The role of contracts in viticulture
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Published
18-09-2018
Marta Fernández Olmos
Abstract
Although economists have expended enormous effort examining the rationale for the contracts in agriculture, few studies have been undertaken in viticulture. However, in grape and wine production we observe different contractual arrangements. The underlying contractual structures are analyzed in different viticulture regions. Irrespective of the mode of vertical relationship in use between grape growers and those who process or market the grapes, we find that contracts allow wineries to articulate their requirements with regard to the quality of grapes produced by growers. This analysis also allows us to conclude that contracts are a means of transferring risk and defining production responsibilities within a wine production system. We also observe a number of lingering theoretical issues that need to be addressed. Contracts facilitate the coordination of the relationship, but they do not ensure the long-term success. We conclude by discussing the role of reputation in contracting relationships.
How to Cite
Fernández Olmos, M. (2018). The role of contracts in viticulture. Cuadernos De Gestión, 8(2), 47–64. https://doi.org/10.5295/cdg.19119mf
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Keywords
Vertical coordination, contractual relationship, quality of grape, reputation
References
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BARCO, E., PINILLOS, M., NAVARRO, M.C. (2006): «Estrategias de diferenciación versus estrategias de tamaño», Cuaderno de Campo, No.34, pp.12-16.
BARZEL, Y. (1982): «Measurement Costs and the Organization of Markets,» Journal of Law and Economics, Vol. 25, pp. 27-48.
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CHAMBERS, W. KING, R. (2002): «Changing Agricultural Markets: Industrialization and Vertical Coordination in the Dry Edible Bean Industry», Review of Agricultural Economics, Vol. 24, No. 2, pp. 495-511.
CROCKER, K.J., MASTEN, S.C. (1991): Pretia ex machina? Prices and process in long-term contracts, Journal of Law and Economics, Vol. 34, pp. 270-300
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DRESCHER, K. (2000): «Assessing Aspects of Agricultural Contracts: An Application to German Agriculture», Agribusiness, Vol. 16, No. 4, pp. 385-398
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MACNEIL, I.R. (1978): Contracts-exchange, transaction and relations. Foundation Press: Mineola, NY
MASTEN, S.E. (1998): «A legal basis of the fi rm», Journal of Law, Economics and Organization, Vol. 4, pp. 181-198
MÉNARD, C. (2002): «The Governance of Hybrid Organizations», LINKS Conference, Copenhagen, 1-2, November, 2002
MIGHELL, R.L., JONES, L.A. (1963): «Vertical Coordination in Agriculture». U.S. Department of Agriculture, Economic Research Service, Agricultural Economic Report, No. 19, February.
MONTAIGNE, E., SIDLOVITS, D. (2003): «Long Term Contracts and Quality in the Wine Supply Chain: Case of the Appellation «Vins des Sables du Golfe du Lion», 7th Annual Conference of the International Society for New Institutional Economics», Contracts and Organization, September 11-13, Budapest University of Economics, Budapest, Hungary
OCZKOWSKI, E. (2001): «Hedonic wine price functions and measurement error», The Economic Record, Vol. 77, No. 239, pp.374-382.
SCALES, W., CROSER, B., FREEBAIRN, J. (1995): Winegrape and Wine Industry in Australia, Report by the Committee of Inquiry into the Winegrape and Wine Industry, Australian Government Publishing Service, Canberra
SHERSTYUK, K. (2000): «Performance standards and incentive pay in agency contracts», Scandinavian Journal of Economics, Vol. 102, No. 4, pp. 725-736.
SWANN, M. (2002): «Contracting around the world», Australian Viticulture, November-December, pp.58-67.
TIROLE, J. (1999): «Incomplete contracts: where do we stand?». Econometrica, Vol. 67, No. 4, pp. 741-781.
TSOULOUHAS, T., VUKINA, T. (2001): «Regulating broiler contracts: Tournaments versus fi xed performance standards», American Journal of Agricultural Contracts, Vol. 83, No.4, pp. 1062-1073
WILLIAMSON, O.E. (1975): Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press
WILLIAMSON, O.E. (1985): The Economic Institutions of Capitalism, Free Press: New York
WILLIAMSON, O.E. (1996): The Mechanisms of Governance, Oxford University Press: New York
WOLF, S.B., HUETH, B., LIGON, E. (2001): «Policing mechanisms in agricultural contracts», Rural Sociology, Vol. 66, No. 3, pp. 359-381
ALLEN, D., LUECK, D. (2003): The Nature of the Farm: Contracts, Risk and Organization in Agriculture, MIT Press: Cambridge
ANDERSSON, H. (1995): «Primary and secondary producers: Economic implications of contracts in the food marketing chain», European Review of Agricultural Economics, Vol. 22, pp. 310-320.
BARCO, E., PINILLOS, M., NAVARRO, M.C. (2006): «Estrategias de diferenciación versus estrategias de tamaño», Cuaderno de Campo, No.34, pp.12-16.
BARZEL, Y. (1982): «Measurement Costs and the Organization of Markets,» Journal of Law and Economics, Vol. 25, pp. 27-48.
BOGETOFT, P., OLESEN, H. (2002):»Ten rules of thumb in contract design: lessons from Danish agriculture», European Review of Agricultural Economics, Vol. 29, No. 2, pp. 185-204
BRUNKE, H., MUELLER, R., SUMNER, D. (2008): «California Wine and the E.U. Wine Policy Reform», Agricultural Issues Center, University of California, No. 34, pp. 1-5.
CAMPBELL, G., GUIBERT, N. (20069: «Introduction: Old World Strategies against New World competition in a globalizing wine industry», British Food Journal, Vol.108, No. 4, pp. 233-242.
CHAMBERS, W. KING, R. (2002): «Changing Agricultural Markets: Industrialization and Vertical Coordination in the Dry Edible Bean Industry», Review of Agricultural Economics, Vol. 24, No. 2, pp. 495-511.
CROCKER, K.J., MASTEN, S.C. (1991): Pretia ex machina? Prices and process in long-term contracts, Journal of Law and Economics, Vol. 34, pp. 270-300
DOWNEY, W. (1996): «The Challenge of Food and Agri Products Supply Chains», In Proceedings of the 2nd International Conference on Chain Management in Agri-and Food Businesses, Conference held et Ede, Netherlands, 30-31, May, 1996
DRESCHER, K. (2000): «Assessing Aspects of Agricultural Contracts: An Application to German Agriculture», Agribusiness, Vol. 16, No. 4, pp. 385-398
DUBOIS, P., VUKINA, T. (2004): «Grower risk aversion and the cost of moral hazard in livestock production contracts», American Journal of Agricultural Economics, Vol. 86, no. 3, pp. 835-841.
FRASER, I. (2002): «Contractual Relations Between Wine Grape Growers and Wineries in Australia: Survey Results», Australian Viticulture, Vol. 6, No. 6, pp. 68-79
FRASER, I. (2003): «The Role of Contracts in Wine Grape Supply Coordination: An Overview», Agribusiness Review, Vol. 11, No. 5, pp. 1-16
FRASER, I. (2005): «Microeconomic analysis of wine grape supply contracts in Australia», The Australian Journal of Agricultural and Resource Economics, Vol. 49, pp. 23-46
GOODHUE, R. (2000): «Broiler Production Contracts as a Multi-agent Problem: Common Risk, Incentives and Heterogeneity», American Journal of Agricultural Economics, Vol. 82, No. 3, pp. 606-22
GOODHUE, R., HEIEN, D., LEE, H., SUMNER, D. (1999): «Contract use in the California Winegrape Economy», AIC Issues Brief, 11.
GOODHUE, R., HEIEN, D., LEE, H., SUMNER, D. (2002): «Contract use widespread in wine grape industry», California Agriculture, Vol. 56, No. 3, pp. 97-102.
HOBBS, J., YOUNG, L. (2000): « Closer vertical co-ordination in agri-food supply chains: a conceptual framework and some preliminary evidence», Supply Chain Management: An International Journal, Vol. 5, No. 3, pp.131-142
HUETH, B., LIGON, E. (1999): «Producer price risk and quality measurement», American Journal of Agricultural Economics, Vol. 81, pp. 512-524.
HUETH, B., LIGON, E. (2001): «Agricultural markets as relative performance evaluation», American Journal of Agricultural Economics, Vol. 83, No. 2, pp. 318-328.
HUETH, B., MELKONIAN, T. (2004): «Multi-Tasking, Identity Preservation, and Contract Design in Agriculture», American Journal of Agricultural Economics , Vol. 86, No. 3, pp. 842-847.
HUETH, B., LIGON, E., WOLF, S., WU, S. (1999): «Incentive Instruments in Fruit and Vegetable Contracts: Input Control, Monitoring, Measuring, and Price Risk,» Review of Agricultural Economics, Vol. 21, pp. 374-389.
JOSKOW, P.L. (1987): « Contract Duration and Relationship –Specifi c Investments: Empirical Evidence from Coal Markets», The American Economic Review, Vol. 77, No. 1, pp.168-185
KLEIN, B., CRAWFORD, R., ALCHIAN, A. (1978): «Vertical integration, appropriable rents and the competitive contracting process», Journal of Law and Economics, Vol. 21, No. 2, pp. 297-326.
LEVIN, J. (2003): «Relational Incentive Contracts», The American Economic Review, Vol. 93, No. 3, pp. 835-857
LÓPEZ-BAYÓN, S., VENTURA VICTORIA, J. (2001): «La Subcontratación en la industria electrónica. Determinantes de la duración de los contratos», Economía Industrial, No. 341
MACNEIL, I.R. (1977-78): «Contracts: Adjustment or long-term economic relations under classical, neoclassical, and relational contract law», Northwestern University law reviews, Vol. 72, pp. 854-905
MACNEIL, I.R. (1978): Contracts-exchange, transaction and relations. Foundation Press: Mineola, NY
MASTEN, S.E. (1998): «A legal basis of the fi rm», Journal of Law, Economics and Organization, Vol. 4, pp. 181-198
MÉNARD, C. (2002): «The Governance of Hybrid Organizations», LINKS Conference, Copenhagen, 1-2, November, 2002
MIGHELL, R.L., JONES, L.A. (1963): «Vertical Coordination in Agriculture». U.S. Department of Agriculture, Economic Research Service, Agricultural Economic Report, No. 19, February.
MONTAIGNE, E., SIDLOVITS, D. (2003): «Long Term Contracts and Quality in the Wine Supply Chain: Case of the Appellation «Vins des Sables du Golfe du Lion», 7th Annual Conference of the International Society for New Institutional Economics», Contracts and Organization, September 11-13, Budapest University of Economics, Budapest, Hungary
OCZKOWSKI, E. (2001): «Hedonic wine price functions and measurement error», The Economic Record, Vol. 77, No. 239, pp.374-382.
SCALES, W., CROSER, B., FREEBAIRN, J. (1995): Winegrape and Wine Industry in Australia, Report by the Committee of Inquiry into the Winegrape and Wine Industry, Australian Government Publishing Service, Canberra
SHERSTYUK, K. (2000): «Performance standards and incentive pay in agency contracts», Scandinavian Journal of Economics, Vol. 102, No. 4, pp. 725-736.
SWANN, M. (2002): «Contracting around the world», Australian Viticulture, November-December, pp.58-67.
TIROLE, J. (1999): «Incomplete contracts: where do we stand?». Econometrica, Vol. 67, No. 4, pp. 741-781.
TSOULOUHAS, T., VUKINA, T. (2001): «Regulating broiler contracts: Tournaments versus fi xed performance standards», American Journal of Agricultural Contracts, Vol. 83, No.4, pp. 1062-1073
WILLIAMSON, O.E. (1975): Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press
WILLIAMSON, O.E. (1985): The Economic Institutions of Capitalism, Free Press: New York
WILLIAMSON, O.E. (1996): The Mechanisms of Governance, Oxford University Press: New York
WOLF, S.B., HUETH, B., LIGON, E. (2001): «Policing mechanisms in agricultural contracts», Rural Sociology, Vol. 66, No. 3, pp. 359-381
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