, and they had an entire aisle of oils - thousands of bottles of vegetable oil, olive oil, more olive oil - but no sesame oil. The only place I've seen sesame oil here was a tiny store down the block. (Tangent: mix sesame oil with soy sauce in a sauté pan and it's amazing.)

The reason we went to Jumbo was to buy some supplies for our upcoming trip: a tarp (to put over or under the tent in case of rain), bungee cords, rope. We went to three camping/fishing stores and none had any of these items. Neither did Jumbo.

We finally did find them at a nearby ferreteria - hardware store - that is truly a marvel of effective inventory management. The total walkable area of this store is maybe 2 square meters. There are no aisles. But behind the counter and all around the standing area are shelves packed floor-to-ceiling with every hardware item you can imagine. They had six sizes of bungee cords. I asked for rope and was given a wood pallet with rope samples in a dozen sizes. They had a painter's tarp which (with some duct tape around the edges) should do just fine to keep off rain. From a previous visit I know they have hundreds of sizes of screws and nails. So many choices!

When we were ready to check out, the proprietor summed up the amounts with a pencil and paper (the store does not have a cash register). And it was pretty cheap - 60 pesos for a whole bunch of stuff, compared to a simple extension cord I got at a megastore a while back for 50 pesos, that didn't even work.

Fruits and vegetables are a similar story — the supermarkets have a decent selection, but we can get everything we need (even limes!), plus fresh meat, at the verduleria on the corner two doors down from our building.

Eating in Argentina

Reviewing our expenses led us to a couple of discoveries about the cost of eating in Argentina:

Milk: A gallon of milk costs about $5.85 (all prices in this post are in U.S dollars). Compare that to the U.S., and consider that GDP per capita is about $14,700. It reminded me of a line from West Wing: "I voted against the bill because I didn't want to make it harder for people to buy milk." Does the $5.85 price tag mean Argentines limit their milk consumption, or do they just accept that that's the price for such a basic food?

Inflation: Argentina has one of the world's highest inflation rates, at about 25 to 30 percent per year, which comes out to about 2.4 percent a month. When put that way, it doesn't sound too bad. But in real terms, that means that our grocery bill of $440 in September, will be $560 by next August.

Grocery budget: Food here is expensive. Last month we spent $515 per person on food (both groceries and going out, including alcohol). It's interesting to break that number down a little:

* We spent on average $115 per person each week
* That comes out to $5.70 per meal
* We eat out semi-frequently (roughly 2 dinners and 2 lunches weekly)
* Our most expensive meal out was $40 total, or $20 per person

Cost/value: A lot of products tend to be either a) much cheaper than at home or b) much more expensive. Meat is cheap; chicken is expensive. Vegetables are cheap; milk is expensive. A gallon of milk costs roughly the same as two medium-quality cuts of steak. Eating cheaply means eating a lot of the same things over and over. Diversity (and diversified nutrients) gets expensive.

Quality: A chunk of brie costs the same thing here as it does at home. But while brie at home is imported from France and delicious, brie here is made in Argentina and only sort of resembles what brie is supposed to taste like. 

Sizing: Oddly, smaller packages tend to be cheaper per kilo than larger packages. Two 250g packs of butter will cost you less a lot of the time than one 500g pack. It's the complete opposite of bulk shopping in the U.S. One explanation I've heard is that if you can afford to buy in bulk, you can pay higher prices.

- Steph

Thoughts on efficiency

I was talking with a local acquaintance who owns a tech business recently, and he was telling me about some of the challenges in running a business in Argentina. The laws here heavily favor the worker over the employer, and workers can claim verbal agreements to work longer-term than written contracts actually specify, so if a business hires someone, they're hired for the very long haul, or the employer risks costly lawsuits. That makes businesses hesitant to scale up to exploit new opportunities, because if they fail, they won't easily be able to scale down.

A few days ago after dinner, we went out to get ice cream, and noticed that in the several ice cream shops we passed, none of them busy, there were at least 3 employees when 1 or 2 would have sufficed.

Yesterday we spent an entire afternoon picking up a package at the post office.

So all this has gotten me thinking about efficiency. The American economic model and free-market economic theory treat efficiency as a holy grail. But clearly there are tradeoffs involved. "Scaling down" a business in a free market means laying people off. In a significant downturn, that means sudden and massive unemployment. A social safety net can cushion some of the impact, but there's still a social cost to that flexibility. Wouldn't a lot of those businesses still survive, one could argue, if they kept those temporarily-less-productive workers on the payroll? And might that inefficiency on the micro scale yield better macro outcomes - everyone still has income, so demand doesn't drop and cause a negative feedback loop; and the public safety net doesn't get too strained, so it can be more strategic in stimulating the economy back to health?

Arguing for efficiency, on the other hand, is the fact that spending an entire afternoon at the post office (and all the other similar entities), multiplied by all the international mail a globally-connected economy requires, must be an economic deadweight loss of colossal scale. The front doors of the post office are open M-F, 9am-4pm, so if I had a "regular" job, I would have had to take off a whole day of work. Contrast that with the U.S., where the Postal Service (nearly bankrupt, but that problem is solvable at the margins) has a decentralized network of thousands of stations, with mail trucks delivering and picking up packages door to door. I'm sure people get frustrated with the USPS all the time, but in my experience system failures were the exception rather than the norm; here spending an entire afternoon to get your foreign mail is the expected mode of behavior. And further, I would imagine as mail systems go, Argentina's - with internal barcode tracking and numbered queues - is still one of the more sophisticated ones in the world.

Everyone loves to rail at the DMV/RMV in the states. "It's like the DMV" is a way of saying "it's slow and surrounded by red tape." But the truth is, at least in Boston, the RMV was a pretty well-oiled, "necessary-evil" kind of machine. Any large and complex public-facing system is going to have annoying rules, waiting periods, and oft-frustrated customers, but efficiency is still important, and red tape varies by degrees.

There are at least a dozen ice cream shops within a few minutes of our apartment, all probably overstaffed for much of any given day. Yet their existence implies that they're profitable enough for their owners to make a living. There are economic policies here - protectionism, currency control, the aforementioned labor laws, etc - that would be called "socialist" or worst if proposed in the U.S. - yet the market here is still basically "free". The government does not dictate how many ice cream shops should be on a given block, or what flavors they should serve; the "invisible hand" of supply and demand rules like anywhere else. Maybe the deadweight loss is passed to the consumer through higher prices; but that, too, has to obey the laws of supply and demand. Inefficiency might slow people down and waste people's time, but it's not clear, walking down the street, that the overall socioeconomic structure is entirely worse off for it.

- Ben

The whims of the Argentine government

I read the papers here most days because it's my job to report on Argentina. But even if it weren't, I probably still would. In the U.S., the federal government usually seems far removed and sluggish. Here it's imperative to follow what the Argentine government is up to.

There are only a few instances I can think of where I directly noticed policy changes from the U.S. federal government. I noticed when Obama changed the withholding rate on taxes early in his term, I noticed when the federal and Massachusetts health care reforms meant I could stay on my parents' health care plan until I was 26. I'm not saying that I'm not affected when the federal government stimulates the economy, or when it invests in public transit. Simply that there are a lot of layers between me and any individual government policy.

In Argentina, almost every day there's something we try to do that is made harder or easier by government policy changes. For example, the Argentine government intervenes in the currency markets all the time to keep the dollar-peso exchange rate steady. If it stopped, we would suddenly be paying a lot less (or a lot more) for the things we buy everyday. Normally I wouldn't think of buying a blender as something that has anything to do with the government. But they've been blocking imports (at least that's what an Argentine told us, I haven't confirmed it), which means blenders are more expensive and harder to get. Same with Harley Davidsons and books (and Porsches, but that one doesn't impact us very much). There's at least a 50 percent tariff on most imported goods, and sometimes 100 percent, which means I could probably sell my used Mac here for more than I paid for it new. The government also lets inflation continue at nearly 30 percent, which means prices keep going up, but it heavily subsidizes energy, so we pay only $0.30 to get anywhere in the city via public transit. And so on.

Why is it that government policy seems to matter day-to-day so much more here? My guess is twofold. One, it's a populist government (as to whether that's wonderful or despicable, it depends which Argentine you ask) and this was an election year. Two, power is incredibly centralized here and the checks on executive power incredibly weak. In her first term, Cristina Fernandez de Kirchner nationalized the country's private pensions by decree. Imagine if when George Bush wanted to privatize Social Security, he simply waved his magic wand and did it. On the flip side, it was much easier for the Argentine government to start spending during the 2008 recession because no one had to sit around while Congress squabbled (and Argentina survived that recession better than a lot of developed economies).

Argentine policy is volatile, difficult to predict and decided by a small number of people. Not everyone thinks that's bad.

- Steph

Jumbo-sized Buenos Aires

It would be easy to think that Buenos Aires is a city of small shops, but jumbo-sized shopping exists here too, as we discovered when we went to Abasto this weekend. The mall there is easily the largest I've ever been in. It's even big enough to fit a Ferris wheel! Check out the photos.

Yup, that's a pirate ship amusement park ride in the background.

Next door there's a Wal-mart like superstore (or hipermercado). 

- Steph

Good food comes in small packages

Just as our home cooking was starting to get boring, we spiced up the menu with two cookbooks. One is titled Argentine Cookery, in English, and includes a history of Argentine cuisine - in a nutshell, a fusion of four indigenous regions with Spanish, Italian, and British imports - along with basic Argentine dishes like empanadas, locro (stew), and asado (barbecue). The second book is titled 200 Recetas Económicas, translated to Spanish in Barcelona from the original London edition, and includes recipes from around the world.

Both books are filled with great recipes and a few quirks. Most of the Argentine recipes, for example, call for "fat" as one of the ingredients. Genuine animal lard, not the late-20th century fakes (margarine or Crisco) that we're used to from the states. I wasn't sure where one acquires this ingredient, but sure enough, right next to the butter and margarine at the supermarket are big blocks of lard. (I haven't decided if I'll use them or be a wimp and substitute margarine; I'm also not sure how one actually cooks with lard, seeing as it comes in a solid block. Presumably one cuts off a piece and heats it.)

The challenge with the translated Spanish cookbook is that some of the ingredients aren't sold here. Or so I thought, until I went to the supermarket tonight, and discovered hidden products I missed on the dozen previous trips. We had trouble finding pesto last week; this time I found four varieties (classic, creamy, olive, and tomato). My plan for dinner tonight (from 200 Recetas) was a curry stir-fry with chicken and vegetables, and I was about to give up on finding coconut milk when I discovered it hiding in the dessert aisle. Another entire aisle was filled with pasta and tomato products. (But still no maple syrup.)

It's worth noting that this was at 9:30pm, and the supermarket was packed, the line at every register backed up ten people - everyone buying ingredients for dinner at 10pm or later. This was the local Carrefour (one of several supermarket chains), which is about the size of a large Walgreens in Boston, much smaller than a Stop 'N Shop. The key to so much variety in such a small space is small packages: milk in liters or smaller, condiments in 250cc bags, meat in packages suitable for one meal. Only the eggs come in extra grande.

Earlier today, we experienced a different kind of shopping, at a Coto hipermercado. It was like Walmart, with two floors: food on the bottom, everything from car parts to mate gourds on the top. Between the produce and meat were racks of self-serve spices and cereal, where we filled up little bags with paprika, curry, cumin, and granola, to be weighed with the produce and stamped with price stickers for checkout. Even here, most products came in small packages.

A friend in Colombia told me that in Bogota, there are two economies, for rich and poor, and visitors can save money by figuring out the cheap local outlets rather than the expensive Western supermarkets. In BsAs, however, that doesn't seem to be the case - they seem to have figured out the mass-budget-retail experience while still keeping a little verduleria on every block. (I'm probably glossing over whatever subsidies or imbalances actually exist in the market, but this is how it looks to a newcomer.)

Between the two cookbooks, there should be enough variety to keep the kitchen well-stocked, the menus interesting, and my tummy happy for the rest of the year.

Dinner tonight

- Ben

An unfriendly market for foreign brands

Nearly all of the products here are labeled Made in Argentina. It's certainly a change from the ubiquitous Made in China and Made in Mexico labels at home. But the flip side of of Argentina's emphasis on homegrown products (or protectionism as it were) is that it's often difficult and expensive to get foreign brands. Here's a look at some of the more amusing results of the trade restrictions, courtesy of the Economist:

Brightstar, a multinational manufacturer, will begin importing kits of the phones’ parts to its factory in Tierra del Fuego, the normal base for cruise ships going to Antarctica. Some 300 workers will brave the frigid austral fog to assemble the pieces and put them in locally sourced packaging. 

Making BlackBerrys south of the Magellan strait will cost $23m upfront, plus $4,500-5,000 a month per worker, some 15 times more than in Asia. But the government touts the project as a triumph of its trade policy. ... 

On September 15th Argentina blocked imports of books, and over 1m piled up at the borders. Imports of Harley-Davidson motorcycles are frozen until 2012.  

For firms that refuse to (or cannot) move production to Argentina, the government offers another option: deals to export goods worth at least as much as a company’s imports. In January customs officials stopped letting Nordenwagen import Porsches. Its cars languished in port for three months before the firm succumbed to a deal. Since its owners also possess Pulenta Estate, a vineyard, they agreed to launch a new line of mass-market wines for export, erasing the family’s trade deficit.

- Steph

Made in Argentina

Despite its history of immigration and a highly heterogeneous society, Argentina is a fairly protectionist country. It's a member of the regional customs union MERCOSUR, and goods imported from outside the union face a common external tariff. The country had a trade surplus last year equivalent to 5% of exports (source), and its GDP is growing around 7-8%. This is against a backdrop of rising commodity prices (a boon for exports), a monetary and economic collapse only ten years ago, and high inflation (which reduces actual income growth).

The ramifications of this are interesting to observe. Most importantly, nearly every single product in retail stores is labeled Industria Argentina. (In contrast to the prevailing trend in the states, they actually make shit in this country.) Cars are mostly small, like in Europe, and motorcycles are everywhere - I presume this is because of tariffs on imported cars. Compared to TJ Maxx, clothing here is either very expensive, or of very cheap quality.

Food, however, is not expensive compared to what we're used to. Steph calculated that produce in the supermarkets costs between US$.50-$2.00 per pound, cheaper than the range in Boston. But the selection is not what you'd find at Stop 'N Shop. It's hard to find limes, and out-of-season produce like watermelon is nowhere. The "international" aisle at Shaws had ten varieties each of salsa and tortilla chips; here the cuisine is more influenced by Spain and Italy, and Mexican ingredients are harder to come by. The stores are smaller, and food comes in smaller packages; the largest milk container in the supermarket is a 1-liter (1.05 quart) carton.

On the other hand, the supermarkets all carry huge selections of Argentine wines, beers, and imported liquors. Alcohol consumption in Argentina is generally low, by cultural convention, so there's none of the American puritanism imposed on the aisles.

So far, we haven't lacked for anything we need in terms of food. Maybe if we tried to find special Middle Eastern spices, we'd have to venture farther afield than the local supermarket. But the restaurants here are superb and cover a very broad international spectrum, which makes me think everything is sold somewhere if you know where to look.

- Ben