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Can German Wine Cooperatives Compete on Quality?

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  • Schamel, Guenter
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    Abstract

    The German Agricultural Society (DLG) manages a multi-round annual quality control scheme where wines undergo a blind, sensory testing procedure using a 5-point scale to determine superior quality wines worthy of an annual award (Bronze, Silver, Gold, and Gold Extra). We develop a hedonic model for the 2005 award competition estimating implicit prices for different product attributes including sensory awards, quality categories, and wine style. We also control for regional origin, variety, color, and age. To discern the impact of ownership structure, we distinguish cooperatives and private wineries. Silver and Bronze awards show significant price effects relative to Gold. We also estimate highly significant price effects between quality categories (e.g. Auslese +34% relative to Spätlese) and wine style (e.g. dry +10%). Our results indicate that cooperatively produced wines seem to lag behind in terms of strategically addressing the opportunities presented in today’s global wine market (i.e. going for more varietal wines with aging potential that are competitive in terms of quality. Cooperatives seem to have opted for barrique-style wine and Chardonnay for which they gain higher implicit prices relative to non-coops. Our analysis suggests that this may not be wise in light of the characteristic strengths of German wine production.

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    Bibliographic Info

    Paper provided by International Association of Agricultural Economists in its series 2009 Conference, August 16-22, 2009, Beijing, China with number 51552.

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    Date of creation: 2009
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    Handle: RePEc:ags:iaae09:51552

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    Web page: http://www.iaae-agecon.org/
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    Related research

    Keywords: Cooperatives; Product Quality; Pricing; Agribusiness; Demand and Price Analysis; Marketing; Q13; L15; D4;

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    1. Nerlove, Marc, 1995. "Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers," European Economic Review, Elsevier, vol. 39(9), pages 1697-1716, December.
    2. Sherwin Rosen, 2002. "Markets and Diversity," American Economic Review, American Economic Association, vol. 92(1), pages 1-15, March.
    3. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
    4. Hoffmann Ruben, 2005. "Ownership Structure and Endogenous Quality Choice: Cooperatives versus Investor-Owned Firms," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(2), pages 1-26, December.
    5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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