Introduction to the Issue: Wine Cooperatives
(FULL TEXT PDF)
This issue of the Journal of Wine Economics is devoted to wine cooperatives and centers around a symposium entitled “Organization and Performance of Cooperative Firms in the Wine Sector” and guest-edited by Günter Schamel. The symposium draws from an AAWE workshop organized by Günter Schamel and held at the Free University of Bozen-Bolzano in June 2017. We augmented this sym- posium with an additional research paper and various field reports from managers of successful wine cooperatives in Austria, Germany, and Italy.
The cooperative movement began in the early 19th century, primarily in the United Kingdom and in France, in order to bundle the purchasing power or produc- tive ability of many small members. In general, “A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically con- trolled enterprise” (International Co-Operative Alliance, 2018).
Although producer cooperatives were not limited to agricultural production, they have played a preeminent role in agricultural production. For instance, in the United States, dairy co-ops handle more than 80% of the national milk supply (USDA, 2017). Cooperatives play a dominant role on the European market as well (see Figure 1). However, and in contrast to the United States, where wine co-ops are vir- tually absent from the market (USDA, 2017), European wine cooperatives look back to a long history1 and currently produce approximately 42% of all European wine.
Figure 2 shows the level and the wide range of national wine cooperative shares among European Union wine-producing countries. With 70%, Spain exhibits the highest wine cooperative share in Europe. However, the other two large wine produc- ers, France and Italy, do not follow far behind. Outside of Europe, cooperative win- eries play a significant, but somewhat smaller role in South Africa and in Argentina (Karlson and Karlson, 2015).
Despite their large market share, one of the main issues for cooperative wineries is their, on average, low profitability. Many cooperatives bottle only a small part of their production and sell a significant part in bulk at low prices. This is particularly true in Spain. In a study for the European Commission, Bijman et al. (2012) report that “most of the top-5 wine cooperatives in France, Italy, and Germany view marketing branded wine as their major goal” (Bijman et al., 2012, p. 48). However, only one out of the top five Spanish cooperatives sells branded wine.
This special issue of the Journal of Wine Economics opens with some insights from the business side entitled “Successful Wine Cooperatives: Field Reports from Cooperative Managers in Austria, Italy, and Germany” (Aiassa et al., 2018). The managing directors of the following cooperative wineries shed some light on the history, organization, and incentive structure of their cooperatives.2
Domäne Wachau, Wachau, Austria (Roman Horvath and Heinz Frischengruber) Kellerei-Cantina Tramin, Alto Adige, Italy (Wolfgang Klotz)
Terre dei Santi, Piedmont, Italy (Paolo Aiassa)
Produttori del Barbaresco, Piedmont, Italy (Aldo Vacca)
Durbacher Winzergenossenschaft, Baden, Germany (Stephan Danner) Winzergenossenschaft Mayschoß-Altenahr, Ahr, Germany (Matthias Baltes)
Despite many differences among these six wineries, there are also various common characteristics that might have been crucial for their success. First, being able to sell bottled wine under the cooperative’s brand name appears to be an important deter- minant (or indicator) of success; none of the six “Field Report wineries” sell bulk wine. Second, in order to avoid any moral hazard, where member growers only deliver inferior quality to the cooperative and sell their high-quality fruit on the market, members are required to deliver their entire production to the cooperative. Third, the cooperative influences the production process already in the vineyard by setting rules, conducting regular check-ups, and/or offer training sessions. Fourth, all successful cooperatives pay above-average prices to their growers.
This issue continues with Günter Schamel’s “Guest Editor’s Introduction to the Symposium: Organization and Performance of Cooperative Firms in the Wine Sector (Schamel, 2018). The first paper of this symposium, entitled “Organizational Form and Payoff Imbalances in an Aggrievement Model: Cooperatives versus Privately Owned Wineries” is by Francisco J. Santos-Arteaga and Günter Schamel (Santos-Arteaga and Schamel, 2018). The authors develop a theoretical model and show how integrated cooperatives and non-integrated private firms may coexist in a coordinated equilibrium. Their model also suggests that an integrated cooperative is able to obtain a higher social surplus than a non-integrated private winery.
In the second paper of the cooperative symposium, Patrizia Fanasch and Bernd Frick analyze “What Makes Cooperatives Successful? Identifying the Determinants of Their Organizational Performance” (Fanasch and Frick, 2018). Drawing on whether a cooperative is listed in at least one of two leading wine guides (Gault Millau and Falstaff) as a measure of quality, the authors show that, due to certain management characteristics, older and larger cooperatives have a significantly higher likelihood of being listed.
Julien Cadot and Adeline Alonso Ugaglia examine “The Key Role of Banks in the Lifecycle of Bordeaux Wine Cooperatives” (Cadot and Alonso Ugaglia, 2018) and highlight the potential trade-off between member incomes and the life expectancy of a cooperative. The authors show that bank lending regimes are dependent on a coop- erative’s downstream strategy (i.e., sell in bulk, joining a federation of cooperatives, or vertical integration) and, therefore, influence its survival.
We augment the symposium with a paper entitled “Cooperatives versus Corporations: Survival in the French Wine Industry” by Justine Valette, Paul Amadieu, and Patrick Sentis (Valette, Amadieu, and Sentis, 2018). The authors find that French wine cooperatives survive longer than corporations, even when con- trolling for mergers and acquisitions. The higher survival rate of wine cooperatives seems to be due to cooperatives’ higher ability to pass adverse business environments on to their members.
1 The first wine cooperative, Winzerverein Mayschoß, which is still in existence was established in 1868 in the Ahr region of Germany.
2 These reports could not have been compiled without the help of numerous people who helped with pro- curing, translating, and/or editing them. I am particularly indebted to Alessandro Corsi (University of Torino, Italy), Patrizia Fanasch (University of Paderborn, Germany), Simonetta Mazzarino (University of Torino, Italy), and Günter Schamel (Free University of Bozen-Bolzano, Italy).
New York University
Successful Wine Cooperatives: Field Reports from Cooperative Managers in Austria, Italy, and Germany
Paolo Aiassa, Matthias Baltes, Stephan Danner, Heinz Frischengruber, Roman Horvath, Wolfgang Klotz & Aldo Vacca
(FULL TEXT PDF)
Austria has a quite small cooperative sector, only about 10 to 15% of all Austrian wine is produced by wine cooperatives. The first wine cooperative was established in 1882 (Eisenstadt-Ruster-Weinproduzentenverein). An intense wave of cooperative establishment took place in Austria and Germany at the beginning of the 20th century, lasting through the 1960s, that was due to the unfortunate general socio-eco- nomic situation of vintners…READ MORE
Guest Editor’s Introduction to the Symposium: Organization and Performance of Cooperative Firms in the Wine Sector
(FULL TEXT PDF)
This issue of the Journal of Wine Economics is devoted to cooperative wine produc- ers. Cooperatives play a very important role in many countries even though they are not as visible in the wine market. In Italy, about 50% of all wine is produced by coop- eratives (Mazzarino and Corsi, 2015). About 30% of German vineyards are farmed by members of wine cooperatives (DRV, 2016). In France, almost two-thirds of all grape growers belong to a wine cooperative and in the Americas, Argentinian wine cooperatives represent more than 20% of total production (Karlsson and Karlsson, 2015)…READ MORE
Organizational Form and Payoff Imbalances in an Aggrievement Model: Cooperatives versus Privately Owned Wineries
Francisco J. Santos-Arteaga & Günter Schamel
We build on Hart and Holmstrom (2010) to analyze the strategic choice of organizational form among wine producers. They claim that a firm’s organizational form, when agreed upon com- petitively, conditions the sense of entitlement of the involved parties. The sense of entitlement determines their feeling of grievance for the outcome of the contract and, if so, their shading efforts by partially withholding consummate performance, creating deadweight losses. We consider two main organizational forms: non-integration, where growers interact in the wine- making process and can highlight the quality of their individual contributions, and integration, where individual contributions to the process may not be explicitly acknowledged and the winemaker cannot exert quality control over the production chain. We present a formal coor- dination model that illustrates how cooperatives and private firms can coexist within a market. Furthermore, given the reasonable parameter constraints, it illustrates how an integrated cooperative can obtain a higher social surplus than a non-integrated private firm.
(JEL Classifications: C72, L22, L66)
What Makes Cooperatives Successful? Identifying the Determinants of Their Organizational Performance
Patrizia Fanasch & Bernd Frick
In comparison with other organizational forms, cooperatives have been found to offer poor product quality and suffer from low reputation. The main reasons discussed in the literature are information asymmetries, which leads to adverse selection and moral hazard, as well as the absence of profit orientation due to poorly specified and diluted property rights. However, although, in reality, many cooperatives indeed perform poorly, and some are appar- ently able to completely avoid or at least reduce the problems that are considered prototypical for this hybrid organizational form. Therefore, the purpose of this study is to identify the characteristics required to reduce the problems resulting from poorly specified property rights and information asymmetries and, hence, to successfully compete in the market. The data we use to identify the characteristics that separate “good” and “bad” cooperatives encompass 136 organizations in Austria, Germany, and northern Italy. Our logistic regression estimations show that older and larger cooperatives (in terms of acreage) have a significantly higher probability to be listed in at least one of two highly respected wine guides. Moreover, German cooperatives have a significantly lower probability of being listed than either Austrian or northern Italian cooperatives. The findings suggest that differences in performance can be explained by the management of cooperatives.
(JEL Classifications: D23, D82, D86, J54, L22, L25, L66, P13, Q13)
The Key Role of Banks in the Lifecycle of Bordeaux Wine Cooperatives
Julien Cadot & Adeline Alonso Ugaglia
In this article, we investigate a possible conflict between two core objectives of cooperatives, members’ income, and continuity, by examining the link between debt and the price paid to producers for Bordeaux wine cooperatives, according to their downstream strategies: (1) the traditional strategy, which is to sell wine in bulk to négociants; (2) joining a federation of coop- eratives which blends and puts the wine in the retail market; and (3) vertical integration. We show that downstream strategies are related to different lending regimes, making the relationship between banks and cooperatives a key issue for the lifecycle of cooperatives.
(JEL Classifications: D230, G320, Q130)
Cooperatives versus Corporations: Survival in the French Wine Industry
Justine Valette, Paul Amadieu & Patrick Sentis
This article examines the survival rates of cooperatives in the French wine industry. Traditional theory claims that cooperatives are inefficient and consequently are prone to failure, but recent literature suggests a higher resilience. Can cooperatives cope better? We find that French wine cooperatives survive longer than corporations. This result is robust in semi-parametric and parametric models, even when we control for mergers and acquisitions. The higher survival rate of wine cooperatives seems to be associated with their ability to pass changes in their business environments on to their members.
(JEL Classifications: C41, G30, Q13)
Rosé: Understanding the Pink Wine Revolution
Reviewed by Jacob R. Straus
Pages 355 – 358
Champagne: The Essential Guide to the Wines, Producers, and Terroirs of the Iconic Region
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Pages 358 – 361
TEIJI TAKAHASHI, KIMIE HARADA, KAZUHIKO KOBAYASHI & HIROSHI SAITO
Wines of Japan. A Comprehensive Guide to the Wines and Wineries of Japan
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The Sign of the Grape and Eagle: A History of German Wine
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Mit Wein Staat machen: Eine Geschichte der Bundesrepublik Deutschland
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Coffee and Wine – Two Worlds Compared
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Pages 371 – 373