An institutional approach to French wine strategies_ The Cahors case - PARADIS.pdf - studia - yeciu

Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ)

An institutional approach to French wine strategies: The Cahors case

Jean‐Guillaume Ditter, Joëlle Brouard and Maureen Benson‐Rea

Contact: jditter@escdijon.eu

Abstract

The AOC model, which has ensured the success of French wine for decades, has been challenged

since the early 2000s by the emergence of the so‐called "New World" wines. It has been particularly

criticised for its complexity, its lack of clarity and the confusion that it creates between "typicity" and

"quality". Yet, not all AOCs are equally affected, and some New World wines now seem to be falling

into crisis as well. We argue, therefore, that the problem does not lie in the model itself, but rather in

the way it is regulated in different French wine regions. In this paper we consider the problem from

an institutional standpoint and propose the following assumption: that the performance of each AOC

classified vineyard is an outcome of its institutional features and more precisely of the relationship

the AOC as an institution creates between geographic terroir and its institutional territory. Our

analysis draws on the example of the Cahors wine region.

Key words: terroir, territory, institutions, AOC, Cahors

Topic area: the value of country and region of origin

Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ)

Introduction

Reference to the origin of wine has long been seen by French grape growers and wine

merchants as the best solution to combat fraud, enhance their products and distinguish them from

the competition (Martin, 2004). This strategy reached its peak in the 1930s with the introduction of

the "denomination of registered origin" system ( Appellations d'Origine Contrôlée ‐ AOC), which

substituted a relationship to the territory of production of wine in its collective dimension for the

relationship with individual producers or merchants. The success of French wines was attributed to

this model for decades until the emergence of so‐called "New World" wines in the early 2000s, with

their focus on grape variety and brand rather than origin. The AOC model has since been criticised for

its complexity, its lack of clarity and the confusion generated between "typicity" and "quality" of the

product, whereas New World producers favour simplicity in order to respond to market needs

(Corade and Delhomme, 2008). But current findings draw a more nuanced picture, as not all AOC

wines are affected in the same way, while some New World wines – e.g. in Australia – seem to be

facing a crisis.

We believe that if the AOC model itself is not to be questioned, the way it is enforced in

different French vineyards will determine their performance. We propose to consider the problem

from an "institutional" standpoint and suggest the following hypothesis: that the performance of a

classified AOC region depends on its institutional features and more precisely on the relationship that

the AOC, considered as an institution, creates between the region’s physical terroir and its

institutional territory. To support our proposal, the paper is set out as follows: we first define the

scope of institutional theory and its contribution to the analysis of strategies for the wine industry.

We then show how the institutional approach allows for a renewed analysis of the concepts of terroir

and territory, stressing the importance of the AOC considered as a specific institution. We then

consider the case of Cahors wine, on the basis of the analytical framework described above. A brief

discussion and conclusions follow.

1 Institutions, terroir and territory: applications to the wine industry

The Institutional School brings together economists, sociologists and historians, whose common

interest is the impact of institutions on the behaviour of and coordination among economic actors

(Veblen 1899). New institutional economics (North 1990; Williamson 1985) is less interested in

economic activity itself than in its framework rules. North defines institutions as: "formal rules or

informal constraints and their modes of implementation that guide and regulate the behaviour of

economic actors” (1991: p. 97). These rules are imposed on economic actors, yet they are themselves

a product of these actors' attitudes and strategies. North distinguishes "formal" institutions, being

explicit and taking the form of constitutions, laws, regulations, codes, and "informal" ones, often

implicit and comprising social norms, conventions, personal habits, and organizational routines.

The focus of the institutional approach has often been national socio‐economic systems, with

the aim of understanding the characteristics of national forms of market economy and creating

typologies (Albert 1991). As well as analysing the performance of institutions in a particular national

context, it can also be applied to a "mesoeconomic" level, that is to a particular industry. It is

particularly relevant for the study of the wine industry (Boyer 1990, 2006; Marchesnay 2002; Torres

2005) as a sectoral perspective may also be cross‐spatial and provide new elements to understand

the concept of territory.

The concept of territory is central to the French wine industry where the region of origin of a

wine is a specific asset, whose development has been the cornerstone of the industry's strategy on a

national level (Hinnewinkel and Le Gars, 2002). As highlighted by Calvet (2005), the geographical

origin of wine has gained such a symbolic strength that even most standardised wines cannot help

but mention it. However, the use of numerous terms in its characterization makes the concept

Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ)

relatively complex, referring to various notions of origin, such as vineyards, land, territory, according

to different and often confusing meanings. Strictly speaking, the term vineyard, for example, is a

reference to an area of land planted with vines, but in a broad sense it is used to designate a wine

district. In the words of the French denomination Institute (INAO), the appellation of origin of a wine

is the country, region or locality, referring to the product and whose quality and characteristics are

exclusively or essentially due to the geographical environment, including natural and human factors.

However the scale chosen to characterise appellations of origin is not clear and we propose a

clarification, which will help to integrate the territory within a sector strategy.

The wine terroir , traditionally a homogeneous geographical area, can be defined according to a

variety of concrete, tangible factors – such as soil, geology, geomorphology, hydrology, climatology

and sunshine – that preceded human intervention and exist independently of it. People are not

absent from the terroir but their role is limited to allowing the revelation of its virtues. Though

precise, this definition lacks an operational nature, as the boundaries of a terroir are dependent on

the degree of precision with which its homogeneity is analyzed. A detailed analysis can lead to the

fragmentation of a given geographical area into a multitude of micro‐plots, while a lesser degree of

precision opens the door to disputes between terroir insiders and outsiders.

In all cases, we believe that this definition of the terroir under‐estimates the importance of

human society interactions. We therefore call for a less restrictive definition, which reinstates human

action as a component of the terroir . A terroir is indeed a homogeneous territory endowed with a

very strong identity, characterized by a set of natural, cultural, historical and social resources

(Rastoin and Vissac‐Charles 1999). Moreover, terroirs are not exogenous, but rather a structure

whose components are less important than geographical resources built by economic players and

their interactions: individual and collective skills, explicit or tacitly transmitted from generation to

generation, building on enduring collective trust facilitating the exchange.

Thus terroir is a territory within the meaning given to that term by Pecqueur (2000), "an abstract

but geographically situated space of cooperation between actors that aims to generate specific

resources and new solutions" (p. 15). As a territory it can also be analyzed as a "situated institutional

setting". It is no longer a simple bounded set resources, but a social and historical construct

(Levesque 2008), a set of institutions embedded in a given geographical area that give it its identity.

It is a system of actors connected by different types of proximity, namely geographical,

organizational and institutional. This institutional approach offers a new understanding of wine

territories, pointing out its constructed nature, resulting from interactions between various actors.

Terroir can be used by firms for strategic purposes (Martin 2004; Rastoin and Vissac‐Charles

1999) as it enables local players to develop "specific resources and therefore a competitive

advantage" on the basis of a given territory's natural and cultural assets (historically inherited

production methods, intrinsic characteristics of the territory, know‐how), and protects them from

competition (Corade and Delhomme, 2008), As a formal institution, the denomination of registered

origin ( appellation d'origine contrôlée – AOC) is the cornerstone of the system. It is a label, a set of

formal rules, standards and regulations, whose purpose is to "protect a locally embedded product

from competition" (Filippi and Torre, 2003). The combination of geographical, organizational and

institutional proximity drives the identification between the place, the company and the product.

This forms a high barrier to entry that gives insiders a monopoly on the niches it creates, generating a

"rent" situation, as the product can be differentiated, marketed and sold at a high price (Pecqueur

cited by Corade and Delhomme, 2008).

Yet the system is not completely closed and outsiders are likely to take advantage of territorial

land rent by creating confusion with regards to the name and origins of products – see the use of

Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ)

designations "Champagne" or "Chablis" in the United States. The impact of the AOC is both

"horizontal", as it plays the role of a territorial marker and a guarantee of the uniqueness of the

product, and "vertical", as certification constraints reinforce the presumption of quality. We now

apply this institutional analysis to a case study of the Cahors wine region.

2 Cahors vineyards between crisis(es) and mutation

The Cahors AOC area currently represents about 4,300 ha of vines over a total geographical area

of 21,700 ha, spread across 45 municipalities along the River Lot in South Western France. The

estimated annual production of about 180,000 hl is carried out by around 430 producers, of which

some 140 belong to the Côtes d'Olt cooperative in Parnac (25% of overall production). All of the AOC

is composed of red wine. The dominant grape is Malbec, which represents 80% of the vines over the

AOC, as well as 11% of the global area planted with Malbec. The vineyard is located on two major

types of soils, one on Kimmeridgian limestone, and one on other alluvial soils of the Lot river valley,

including silicious terraced rows on its hillside (low, middle or high terraces). A study covering the

entire geographical area of the AOC led to the identification of nine main distinct terroirs , according

to geology, soil depth, altitude and distance from the Lot, slope or plateau (Rouvellac, 2009). Among

these, the higher terraces of the Lot river Valley are considered to the most relevant for high quality

wine production.

Cahors wine is said to be one of the oldest wines in Europe, having been introduced by the

Romans in 50 BCE and it remained world famous until the Eighteenth Century – when it was found in

England and Russia. It then suffered from competition from Bordeaux wines, before being hit by

phylloxera in 1876. The vineyard did not recover until the 1950s and was about to completely

disappear with the frosts of 1956. Only a limited number of small estates (below 5ha) survived, run

by farmers for whom wine was one product among others. Little attention was paid to quality at that

time.

A cooperative ( Les Côtes d'Olt ) was nonetheless established in Parnac in 1947 by 146 producers,

that later played a significant part in the rebirth of the vineyard: it resumed production in the early

1960s, emphasizing quality by means of limited yields and the use of selected grape varieties, such as

Malbec. It also started selling bottled rather than bulk wine (Tulet and Velasco‐Graciet, 2003). These

decisions quickly paid off as the cooperative was able to significantly increase the price per hl paid to

producers. Its production capacity increased sharply in a few years, from 21,500 hl in 1958 up to

107,000 hl in 1972 (50% of overall production at that time), making it then a key player in the

vineyard. This emphasis on quality made it also possible for Cahors wines to be granted an AOC in

1971, limiting yields (to 50 hl/ha) and setting the minimum natural level of alcohol (11.5% vol.), while

making Malbec the main local grape variety. At that time Cahors AOC covered 440 ha (Tulet and

Velasco‐Graciet, 2003).

The success of the region resulted in the emergence of an increasingly structured group of

specialised winegrowers, for whom wine was their main and often only production. First generation

producers later often transferred their properties to their heirs, usually endowed with a higher

technical knowledge, enabling them to incorporate a large number of technical innovations.

Moreover, this first group was complemented with newcomers, such as Alain‐Dominique Perrin (cf.

infra), whose financial means were sometimes very important, that also settled in the vineyards and

specialised in high‐end production. The cooperative thus found itself under increased competition

and gradually lost its importance (Tulet and Velasco‐Graciet, 2003).

Yet, after a period of relative prosperity, the Cahors AOC has recently been experiencing a

difficult situation and the decline of major indicators such as the price of vines and of bulk wines,

average income per hectare and ROI (see Table 1). This is due in particular to limited sales channels,

Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ)

as 80 to 85% of Cahors wines are sold in France, mainly through super‐ and hypermarkets, while 45%

of the wine sold in hypermarkets is priced below 2 Euros. Until 2008, supply remained higher than

demand, leading to an increasing requirement for storage. The result is a Malthusian management of

vineyards, characterized by a continuing decline in the planted area and in the number of producers

(630 in 1986, 470 in 2001).

(Take in Table 1 about here)

A key issue that is often blamed for the poor performance of the AOC is that it is not sufficiently

hierarchical: it makes no distinction between the different local terroirs nor between the various

wine quality levels. The result is uncertainty for consumers with regards to both the product

typicality and quality, as only the origin is guaranteed by the AOC. This type of structure is likely to

foster "free rider" attitudes and ultimately degrade the reputation of the entire vineyard.

Consequently the only option for individual producers is to emphasise their own reputation at the

expense of the collective image conveyed by the AOC. One might think that Cahors could merely

transpose the Bordeaux "aristocratic" classification model (Laferté, 2006), except that no formal

ranking has been formally defined.

Various attempts have therefore been made to supplement or amend the organization of

Cahors' AOC: a Quality Charter was for instance defined in 1999, involving up to 80 producers. Yet,

perceived as too strict and elitist, too far away from the interests and concerns of most producers, it

gradually declined and currently only encompasses about 25 small producers. An attempt to reform

the AOC was also launched in 2002, under the leadership of a "newcomer", the businessman Alain‐

Dominique Perrin, with the support of specialized winegrowers. However, as it was seen as likely to

involve a downgrading of vineyards located on the lower and poorer quality terraces, it was vetoed

by small independent winegrowers during a famous meeting of 18 December 2002.

3 Discussion

The problems faced by Cahors wine can be analyzed from an institutional perspective, as the

weakness of the AOC as an institution is a reflection of the territory's lack of institutional consistency.

The implementation of AOCs requires a high degree of institutional proximity among local actors, i.e.

common rules of action and a real convergence of views and values, which is hard to find in the case

of Cahors. Cahors' wine region is clearly bounded from a geographic standpoint and found its identity

in its struggle with the large neighbouring region of Bordeaux (Velasco‐Graciet, 2002). However, it is

still fragmented and characterized by a limited and questionable degree of institutional proximity.

Consequently, wine producers were only able to agree on a "lowest common denominator", that is

to say a generic AOC that did not take the variety of local terroirs into account.

The failed attempts to reform this AOC can also be attributed to an institutional environment

that appears to be dominated by conflicts between individualism, corporatist and collective interests,

hierarchy and egalitarianism, as well as many other overlapping lines of confrontation, which hinder

the establishment of a structured and efficient classification system (Tulet and Velasco‐Graciet, 2003).

Corporatism has brought different groups of actors into opposition and, combined with individualism,

these are major sources of conflicts, as highlighted by a study led by Olivier (2009). Corporatism may

also turn into "toporatism", as defined by Torrès (2003), that is to say, a general distrust against

outsiders that will prevent externally driven reforms. Alain‐Dominique Perrin's failure is a clear case

of the above.

Further highlighting the fragmentation, the wine producers ‐ key players in the system ‐ are

divided into several groups. The first is composed of independent winegrowers, whose activity is

marked by traditional polyculture. Their operations are generally small and often located on the

lower terraces, poorer quality land that are threatened by the reforms proposals which they oppose.

An institutional approach to French wine strategies_ The Cahors case - PARADIS.pdf

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