Stability of contracts in the Brazilian wine industry

  • Zylbersztajn D
  • Miele M
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Abstract

A variety of contracts between wineries and grape-growers can be observed in Brazil. This study addresses the concept of coordination of food chains, particularly the stability of contractual relationships. A qualitative analysis of contracts between the industry and farmers is presented, followed by a quantitative analysis testing a transaction cost economics-based hypothesis. Scale, location, age of vineyard, and the cooperative organizational form, are addressed in terms of their effect on the stability of contracts. Vertical and horizontal coordination are also addressed. A sample of 139 grape-growers and the 10 most important wineries provided the data. The results show that more stable contracts or vertical integration are characteristic of high-quality wine production, where the need for strict contractual coordination is more relevant (i.e. the risk of hold up losses is larger). Site specificity and quality-related investments are associated with more stable contractual arrangements. Farmers' cooperatives demonstrate poorer performance but tend to retain more stable relationships with their members. Adverse selection is present since specialized farmers prefer to maintain contracts with investor-owned wineries, instead of farmers' cooperatives. Conclusions are presented in the final section.

Author-supplied keywords

  • America
  • Brazil
  • Developing Countries
  • EE116Food Economics (NEW March 2000)
  • EE165Structure
  • EE350Rural Industry and Enterprises
  • EE700Marketing and Distribution
  • Latin America
  • Ownership and Tenure
  • QQ050Crop Produce
  • South America
  • Threshold Countries
  • contracts
  • cooperatives
  • integration
  • marketing
  • marketing techniques
  • vertical
  • wine industry

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Authors

  • D Zylbersztajn

  • M Miele

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