A SAM-Based Analysis of the Economic Impact of Frauds in the Italian Wine Value Chain

Abstract

AbstractThe objective of this paper is twofold: firstly, it analyzes the evolution of frauds in the Italian wine value chain over the period 2007–2015, and then, using a properly disaggregated social accounting matrix (SAM) of the Italian economy, it simulates the impact of wine frauds on the national economy in terms of growth, employment, value added and income. The wine industry is the sector most exposed to frauds within the Italian agro-food system accounting for 88% of total value of seized agro-food outputs. Most irregularities (95%) are made by only three agents, specifically individual wineries, bottlers-wholesalers and retailers. We estimated industry-specific SAM multipliers to assess the share of the Italian economy depending on irregular wine production. These activities account for 11.5% of specialized permanent crop farms output and over 25% of wine industry output. This is a sign of vulnerability of the wine industry: should a food scandal/scare determine a drop in consumers’ demand, the negative effect on production activities of these sectors may be large. The SAM was also used to perform an impact analysis adopting a counterfactual approach. Results show a slightly positive increase of value added (6 million euro) along with an overall decrease in the activity level (an output loss of 406 million euro and more than six thousand full time jobs lost). This contractionary effect can be explained with fraud rents. Indeed, the extra-profits from frauds do not activate the economy circular flow as most of them leak out to exogenous accounts such as the public administration and the rest of the world.