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Quality management and contractual incompleteness: grape procurement for high-end wines in Argentina

Author

Listed:
  • Jean Marie Codron

    (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Etienne Montaigne

    (Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Sylvain Rousset

    (IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture)

Abstract

Sourcing grapes from independent growers for use in top quality wines sold on the international market is a major organisational challenge for corporate wineries. Our paper adds to the small existing literature addressing these coordination issues in the New World wine sector, by going deeper into the specifics of the contracts, as well as the "transaction cost economising" argument. Based on a case-study carried out in the Argentine province of Mendoza, this article presents an in-depth analysis of the technical process, in order to identify the contractual hazards posed by asset specificity, measurement costs, and non-contractible actions. Drawing on contract completion and dual sourcing literature, it analyses the contractual and non contractual mechanisms (price incentives, grower monitoring, allocation of decision rights to the winery, role of backward integration into production) used to govern such grape transactions. Through our analysis, we were able to arrive at four main conclusions. Firstly, most agreements are still verbal, with the exception of occasional written contracts, limited to a few legal provisions. It became clear to us that this approach to forging agreements is not always adequate in managing the inherently complex interactions between grape varieties, soil, farming practices and wine-making processes in high-end wine production. Secondly, extensive decision rights are allocated to wineries, to deal with incompleteness. These are key decisions to be taken during the cropping and harvesting process. Thirdly, pricing is generally kept flexible, with grape prices negotiated ex-post. This means that trade imbalances tend to be resolved in the long term. Winegrowers also benefit from financial rewards to compensate for allocations. Finally, any potential opportunistic behaviour by wineries with regards to asset specificity (in particular yield limitation) and allocation of rights is kept at bay by mechanisms such as winery reputations and credit third-party guaranty. This type of behaviour by growers is similarly deterred through monitoring and vineyard ownership on the part of the wineries.

Suggested Citation

  • Jean Marie Codron & Etienne Montaigne & Sylvain Rousset, 2013. "Quality management and contractual incompleteness: grape procurement for high-end wines in Argentina," Post-Print hal-01506201, HAL.
  • Handle: RePEc:hal:journl:hal-01506201
    DOI: 10.3920/JCNS2013.x218
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    Citations

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    Cited by:

    1. Caihua Xu & Qian Wang & Shah Fahad & Masaru Kagatsume & Jin Yu, 2022. "Impact of Off-Farm Employment on Farmland Transfer: Insight on the Mediating Role of Agricultural Production Service Outsourcing," Agriculture, MDPI, vol. 12(10), pages 1-16, October.
    2. Jean-Marc Touzard & Yuna Chiffoleau & Camille Maffezzoli, 2016. "What Is Local or Global about Wine? An Attempt to Objectivize a Social Construction," Sustainability, MDPI, vol. 8(5), pages 1-20, April.
    3. Nicolás Depetris-Chauvin & Marta Fernández Olmos & Juan Carlos Hallak & José Santiago Mosquera, 2023. "Quality, Vertical Integration and Adaptability," Working Papers 221, Red Nacional de Investigadores en Economía (RedNIE).
    4. Miranda, Bruno & Chaddad, Fabio, 2016. "Transaction Costs, Capabilities, and Grape Procurement Strategies in U.S. Emerging Wine Regions," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235363, Agricultural and Applied Economics Association.
    5. Bruno V. Miranda & Brent Ross & Jason Franken & Miguel Gómez, 2022. "Plural forms and differentiation strategies in the agri‐food sector: Evidence from the U.S. wine industry," Agribusiness, John Wiley & Sons, Ltd., vol. 38(3), pages 486-504, July.
    6. Jean Marie Codron & Zouhair Bouhsina & Laure Bonnaud, 2013. "Collective action and allocation of decision rights in pesticide safety risk management: the case of tomato producer organizations in France," Post-Print hal-02748504, HAL.
    7. Bitsch, Linda & Hanf, Jon H., 2022. "The perfect match: interpersonal relationships and their impact on chain management," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 25(3), March.

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