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Vertical integration and the development of commercial wine production in Argentina, Australia and California, c1870-1914.

Despite the interest by the early European settlers, commercial wine production in the New World only developed in the late nineteenth century in response to growing urban demand, improved transportation and new wine-making technologies. By 1914 the industry was well established in a number of countries, and contemporaries noted that it had developed in very different ways to that in the Old World. In particular, the new large-scale wineries were dependent in a way they were not in Europe on specialist grape producers; wine producers were much more involved in marketing; and wines were often sold under brand names. Important differences also existed among New World producers themselves, especially with respect to the marketing and distribution of wine. In California a handful of merchants created a hierarchical organization, integrating horizontally and vertically, and investing heavily in advertising and brands to sell to distant consumers. This producer’s organization, the California Wine Association, controlled at one time about 80 per cent of the State’s wine sales, making it one of the world’s largest wine businesses. By contrast a British importer, Peter Burgoyne, created a buyer’s organization that distributed two thirds of Australian exports. Finally the Argentine industry was dominated by a dozen or so wine-makers which had only limited success at creating brands and integrating forwards into marketing. These firms, however, sold huge quantities of wine in a market where annual per capita consumption reached 60 liters by 1914, compared to just two in the United States and five in Australia. This paper explains why these organizational differences appeared. Section one looks at some of the different theories to explain why firms integrate vertically rather than rely on market transactions. It looks at the nature and degree of asset specificity found in the wine industry, and discusses the differences between producer-driven and buyer-driven commodity chains. Section two begins by outlining the nature of traditional viti-viniculture, and the exogenous changes that occurred over the period between 1870 and 1914 which encouraged the rapid growth of the New World industry. The appearance of specialist growers in the region can be linked to the excellent growing conditions for grapes, which allowed for better quality fruit that kept longer,