Microeconometric analysis of wine grape supply contracts in Australia

Abstract

This paper examines wine grape supply contracts used in the main grape growing regions of Australia. An empirical analysis provides insight into specific aspects of contract design and implementation. Statistical analyses of sample data reveal differences between regions in contract specifications. Lower quality grape growing regions place a greater reliance on grape quality assessment to determine bonus/penalty payments compared to higher quality regions. Contracts in higher quality regions place greater emphasis on explicit winery involvement and direction in vineyard management. Results indicate that longer duration contracts are more inclusive in terms of the number of clauses included. Evidence of risk shifting (i.e., winery to grower) for high quality grapes is reported, where the price received by growers is determined by the bottle price of the wine produced. © Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2005.