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2019 | OriginalPaper | Buchkapitel

16. The Organization of Vineyards and Wineries

verfasst von : Douglas W. Allen, Dean Lueck

Erschienen in: The Palgrave Handbook of Wine Industry Economics

Verlag: Springer International Publishing

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Abstract

The Allen and Lueck transaction cost framework (The nature of the farm: contracts, uncertainty, and organization. MIT Press, Cambridge, 2002) is used to examine the organization of vineyards and wine making. The chapter focuses on three important organizational features of worldwide wine production: limited contracting, small vineyards producing high-quality grapes, and the separation of wineries from vineyards in the nineteenth century.

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Vorheriges Kapitel Introduction: The Diversity of Organizational Patterns in the Wine Industry

Nächstes Kapitel Wine Co-operatives and Territorial Anchoring

“Organizations” can be thought of as a collection or distribution of property rights. Transaction costs are defined as the costs of establishing and maintaining a distribution of property rights (Allen 1991).

Thornton (2013) has a detailed description of the science of fermentation.

Thornton (p. 55, 2013) notes there are many varieties, perhaps in the thousands using a narrow definition of variety.

Thornton (p. 60, 2013).

As noted in several chapters of this book, across the world wine is one of the most valuable crops per acre. The high value of wine land means that the costs of abusing such land are also high.

Goodhue et al. (2003) note the difficulty of measuring these qualities.

Simpson (p. 4, 2009), notes “But transaction costs in viticulture were higher than with most other forms of agriculture, because nature influenced considerably both the size and quality of the harvest.”

Simpson (pp. 5–7, 2009).

Simpson (p. 11, 2009) notes that in the late nineteenth century artificial wines made from raisins mixed with water and sugar accounted for one-sixth of French and one-quarter of Spanish wine consumption.

Simpson (p. 9, 2009).

Umbeck (1977) noted that the problem of underreporting in gold mining made share contracts were highly unlikely on the gold fields during the California rush.

Carmona and Simpson (2012), mostly relying on our theory laid out in The Nature of the Farm, do an excellent job in describing the problem of underreporting grape quantity and quality and use this as a base for explaining why sharecropping was so little used historically. They also go into considerable detail in terms of how contracts were modified away from the standard simple share contracts to accommodate the special circumstances of grapes.

Indeed, in France the high-quality grapes are not allowed (by law) to be irrigated, (see Ugaglia, Cardebat, and Jiao, this volume). Irrigation reduces variance in both yields and quality. Hence, other things equal, increased irrigation should also be correlated with vertically integrated wineriesand vineyards.

In the chapter on Chinese wines (this volume), Jiao and Ouyang note that in the Ningxia region of China the climate is such that the high-quality vines must be covered each winter to prevent damage from the cold.

Lapsley, Alston, and Sambucci (this volume). They also note that in the US just three firms (Gallo, Wine Group, and Constellation) produce or import 50% of wines consumed. The 20 largest firms in the US have a market share of 90%, dominated by the low-priced segment of the market (Thornton, pp. 2–3, 2013). Albisu et al., in this volume, note that in Spain 84% of wineries are small, with less than ten workers, while four large firms do the bulk of exporting, most of which is considered low-quality cheap wine.

Fernandez-Olmos et al. (2008) explain this by focusing on the asset specificity of grapes and vines. Presumably either side of the vineyard/winery transaction could conceivably hold the other side hostage given the importance of asset and timing specificity. However, given the repeated nature of wine production, the importance of reputation, and the ease of the law in regulating such behavior, this seems an unimportant transaction cost source to explain the vertical integration. It also seems unable to explain the vertical disintegration we explain below.

Franken and Bacon (p. 107, 2014).

Knox (1998) argues that in Europe it was the rise of wine cooperatives that separated the vineyard from the winery to increase marketing and transfer rents. This fails to explain why the separation took place in other parts of the world where contracts between vineyards and wineries were used instead of cooperatives. Simpson (pp. 1–2, 2009) has a discussion of the relationship between family vineyards and cooperative wineries in Europe.

Thornton (p. 66, 2013) notes that 90% of California grapes are sold by contract to wineries.

Dramatic reductions in transportation costs have allowed the expansion in world trade, but it is not clear how this change has effected wine and vineyard organization. Unsurprisingly, it has increased the size of the industry.

Even in China, where the wine industry is the youngest, the best wines have integrated vineyards and wineries. Jiao and Ouyang state:

When it comes to the elite Chinese wineries, the wineries in Ningxia are best representatives. All wines are produced by the grapes cultivated in their own vine-yards with certain requirements in quality thus to reflect of its origin. [this volume]

Robinson (p. 779, 2006).

Simpson (2011) examines related issues, stressing path dependence, and political economy forces.

Allen, Douglas. 1991. What are transaction costs? Research in Law and Economics 14 (Fall): 1–18.CrossRef

Allen, Douglas, and Dean Lueck. 2002. The nature of the farm: Contracts, uncertainty, and organization. Cambridge: MIT Press.

Barzel, Yoram. 1982. Measurement costs and the organization of markets. Journal of Law and Economics 25 (1): 27–48.CrossRef

Carmona, Juan, and James Simpson. 2012. Explaining contract choice: Vertical coordination, sharecropping, and wine in Europe, 1850–1950. Economic History Review 65 (3): 887–909.CrossRef

Fernandez-Olmos, M., J. Rosell-MartÌnez, and M. Espitia-Escuer. 2008. Quality and governance mode choice: A transaction cost approach to the wine industry. Research in Agricultural & Applied Economics 1–6.

Franken, J., and K. Bacon. 2014. Organizational structure and operation of the Illinois wine industry. Agricultural and Resource Economics Review 43: 104–124.CrossRef

Goodhue, Rachel, Hyunok Lee DaleHeien, and Daniel Sumner. 2003. Contracts and quality in the California Winegrape industry. Review of Industrial Organization 23: 267–282.CrossRef

Knox, Trevor. 1998. Organization change and vinification cooperatives in France’s Midi. Working paper 7-1, University of Connecticut.

Robinson, J., ed. 2006. The Oxford companion to wine. 3rd ed. Oxford: Oxford University Press.

Simpson, James 2009. Old world versus new world: The origins of organizational diversity in the international wine industry, 1850–1914. Working papers in economic history, 09–01, Universidad Carlos III de Madrid.

———. 2011. Creating wine: The emergence of a world industry, 1840–1914. Princeton: Princeton University Press.CrossRef

Thornton, James. 2013. American wine economics. Berkeley: University of California Press.

Umbeck, John. 1977. A theory of contract choice and the California Gold Rush. Journal of Law and Economics 20 (2): 421–437.CrossRef

Titel: The Organization of Vineyards and Wineries
verfasst von: Douglas W. Allen
Dean Lueck
Verlag: Springer International Publishing
Buch: The Palgrave Handbook of Wine Industry Economics
Print ISBN: 978-3-319-98632-6

Electronic ISBN: 978-3-319-98633-3

Copyright-Jahr: 2019
DOI: https://doi.org/10.1007/978-3-319-98633-3_16

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