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Stability of contracts in the Brazilian wine industry

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  • ZYLBERSZTAJN, Decio
  • MIELE, Marcelo

Abstract

A variety of contracts between wineries and grape growers are observed in Brazil. This study addresses the concept of coordination of food chains, particularly the stability of contractual relationships. A qualitative analysis of industry-farmers contracts is presented, followed by a quantitative analysis testing transaction cost economics-based hypothesis. Scale, location, age of vineyard, and the cooperative organizational form are addressed in terms of the effect on the stability of contracts. Vertical and horizontal coordination are addressed. Data come from a sample of 139 grape-growers that supplied 10 major wineries. 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. risk of hold up losses is larger. We test the hypothesis that site specificity and quality-related specific investments are associated with more stable contractual architectures. Farmers' cooperatives present poorer performance but tend to hold more stable relationships with their members, possibly the result of adverse selection, since specialized farmers prefer to maintain contracts with investor-owned wineries, instead of farmers' cooperatives. Conclusions are presented in the final part.

Suggested Citation

  • ZYLBERSZTAJN, Decio & MIELE, Marcelo, 2005. "Stability of contracts in the Brazilian wine industry," Brazilian Journal of Rural Economy and Sociology (Revista de Economia e Sociologia Rural-RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 43(2), pages 1-19, June.
    • Handle: RePEc:ags:rdecag:156207
    DOI: 10.22004/ag.econ.156207
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    Citations

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    Cited by:

    1. Steiner, Bodo E., 2009. "The Extent and Nature of Contracting in the Wine Supply-Chain When Moral Hazard is Present," Staff Paper Series 154127, University of Alberta, Department of Resource Economics and Environmental Sociology.
    2. Schmidt, Carla Maria & Saes, Maria Sylvia Macchione & Fowler de Ávila Monteiro, Guilherme, 2014. "Value Creation And Value Appropriation In Networks: An Empirical Analysis Of The Role Of Geographical Indication In The Wine Industry In Vale Dos Vinhedos, Rs, Brazil," Organizações Rurais e Agroindustriais/Rural and Agro-Industrial Organizations, Universidade Federal de Lavras, Departamento de Administracao e Economia, vol. 16(3), December.
    3. Hervé Lanotte & Aurélie Ringeval-Deluze & Erick Pruchnicki, 2022. "The stabilising effects on GVCs of multi-annual supply contracts between leading and subordinate firms: The example of champagne [Les effets stabilisateurs sur la CGV des contrats pluriannuels d’ap," Post-Print hal-04021392, HAL.
    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. Foscaches, Caroline & Macchione Saes, Maria Sylvia & Bigio Schnaider, Paula Sarita, 2019. "Does social identity matter in governance decisions? Evidence from an agrarian reform settlement in Brazil," Land Use Policy, Elsevier, vol. 83(C), pages 215-226.

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    Keywords

    Agribusiness;

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