Old World Versus New World: the Origins of Organizational Diversity in the International Wine Industry

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  • Topic: Wine, Terroir, Cabernet Sauvignon
  • Pages : 32 (12117 words )
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  • Published : February 13, 2011
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Old World versus New World: the origins of organizational diversity in the international wine industry, 1850-1914

James Simpson
Universidad Carlos III de Madrid. Departamento de Historia Económica e Instituciones Instituto Figuerola de Historia Económica

Abstract:
Wine production in Europe today is dominated by small family vineyards and cooperative wineries, while in the New World viticulture and viniculture is highly concentrated and vertically integrated. This paper argues that these fundamental organizational differences appeared from the turmoil in wine markets at the turn of the twentieth century. As technological change endangered existing rents, growers, wine-makers, and merchants lobbied governments to introduce laws and create new institutions that regulated markets in their favor. The political voice and bargaining power of the economic agents varied greatly both within, and between, countries, leading to the introduction of very different policies. Key words: wine history, farm organization, vertical co-ordination, agricultural commodity chains, cooperatives, appellations

JEL Classification: L14, N51, Q13

Wine production in Europe today is dominated by small family vineyards and cooperative wineries, while in the New World viticulture and viniculture is highly concentrated and vertically integrated. As a result, 70 per cent of the nation’s wine in the United States and Australia is produced by the top five wine companies, 50 per cent in Argentina and Chile, compared to figures of only 10 per cent in countries such as France, Italy, or Spain. This paper argues that these fundamental organizational differences have historical explanations that date from the turmoil in wine markets at the turn of the twentieth century. Technological change radically altered the nature of the industry before 1914, in particular creating economies of scale in wine making and allowing the commercial production of drinkable table wines in geographical regions where previously they had been considered too difficult. As technological change endangered existing rents, growers, wine-makers, and merchants lobbied governments to introduce laws and create new institutions that regulated markets in their favor. The political elite responded, supporting the creation of new institutions which helped preserve their own political power in the future. The political voice and bargaining power of the economic agents varied greatly both within, and between, countries, leading to the introduction of very different policies. First in France, and then in other European countries, the political influence of the hundreds of thousands of small growers forced their governments to support producer cooperatives that allowed growers to benefit from both the transaction cost-economizing effect of the family farm in grape production and the economies of scale found in wine-making, while regional appellations (later appellation controlee) created collective regional brands for small producers, thereby restricting the economic power of merchants and the tendency towards vertical integration. By contrast in the New World, there were few small family wine producers when the new wine making technologies appeared, and consequently their electoral influence limited. Instead, new investment in modern wineries was accompanied by the appearance of specialist grape producers, and a handful of merchants who created hierarchical organizations, integrating vertically and horizontally and investing heavily in advertising and brands to sell to consumers generally unaccustomed to wine in distant markets. By the turn of the twentieth century the California Wine Association controlled about 80 per cent of the region’s wine sales and the importer Peter Burgoyne accounted for two thirds of Australian exports to the British. The creation of these hierarchical organizations reinforced in these markets the trend towards fortified dessert wines as oppose to table...
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