Organization Change and Vinification Cooperatives in France's Midi

Standard accounts of French industrialization blame the predominance of the traditional family firm for France s failure to adopt or to pioneer modern production methods. Economic historians could easily interpret the cave cooperative vinicole as evidence that corroborates this explanation for inefficiency in French agriculture and industry. The cave cooperative preserved the idiosyncrasies that attend fragmented land tenure at the expense of governance costs and incentive problems associated with cooperative ownership and control. These apparent barriers to rationalized production notwithstanding, this paper claims that the cooperative was a progressive organizational structure that adapted winegrowers in southern France to the emerging institutions of a growing market. Mine is an argument about change in organizational structures when the minimum efficient scale (MES) of part of an integrated multi-stage production process changes dramatically. For centuries, scale of production in winemaking had not been a margin on which selection pressures operated. Beginning with the phylloxera, the principal cause of increased competition in vin ordinaire, technological and institutional change critically increased the minimum efficient scale (MES) of vinification. Economic forces thus targeted the small, independent winegrower/winemaker for extinction, even though viticulture continued to exhibit constant returns to scale at low levels of cultivation. As I demonstrate, nonconvexities in the demand-side of the wholesale market for wine prevented marginal incentives from leading farmers to a larger scale of vinification. Thus, governmental policy to promote modern production methods provided a necessary impetus for formation of caves cooperatives; but the source of cooperatives longevity lay in the differing MES of the production stages, and in the value added by reducing variation in the fermented product. That cooperatives were, in some sense, defensive measures, designed to prolong the profitability of existing institutions and capabilities, does not preclude their also being efficient. I do not argue that the vinification cooperative was an optimally efficient organizational adaptation in a static, technological sense; I argue, rather, that this adaptation was dynamically efficient, given the institutional environment. I argue, that is, that vinification cooperatives allowed existing institutions and capabilities to create more value over time than they could create under alternative governance structures. This conception of dynamic efficiency might be thought of in terms of fitness. Vinification cooperatives were fit because they proved adequate to sustain small-scale viticulture despite technological change that favored large vintners. I make the additional claim that vinification cooperatives were more fit than possible alternative forms of organization. My conception of dynamic efficiency, then, is about comparative fitness within a particular institutional environment.