Fair Trade Wine’s Long Journey

In this global age we are accustomed to having the world’s assorted products (including wine) wash up conveniently on our local supermarket shores. We seldom give much thought to how they got there or why, but wines don’t make, move or sell themselves so there is always a story to tell.

Case in point: this bottle of 2008 Fairhills Mendoza Vineyards Carbernet Sauvignon purchased last week at a Cost Plus World Market store in Tacoma, Washington. It is the product of a rather complex process of globalization.

Uncorking a Bottle’s Biography

The Fairhills brand is South African, but the wine is from Argentina. Must be a story there. The logo at the bottom proclaims that it is Fair Trade certified – wine with an ethical intent. You don’t see Fair Trade wines every day. The red tag up on the bottle’s shoulder indicates market reality: marked down from $9.99 to $8.88.

(Some studies suggest that wine buyers are not willing to pay more for “ethical” organic or biodynamic wines. In fact, one study found that wines labeled “organic” sold for less than identical wines without the ethical indicator. I wonder if this inverse price/ethics relationship holds for Fair Trade wine as well?)

Fair Trade products, like this wine, ask us to think about supply chains more seriously because they promise to return a bit more to the original producers to help build sustainable communities. I’m interested in the Fair Trade wine movement (I wrote about Fair Trade wines here, here and here), so I thought I’d try to learn a bit about this particular bottle’s long journey.

Twists and Turns

The story begins, unexpectedly, at the Du Toitskloof Winey in South Africa, founded in 1962 as a cooperative by six wine families. Originally a bulk wine producer in the bad old days of South African wine, DTK as it is known has moved upmarket in the post-apartheid export-driven era and Fair Trade wines are part of its strategy.

Since 2005 DTK has worked with the Fairhills Association to produce Fair Trade wine. Fairhills brings together a group of South African vineyard owners and their workers, with the workers having a majority of votes. Fairhills wine farmers supply the grapes, DTK makes the wine and Origin Wine, the third partner, provides logistical and market support. The growers receive a premium for their Fair Trade grapes and funds are returned to the Fairhills Association for community investments, a typical Fair Trade practice.

The initial market for Fairhills wines seems to have been Great Britain, since they worked closely with the UK-based Fair Trade certification group there. Susy Atkins,  the Telegraph’s wine critic, reports that Fair Trade wines have good penetration in London through supermarket chains including Co-op and Sainsbury’s and are featured in annual Fairtrade Fortnight programs. Click here to view a list of Fair Trade wines available in the UK. Fairhills has the largest listing (44 wines).

Fair Trade Pipeline

The South Africa-UK wine pipeline proved very robust (South African wines are now the fastest growing segment of the British market) and helped to expand the market both in terms of supply (drawing Chile and Argentina into the mix) and demand (introducing Fair Trade wines to the U.S. and other markets). Argentina is the biggest supplier of Fair Trade wines to the U.S. and the Fairhills Mendoza Vineyards Cab that I purchased at Cost Plus is part of that pattern. Organic Wine Trade Company distributes Fairhills here along with their other “ethical” wine products.

Whole Foods Market is one of the most important retailers of Fair Trade wine in the U.S., which makes sense since they sell so many other Fair Trade products (coffee, tea, chocolate, sugar, energy bars, body care products, flowers and rice according to one list). Other national retailers that stock Fair Trade wine include Sam’s Club, Target and of course Cost Plus World Market where I bought this bottle.

TransFair USA reports that over 120,000 cases of Fair Trade wine were sold in the U.S. in 2009, up from about 20,000 cases in 2008. The growth rate is a source of optimism, but the absolute quantity is relatively modest  – about the production of a single medium-sized domestic winery. TransFair says that the 2008-2009 sales produced a “premium” of over $130,000 that was returned to the grower cooperatives — quite a lot relative to the low wages they receive as farm workers. The distributor website reports that:

Fairhills Cabernet Sauvignon benefits the local farmers of Bodegas y Viñedos de Marañon and three small producers along with their farm worker community in Mendoza, Argentina.  The Fair Trade initiative is dedicated to ten farms to improve the quality of life for 210 members and 300+ children. The initiative is one of the first in Argentina and has used their sales to upgrade various schools in the region, purchasing new toys, establish a soup kitchen, and purchase an ambulance for the local health care center.  Future plans are to convert from conventional farming to all organic, building a sports club, and continue improving health care clinics and schools.

The journey that brought this bottle to my cellar is thus quite complicated. The wine comes from Argentina, but it wouldn’t have got here without help from people in faraway London and South Africa. The fact that this complex web can return community benefits to Mendoza farm workers is heartening, even if the amounts are quite modest at present.

The Future of Fair Trade Wine

Fair Trade coffee is easy to find these days — in fact it is impossible to buy anything other than Fair Trade coffee on my university campus. Fair Trade chocolate is everywhere, too. But Fair Trade wine remains a tiny (but growing) market niche. I wonder if this will change and what barriers Fair Trade wine must overcome to achieve the success of Fair Trade coffee? With this question in mind I’m starting a small research project to learn more about Fair Trade wine’s present market condition and future prospects. Watch this space for occasional related posts in the coming months.

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Thanks to Kazuko Golden at TransFair USA for helping me with statistics about the Fair Trade wine movement. Thanks to Leigh Barrick for sharing her research on Fair Trade wine with me.

Cooperatives and Fair Trade Wine: Unraveling the Paradox

My previous blog entry (see below) presented a paradox. Fair Trade wine might be an effective “ethical consumption” good, I speculated, because wine is one of the few products where consumers routinely know something about production conditions (the who, what, where, when, how and why) and so might be motivated by ethical considerations, such as the equity of grower payments or environmental impacts.

But Fair Trade programs are typically organized through grower cooperatives and coops have a famously bad reputation for quality (see previous blog entry for details). So the paradox is that  while wine might be an ideal Fair Trade product from the consumer standpoint, the cooperative production model dooms it to failure because of low production quality.

Sad, if true.  But is it?

Re-Thinking Wine Cooperatives

It is time that we reconsidered wine cooperatives because the old stereotypes do not always hold. From a statistical standpoint, cooperatives are far more important than most of us suspect.  My guess is that more of the world’s wine is made by cooperatives than by the all the huge multinational wine corporations put together.

The Oxford Companion to Wine reports that over half of all French wine production is by cooperatives (caves coopératives).  About two-thirds of German growers are coop (winzeverein) members.  Italian cooperatives (cantina sociale — see the vintage wine poster above) are responsible for as much as 60% of total national output.  Similar high proportions are reported for Spain and Portugal.  That’s a lot of wine!

Since France, Italy and Spain are the largest wine producers by various measures, it follows that a huge proportion ( perhaps 25% to 30%) of the world’s wine  comes from cooperative cellars.  Gallo, by comparison, accounts for about three percent of world production, if the calculations I made a few years ago are correct.

Within this huge puddle of coop wine there is great diversity.  Certainly there is a lot of bad or mediocre wine. Reunite, the Italian cooperative famous for its sweet Lambrusco, is an easy target if only because it is so large and ubiquitous. Some people say that Reunite destroyed the reputation of  Italian wine in the United States in the 1970s with its low quality offerings.

But there are a lot of well-made cooperative products, too. A recent supplement to Decanter magazine, for example, highlighted a number of very successful Italian cooperatives, including San Michele Appiano and Cantina Terlano in Alto Adige and Produttori del Barbaresco in Piedmont. These cooperative make some of the finest wines in Italy, consistently receiving top marks (three glasses) from Gambero Rosso.

Ugly, Bad and Good

So why do some cooperatives produce fine wine and others make plonk — and which kind of wine will Fair Trade coops make?  There is no simple answer to this question because there are several different motives that drive cooperatives with correspondingly different results.

Sad to say, some European cooperatives find themselves organized around national and EU regulations that have until recently given special benefits to cooperatives.  These are subsidy cooperatives and they have had little incentive to quality produce wine because they have been insulated from market forces. Changes in EU wine rules should put these cooperatives on the endangered species list.

Then there the political cooperatives.  Many of the coops organized in the 1920s and 1930s were motivated more or less by socialist or communist political ideologies. Their desire to earn short run revenue, and to share it equitably, often conflicts with the long run need to protect quality and develop markets.  If solidarity requires that no member’s grapes be turned away, no matter how poor their condition, how can good wine result?

Market forces are forcing the political cooperatives to upgrade their standards, however.  Payments are generally no longer based on tonnage alone.  Now ripeness (potential alcohol) and other factors are also considered in many cases. It is a necessary step in the right direction.

Finally, there is a group that you might call the efficiency cooperatives. They are motivated by fundamental market factors rather than subsidies or grower solidarity.  This is a diverse group of winegrowers who share resources in order to be able to afford costly up-to-date technology, the services of skilled winemakers (including the controversial flying winemakers) and even marketing expertise.

The best of these wineries, like Produttori del Barbaresco, have created valuable brands that must be protected at all costs.  Quality wine is the objective, cooperation is mainly the means that allows small individual growers to reap some of the advantages of a large scale operation.

Back to Fair Trade Wine

So what kind of wine will Fair Trade cooperatives produce?  The answer is that some of it will likely be very good,  as I have reported earlier.  But just as there is no reason to believe that all cooperative wine will be bad, there is nothing to say that all Fair Trade cooperative wine will be good.  It will depend upon the motives and actions of the individual producers.  Fair Trade wine, in other words, will be like other wine. Or at least that is my guess.

And that’s too bad, because the advocates of Fair Trade products would love it if “Fair Trade” became a brand that consumers associated with quality (and perhaps it will be).  But being Fair Trade won’t be enough. This wine, like others, will have to earn a place on the table.

Note: Thanks to Martin Cubertafond at Sciences-Po in Paris for insightful correspondence on this topic.

Cooperatives and the Fair Trade Wine Paradox

Fair Trade Communion Wine from Chile

My first taste of Fair Trade Wine was  very satisfying, as I explained in this space a few weeks ago. The New Direction Malbec that Sam’s Club has been selling for about $10 makes a strong first impression (it was named the world’s best Fair Trade red wine in a British competition) and makes me optimistic about this class of “ethical consumption” goods.

[The image at right is the label of a Fair Trade sacramental wine from Chile that is marketed to Catholic churches for Communion use-- can you get more "ethical consumption" than that?  Nice idea -- but 15% alcohol? Wow! Better keep an eye on those altar boys.]

Leigh Barrick, a student in the wine and society class I taught last semester, wrote a paper arguing that Fair Trade wine may be an especially good candidate for success because  many wine consumers are actually interested in the details of production and not just the final product.   If you don’t know or don’t care about who made what’s in your glass and how then ethical issues such as how much small growers are paid or how the environment is affected are difficult to motivate.

Wine is one of the few products we buy where we can frequently find the answers to who/what/when/where/how and why right on the label or on the promotional “shelf-talker.”  Wine is good, I tell my friends, but wine and a story is much better and a Fair Trade or sustainability story makes the wine experience more satisfying for many people.

A Fly in the Ointment

But Fair Trade is not a panacea.  Leigh argued, based upon her prior research into Fair Trade coffee programs, that there are many hurdles in the path of Fair Trade wine’s success.  One issue that I have been thinking about recently is the role that grower cooperatives play in Fair Trade programs.

Cooperatives have a generally poor reputation in the wine industry.  When I think of cooperatives the first thing that comes to my mind are those famously bad wines from poorly run cooperatives in the South of France.  You know the ones I’m talking about, the cooperatives where growers are paid by the ton pretty much regardless of the quality of the grapes they bring in.   The resulting wines are often thin, acid and tannic. These cooperatives  are a classic example of the Prisoners’ Dilemma, where collective interest and individual interests are at cross purposes.

The collective interest of the cooperative members is of course to produce good quality wine at a competitive price so that their “brand” (which may be just the village or region AOC classification) has some value and they can earn a decent living.  If the vineyards were owned and run by a single owner, with a specific interest in the brand, chances are that yields would be lower and quality would be the focus.

But, given that they are paid by the ton, each individual winegrower has a strong incentive to maximize yield. Quality generally suffers.  Any individual grower who sacrificed quantity for quality would get lower income without  significantly affecting the quality of the wine, since all the grapes dumped in the same press in a worse-case-scenario cooperative. As each grower responds logically to individual incentives, wine quality falls and the collective interest suffers. Europe’s lake of unsellable plonk is often blamed on the poor wines that this fouled-up incentive structure spews out.

Wait — It Get’s Worse

This image of wine cooperatives is enough to make you lose hope for Fair Trade wines, since they are typically made using arrangements centered on grower cooperatives (which act to distribute the higher payments and coordinate the communal investments that are the whole point of Fair Trade programs).  If you need grower cooperatives to make Fair Trade wine work, and if cooperatives make lousy wine because of their incentive structures, then the future of Fair Trade wine looks pretty grim.

The story gets worse when you look at French wine history.  French wine cooperatives were created to be Fair Trade organizations (although no one thought to call them that). As France industrialized and urbanized a hundred years ago, wine market power shifted from the growers, who owned the vineyards,  to the distributors and negoçiants, who controlled access to the big markets.

Negoçiants had what economists call monopsony power.  A monopolist is the only seller of a product and so can drive price up.  A monopsonist is the only buyer and so can push price down.  If the big negoçiant wouldn’t buy your just-picked grapes you were sunk, so growers were coerced (or felt coerced) into selling their grapes or wine for rock bottom prices. The negoçiants held the power because they could always buy grapes from your neighbor or the growers in the next village, but you had few options. Putting all your grapes back in the cart and shopping around for higher prices from another buyer in another town was not a very attractive alternative to taking whatever the negoçiant was willing to pay.

Will History Repeat?

Grower cooperatives were created to give growers protection from this cut-throat competition and to allow them to capture a larger share of the value of their production by banding together to negotiate a fairer collective price.  This sounds a lot like the motivation behind today’s Fair Trade groups. And it worked, too, according to the evidence I’ve seen, at least for a while.  But then the Prisoners’ Dilemma problem appeared and quality went down the drain.  Or at least that’s how the story is usually told.

Will today’s Fair Trade cooperatives suffer the same fate as their antecedents in the South of France and elsewhere in Europe?  Perhaps.  But there is reason to think the Fair Trade wine story might have a happier ending.  Watch for my next post on this topic.

Fair Trade Wine

p11802461A Sam’s Club purchase provokes some thoughts on a new wine movement.

The Economics of Ethical Consumption

Fair Trade products attempt to use globalization to offset some of the negative potential effects of globalization.  Global market forces can sometimes lead to the exploitation of natural resources and unskilled labor, for example. The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.

Fair Trade products and other ethical consumption goods seek to create a global market for products that provide more benefits to those at the first stages of the global product chain.  Some consumers are willing to pay a bit more for such products once they are aware of the problem and even a small slice of a global market can have real economic clout.  Global markets for ethical good thus have the potential to offset somewhat any “race to the bottom” forces and to educate consumers in the bargain. You have almost certainly seen Fair Trade coffee and I think Fair Trade chocolates are pretty widely available, too. Look for Fair Trade roses on Valentine’s Day.

Enter Wal-Mart

Sam’s Club, the membership warehouse store arm of Wal-Mart, is currently selling a Fair Trade wine called Neu Direction.  It is a 2005 Malbec from Argentina and I think it illustrates the potential of Fair Trade.  It is a very nice wine, much more interesting than its $9.99 price tag would lead you to believe.  It was judged the best Fair Trade certified red wine at a competition organized by The Independent of London in February 2008. Sam’s Club is the exclusive U.S. distributor.

According to their website,

Neu Direction Malbec benefits the local farmers of Viña de la Solidaridad (Vine of Solidarity), an association based on preserving the rich, cultural heritage of the contratista-landowner relationship.  Ten small vineyard owners and nine contratistas make up the association.  The contratistas lives on the land with their families and are paid a percentage of the grape harvest by the vineyard owners.  The association currently owns 200 acres of vineyards with about a third certified organic, with plans to convert more over the coming years.

The association members receive a guaranteed minimum payment for their grapes and revenues are also channeled to community development projects such as schools.  2008 was the first year of the U.S. Fair Trade wine certification program, which is administered by a NGO called TransFair.

Neu Direction makes the positive case for Fair Trade wine very well.  It is, first of all, an excellent wine at a good price and so can attract buyers on these merits alone.  It is distributed in about 450 Sam’s Clubs across the U.S.  and benefits from the built-in market that Sam’s Club members represent.  Sam’s Club (and Wal-Mart) gains in some small way through its association with “ethical” productions (Fair Trade, sustainable and organic products) and so has a reason to promote them.

Leigh Barrick, one of my students who has studied both Fair Trade coffee and Fair Trade wine, argues that wine may be well suited to Fair Trade markets because consumers are often better informed and more interested in the origins of and production conditions associated with wine than for most other consumer goods.  Wine enthusiasts are thirsty for information about where wines come from, who made them and how.  Fair Trade provides this information in a way that informs, educates and potentially produces social and economic change.  A good fit, Leigh says, and I agree.

A Case of Trade-offs

But Fair Trade wines aren’t automatically going to be winners.  First, not every Fair Trade wine is likely to be as good or as inexpensive as Neu Direction – or to have the Wal-Mart distribution system behind it.  More important, however, the Fair Trade system itself is full of trade-offs.

Fair Trade certification is necessary, it seems, to prevent the designation from being exploited or debased. But certification is often expensive and time consuming (this problem applies to organic or biodynamic certification processes, too) so many small producers may be unable to bear the cost. The benefits of Fair Trade wine are therefore likely to be unevenly distributed and may required financial sacrifice in the short run to achieve gain in the long run.

That’s not to say that Fair Trade isn’ta positive force,  just that it is not a panacea. It is just one new direction — a progressive one– among many in the world of wine today.

Photo by Michael Morrell, my chief inexpensive wine research assistant.We’d like to thank Michael and Nancy for their hospitality during our stay with them in Tucson.

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