Grape Supply and Implicit Prices for Wine Quality Attributes

Abstract

We analyze how grape supply may determine implicit prices for organic wine and regional denominations. We analyze three grape supply chains and the related wine quality they produce: cooperatives, own-growing and mixed-sourcing. Cooperatives have their grapes supplied by their member growers. Own-growers are making wine exclusively from their own-grown grapes. Mixed-sourcing describes wineries that use own-grown grapes and contract-grapes from independent growers. Cooperative producers face the challenge to raise grape and subsequent wine quality (e.g. setting appropriate incentives that induce their members to grow high quality grapes through vineyard management and grape pricing schemes). We analyze data on retail prices, wine quality evaluations, winery reputation indicators, organic production and regional denomination rules (DOC, IGT). Using a hedonic model, we show that wines from cooperatives may command a price (or reputation) premium relative to wines from private producers and we observe specialized grape supply chains with price premiums for DOC wine from cooperatives, IGT denominated wine from own-growing wineries and organic wine from mixed sourcing and own-growing producers. We confirm that cooperatives may gain a price premium in the market. Moreover, we show that the price premium for organic wine may depend on specialized grape supply chains. Acknowledgement : Special thanks are due to the authors of l Espresso Wine Guide and the Chamber of Commerce of the Province of Bozen-Bolzano for providing access to the data analyzed in this paper.