Vertical Integration and Financial Performance of French Wine Farms and Co-operatives

Abstract

In this chapter, we gather results about vertical-integration strategies of wine farms (and especially co-operative members compared to the others) and wine co-operatives in France to explore wine farms’ performance in relation to their vertical-integration level. We discuss the interest that the wine co-operatives could find in forming commercial unions as the best downstream strategy. The results show that vertical integration for wine-grape producers can be carried out at the farm level or collectively via co-operative membership. In both cases, it seems that operating on the bulk-wine market is not profitable. Indeed, bulk-wine producers display low financial performance, and “traditional” co-operatives seem to be affected by short-termism, by prioritizing the payment to producers over the co-operative’s sustainability. As such, vertical integration appears as an efficient way to create value for wine-grape producers, but it should not stop at the bulk-wine production stage. They should rather bottle the wine. Moreover, vertical integration requires a full consideration of costs and investments necessary to perform well. This implies specific learning and presents wine-grape producers with new challenges, whether they choose to perform vertical integration either alone or within a co-operative.